On May 20, 2015 the 4th EU Anti Money Laundering Directive was adopted and new rules of the game were set. Investigations such as Panama Papers contributed to the implementation of this Directive, the main objectives of which are:  Better transparency and decreasing the chances of money laundering and terrorism financing. To reach this goal, it was proposed to create a special register across the EU, which would contain information on the Ultimate Beneficial Owners (“UBO”) of the Companies (and for trusts: beneficiaries, settlers, and trustees). A UBO is a person who holds at least 25% of the ownership (and/or control) in the Company.

Such register already exists in countries like Singapore, Cayman Islands, and the British Virgin Islands, however, these registers are not connected among each other, while the registers in the EU will be harmonized and be accessible for the governments across all member states.

 February 2_2018

What kind of information will be shared?

On the implementation stage different states opted out for different approaches. Some states decided to limit the information only with the basic data (like Germany):

  • Name
  • Month and year of birth;
  • Nationality;
  • Place of domicile;
  • Information on the nature and extent of economic interests held by a UBO

Some other countries introduce additional information (like France). For instance, for some authorized parties the following information will be available as well:

  • Address;
  • BSN or TIN (a foreign taxpayer identification number);
  • Information about the ID or passport or alike document (number, date, and place of issuance) or a copy of such document;
  • Documents which prove the nature and extent of economic interest held by the UBO.

In some cases, the register is publicly available (Denmark, Finland, Sweden and the United Kingdom) and in other cases, a requesting party shall show a “legitimate interest” to access the database.

Does this mean less compliance work for Financial institutions and registered agents?

In fact, it means exactly the opposite. This task not only requires to maintain the database and update the information at the UBO register accordingly but also to conduct own searches (as it goes currently) to make sure, that a client is compliant.

What would EU achieve with this?

The main objective to achieve is the fiscal transparency in the businesses across Europe. Using nominee shareholders and directors, abusing the Institute of fiduciaries reached an alarming level and bad publicity (mainly thanks to PanamaPapers), which wiped out the initial purpose of these business solutions. The number of company registrations in EU might drop¸ since interested parties have already started considering alternative jurisdictions. Except for well-known ones (e.g. Switzerland, Singapore and HK), other countries take up a niche as well (New Zealand, Mauritius).

Such a transparency will secure better tax compliance across member states, however, for big investors, this might be a trigger to leave the market. For personal security and privacy reasons, wealthy investors will fear for their well-being and will either try not to disclose their identity or move their businesses outside of the EU.

A transparency of this degree can be seen as a house without curtains, where you are free to do whatever you feel like, but it is still not entirely a comfortable feeling.

Would there be a forum shopping for businesses?

The answer is yes and not because one country will implement and the other not, but because the implementation will be different. Already today we witness how for example the Netherlands, the UK, and Luxembourg decreased their Corporate tax rates to attract more businesses. This means, that sometime soon similar business solutions (for instance Holding Companies) will have nearly the same treatment across all EU states and then it will be merely a question whether the investor would like to list, for example, his Date of Birth or passport number in the register or not. Maybe this is a minor item for a forum shopping, however, it still does provide some sort of a privacy.

Domestic legislation of member states is constantly changing, which over the time can open a new window for escaping the UBO listing or some alternative tax driven solutions.

These solutions are so-called “Advance Tax Rulings”, whereby multinationals would make a special arrangement with the local governments for more favourable fiscal grounds. Such regimes are widely used for example in the Netherlands and Luxembourg. Thus, if a company can obtain such treatment, why would it fear or escape any UBO listing? There would not be a need for sophisticated corporate structures because they will be revealed by the Register.

Possible escapes

It is a common belief, that it is impossible to invent an ideal system. However, from its inception, this directive left a big getaway for the practitioners and this loophole was in full use even before the implementation phase commenced. For instance, some solutions can be:

  • Swiss Company (S.A.-Société Anonyme)
  • Swiss Trustee (once a client chooses Swiss law a governing law of the trust, it will fall outside of the EU jurisdiction)
  • In the proposed bill in the Netherlands, the trusts are excluded
  • In Estonia, certain types of Partnerships will benefit as well

The implementation across Europe is still not finalized and as of today, it is risky to follow a road which might be the wrong one. More certainty in the later stage will bring more escapes. Nevertheless, this would be completely against the spirit of the Directive and a valid question would arise: “why would you like to escape if you have nothing to hide?”

With all various types of tax compliance reporting across the world, it seems that the level of trust among businesses and the governments is low as never before. Such directives will not fix the problem, but it might somehow become a trigger for a better solution, where governments will develop more flexible taxation system across the EU.

Gayk Ayvazyan for ApricotLawyer.com

ABOUT THE AUTHOR
GAYK AYVAZYAN LL.M. – IS AN INTERNATIONAL LAWYER, A GRADUATE OF THE UNIVERSITY OF AMSTERDAM (THE NETHERLANDS) IN “INTERNAL TRADE AND INVESTMENT LAW”. CURRENTLY WORKS AS A CORPORATE LAWYER. HIS MAIN FIELDS OF INTERESTS ARE POLITICS, INTERNATIONAL LAW AND INTERNATIONAL TRADE.

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