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Private client community divided by public disclosure plans

Private client community divided by public disclosure plans

Plans to make public the key beneficial owners of companies, trusts and limited liability partnerships have accelerated recently, with the government pledging to bring in legislation ‘as soon as possible’.

The initiative, first unveiled at the G8 summit last year, forms part of global efforts to crack down on tax evasion, and the UK government was vocal about stopping its citizens from using shadowy ‘shell companies’ for money laundering.

These structures are often very complex and make it almost impossible for HM Revenue & Customs to know who the ultimate owners are, and thus whether they are liable to pay tax.

The scheme will be implemented via a central register, which will require companies to disclose the details of individuals who own more than 25% of shares or voting rights and who are the true beneficiaries of the structure.

In mainland UK, this register is already being set up, and prime minister David Cameron (pictured) recently wrote to the overseas territories, including key banking hubs such as Jersey, the Isle of Man and the Cayman Islands, requesting they create a similar arrangement if they have not already done so.

‘I am firmly of the view that making company beneficial ownership information open to the public is by far the best approach. It will give businesses and individuals a clearer picture of who ultimately owns and controls the companies they are dealing with, and make it easier for banks, lawyers and others to conduct due diligence on their customers,’ he said.

Alan Binnington is president of the Jersey Association of Trust Companies and a private client director at RBC Wealth Management. He agrees it is necessary for service providers to provide details of companies and trust structures but questions how useful it will prove to make these publicly available.

‘If the UK does end up with a register of beneficial ownership, the information is likely to be of dubious value because the people that actually administer companies in the UK are not regulated. Therefore there is no check on the quality of the information being captured,’ he said.

Data protection clash

John Barrass, deputy chief executive of the Wealth Management Association, stressed that while we don’t yet know what the exact wording of the legislation may be, there could be questions raised about putting this information in the public domain, not least a potential conflict with the Data Protection Act.

‘There is a drive to get a register that is properly ring-fenced, and the concern is getting the right balance. The data protection side of this requires privacy about the information that risks being released in the share register. We need to make sure this law does not come into conflict with another law.’

He noted that while this is part of a global effort to reduce tax evasion, the definition of a trust varies greatly between countries. In the UK they are easy to form, and are frequently used for legitimate purposes, for example, by a couple wanting to set up a university fund for their children. This legislation could potentially mean that in such a scenario, their names and addresses would be placed in the public domain.

Ronnie Ludwig, a partner at accountancy firm Saffery Champness specialising in tax planning, welcomed the reform. He said it was ‘long overdue’.

However, he warned it would not work unless it was a globally coordinated effort so tax avoiders could not simply move their assets between complex offshore structures.

‘I think if an enforceable set of rules and procedures are put in to place, that has got to be better than what we have at the moment. Companies House just tells you who the beneficiary is in the Bahamas and then you are going to get nowhere,’ he said.

Ludwig said individuals who were paying the correct amount of tax had nothing to worry about.

‘If you are a private client, you do not have anything to do, providing you have told your accountant or adviser about your structure,’ he added.

Meanwhile Richard Corrigan, deputy chief executive of Jersey Finance, supports access to more information up to a point. 'Regarding public registers of beneficial ownership, we strongly believe in law enforcement agencies and tax agencies having access to information that is relevant to how they discharge their responsibilities on a domestic basis: however I see no reason why that information should be made available to the general public.'  

Timeline

June 2013: Chancellor George Osborne pledges at the G8 summit to set up a UK register of beneficial ownership. He says in future, companies should know who owns and controls them, and their beneficial ownership and basic information should be adequate, accurate and current.

July 2013: Business secretary Vince Cable launches the Transparency and Trust paper to tackle opaque company ownership structures and improve the accountability of company directors.

October 2013: David Cameron commits to making the register publicly available at the Open Government Partnership Summit.

April 2014: Cameron writes to the overseas territories, asking them to follow the mainland UK example and establish a publicly available register showing the beneficiaries of trusts and companies domiciled in their region.

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