PR or New Trend in Tax Planning?

PR or New Trend in Tax Planning?

By the end of 2020 the British Overseas Territories will have to introduce public registers of beneficial owners of local companies.

This follows from the UK Government decision to back amendments to the Sanctions and Anti-Money Laundering Bill.

This concerns fourteen territories that remain under the jurisdiction of Great Britain but do not form part of it, including offshore financial centres in the Cayman Islands, Bermuda and the British Virgin Islands.

For a long time both the British government and local administrations opposed the measures arguing that the territories have autonomy and that the change can cause serious damage to local economies, which depend on financial services.

However, faced with a real possibility that the bill would be adopted by the opposition anyway, the government decided to join and supported the changes.

The law will require the Overseas Territories to create a public register of beneficial owners for all companies registered in their jurisdiction. If by 31 December 2020 a territory does not create such a register, it will be imposed by the UK government.

The declared goal is to combat financial crime in the Overseas Territories.

Earlier, the UK has already taken certain steps in this direction. In April 2017, the government demanded that overseas and dependent territories grant access to such registries to the UK government. The new law, however, goes further. It seeks to create open registries for public access, including foreign governments and individuals.

This should hamper corruption, money laundering, tax evasion and, overall, make the territories less attractive to criminals.

However, the bill can’t solve this problem.

Firstly, it does not apply to the Crown dependencies. These are Guernsey, Jersey and the Isle of Man, also offshore centres. However, they have greater autonomy and the UK can’t force them to adopt the law.

Secondly, the new law does not apply to a number of legal instruments, for example, trusts.

It is likely that criminals will simply transfer their operations to other jurisdictions, such as Delaware, that offer a high level of secrecy and a low level of taxation. The adoption of this law, therefore, will improve the image of the UK but it will have limited practical effect in the fight against financial crime.

The law will complicate operations for those who use the territories for legal tax planning which, in turn, may lead to the loss of some legitimate business by these territories.

Apparently, the overall goal of the bill is to improve the perception of Britain. The British government has been criticized for closing its eyes to what is happening in its overseas territories and for hindering the efforts of international community to combat tax evasion and financial crime.

The amendment, therefore, has as its aim, first of all, to change this image.

It should be noted that the bill is being adopted at the same time when the Financial Action Task Force on Money Laundering (FATF) is examining the efforts of the British government to combat money laundering. The report is expected at the end of 2018. It is very important for the UK to get a positive assessment by FATF as this will have an impact on its status as a business location after leaving the EU.

The refusal to take action against offshore companies in the overseas territories will be negatively assessed by FATF. The UK government wants to avoid this.

Finally, the bill shows a trend towards transparency about beneficiaries as a new reality, first identified by the Panama papers and then by others.

In June 2016, the UK established a public register of "persons with significant control" for companies and limited liability partnerships.

The extension of these measures to UK Overseas Territories will gradually increase pressure on other offshore jurisdiction and they, eventually, will have to follow suit. Although this will not happen immediately, this will be the most important long-term effect of the British law.

The EU’s forthcoming Fifth Money Laundering Directive (5MLD) will require the member states to expand the regime of disclosure of beneficial owners to certain types of trusts. We can, therefore, make a good guess about the direction in which the situation is going to develop.