In February 2021, French daily afternoon newspaper Le Monde published a database of the owners of Luxembourg companies which exposed the involvement of several dozen individuals involved in tax fraud, corruption and money laundering, writes Gerry Brown, chartered accountant and tax and trust specialist for QB Partners.
The database identified the beneficial owners of some 124,000 commercial companies registered in Luxembourg.
Many of these companies were established to hold assets of the internationally wealthy – footballers, golfers, actors – and many were established to hold real estate assets in desirable locations; London, Berlin, Paris and the south of France.
However, the database also revealed companies linked to the Italian Mafia, the Ndrangheta, and the Russian underworld.
The creation of public registers of beneficial interests as a tool in the fight against money laundering and terrorist financing is an objective of most countries.
UK review
In the UK, the House of Commons research brief has repeatedly said: “The government has since 2016 said it plans to launch a public beneficial ownership register for UK property. Despite being mentioned in the December 2019 Queen’s Speech, the government has not yet announced when it plans to bring forward legislation to implement such a register.”
In January 2021, the Office of Tax Simplification (OTS) launched a review, the Third-Party Data Reporting Review. This review, which is still ongoing, considers if, and in what ways, it would be helpful to individuals for different sources of third-party data to be submitted to HM Revenue and Customs (HMRC) on their behalf.
The OTS said: “[…] instead of millions of individuals having to provide to HMRC details of potentially taxable income and gains on their investments, the review will consider whether it could instead be uploaded by their investment or wealth management company and reflected in their online tax account or self-assessment return.
“In addition, many people who are eligible to claim relief for certain payments, such as higher rate relief for gift aid on charitable donations or pension contributions, do not currently do so.
“This review will consider whether this information could instead be reported to HMRC on the individual’s behalf by a third party and be prepopulated into their return or claimed through the online tax account, and the potential benefits and drawbacks of such an approach.”
This seems fine in theory. Investment platforms already hold vast quantities of information on investors’ income and this could relatively easily be fed to HMRC. The technology to do this already exists and works in practice – real time information on PAYE has been in operation for several years. The calculation of chargeable gains wouldn’t be simplified under such an arrangement.
What account could be taken of the position of UK residents, domiciled elsewhere, who can avail of the remittance basis? Data quality is always an issue. Does the UK taxpayer really want HMRC to receive information that is irrelevant to the calculation of UK tax liabilities?
Trusts registration
Also, the UK is in the throes of expanding the scope of trust registration to include a requirement to provide information on the beneficial ownership of ‘express’ trusts. There is a number of logical exclusions from the registration requirement.
Those trusts required to register must provide details of the beneficial owners to include the owner’s name, tax residence, nationality and the nature and extent of their beneficial interest.
Beneficial owners includes settlors, trustees, protectors, beneficiaries, or classes of beneficiaries. There is no public access to the register but, as might be expected, law enforcement agencies, including HMRC, will have access.
The rationale behind establishing the register was to prevent money laundering and terrorist financing so permitting such access is understandable.
‘Obliged Entities’ – basically entities subject to the anti-money laundering rules, and which will include most if not all financial institutions and advisers, will be obliged to confirm registration when conducting a business relationship with the trustees.
The legislation also permits ‘legitimate interest’ requests. Such a request must relate to a specified instance of suspected money laundering or terrorist financing and be part of an ongoing investigation. Speculative enquiries and ‘fishing expeditions’ will not qualify as a legitimate interest. Some third country entity requests will be possible where the trustees hold assets in a non-EEA country.
Not all these developments will impact financial advisers or their clients, though there will undoubtedly be compliance costs, but there is an inexorable drive towards disclosure. Clients rightly have an expectation of privacy in the conduct of their financial affairs, these three developments will be causes of concern.
This article was written for International Adviser by Gerry Brown, chartered accountant and tax and trust specialist for QB Partners.
