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By Ben Stupples
A tax revolution is taking place inside the U.K. government amid its post-election political deadlock.
Her Majesty’s Revenue and Customs, the U.K. tax authority, is expected to launch June 26 an online beneficial ownership register for trusts, giving HMRC unprecedented power to identify misuse of them.
From that date, the individual controlling any existing trust—an entity created to hold assets for the benefit of certain people or other entities—must provide information through the register about the people involved before the April 5, 2018, filing deadline. The registration requirement applies to any trust with a U.K. tax liability, regardless of whether they are located onshore or offshore.
“It’s quite a big deal,” Priya Dutta, a senior tax manager at London-based tax adviser Mark Davies & Associates Ltd, told Bloomberg BNA about the online trust register. “There’s a lot of information that HMRC are going to get, and you can imagine that they’re going to look into things very carefully.”
HMRC’s online trust register, which aims to boost tax transparency, comes as part of compliance with the European Union’s latest directive revision against money laundering, tax avoidance and evasion, terrorist financing, and fund transfer regulations.
The bloc’s 28 countries have until June 26 to implement the revisions into domestic law. However, U.K. Prime Minister Theresa May’s call for a snap election on June 8 prevented lawmakers from passing the final regulations, prompting doubts over whether the online register will be available June 26.
Since June 8, the Prime Minister has been unable to form a majority government after talks faltered with Northern Ireland’s Democratic Unionist Party, which would provide the parliamentary seats that she needs.
Emily Deane, technical counsel at the U.K.’s Society of Trust and Estate Practitioners, told Bloomberg BNA in a statement that HMRC promised the professional body that it would publish “detailed guidance” on the online register after the election. “We have not had sight of it yet,” she added.
The U.K.’s private wealth tax practitioners are looking beyond the online register’s June 26 launch date, according to Nimesh Shah, a tax partner at London-based accountancy firm Blick Rothenberg.
“We’re all working towards April 5, 2018,” the deadline for the first filing, he told Bloomberg BNA. HMRC’s lack of detail does mean “we’re shooting in the dark on what will be involved,” he added.
In a June 22 emailed statement, an HMRC spokeswoman told Bloomberg BNA that the tax authority and Her Majesty’s Treasury have been “further considering” responses to the anti-money laundering draft laws.
“A number of suggestions have been taken on board and these will be reflected in the revised regs,” the spokeswoman said.
“Due to the General Election, the laying of the Regs before Parliament has been delayed,” the spokeswoman added. “We expect the final Anti Money Laundering Regs to come into effect in short order.”
Through HMRC’s register, the person controlling a trust will disclose the social security numbers of U.K. residents, and the passport numbers of non-U.K. residents, involved in the trust.
Known as a trustee, the controller also must disclose a statement of accounts describing the trust’s assets and the country where it is administered for tax purposes, according to the draft legislation.
Collecting this sort of information will allow HMRC and U.K. law enforcement agencies to “draw links between all parties related to an asset in a trust,” the tax authority said in a March 15 consultation. In turn, that allows a “marked change” in their ability to identify and interrupt suspicious activities.
Rachel Davies, U.K. head of advocacy for global anti-corruption group Transparency International, commented on trust misuse by citing how loss-making entities can launder money and evade tax.
“Whether or not a trust makes a profit should not be a marker for whether the Government takes seriously the risk of money laundering,” she told Bloomberg BNA in an emailed statement.
Conversely, Sue Lawrence, U.K. managing director of global service provider TMF Group, highlighted the legitimate advantages taxpayers find from using a trust structure to hold their assets.
Parents can put assets aside for their young children while they can also protect a company’s holdings, she told Bloomberg BNA. “Trusts can take the emotion out of a decision,” she said.
Traced back, the U.K.’s trust laws are medieval, often used by feudal landlords to grant land to others.
More recently, tax increases have prompted a decline in the number of active U.K. trusts, with the special income rate for them jumping from 34 percent to 50 percent between 2004 and 2010, according to HMRC statistics on trusts.
Due to how trustees hold assets on behalf of others, identifying the ultimate beneficiaries of a trust can be a difficult task for tax authorities. As a result, trusts commonly face claims of being a source for tax avoidance and evasion, creating pressure for lawmakers to make them more transparent.
In February, European Parliament lawmakers voted to amend the EU’s latest anti-money laundering directive and create a public register of ultimate owners for companies and trusts across the bloc.
In April 2016, the U.K. became the first country to introduce a public beneficial ownership register, forcing company owners to provide details such as their name, date of birth and nationality. Yet the new ownership register for trusts is only available to the U.K.’s tax and law enforcement authorities.
The register “needs be open to the public so that firms can check who their clients are, civil society can detect if public funds are being stolen, and businesses and consumers can protect themselves from being victimised by crime,” Transparency International’s Davies said in a second statement.
Protecting the register’s data, though, is already a concern for private wealth tax practitioners.
Matthew Braithwaite, a private wealth tax partner at London-based law firm Bircham Dyson Bell, called for the register to “respect” the privacy of those identified through the filings to HMRC.
Meanwhile, Dutta from Mark Davies & Associates, which specializes in offshore trusts, said the register poses a risk of identity fraud if its information ever becomes available in the public domain.
“Weighing the benefit of making it public with the risk of fraud, it’s not a good idea,” she said.
HMRC’s trust register already “puts more and more burden on advisers to collect information for the government,” she added. “There’s nothing wrong with that, but it’s just more of an admin burden put on us.”
To contact the reporter on this story: Ben Stupples in London at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
HMRC's trust statistics are available at: http://src.bna.com/p4V.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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