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On June 29, Taxlinked.net successfully held its third online panel, a webinar dedicated to “Beneficial Ownership and Transparency.” Our esteemed panel of experts included lawyers, tax professionals, political activists and academics who came together to discuss, from various perspectives, the implications of new regulations aimed at curtailing the creation of anonymous companies.

Taxlinked.net members submitted a whole array of questions, which were covered in great detail by our guests. Here are the event’s main highlights.

For the event’s full transcript, go HERE.

Is Promoting Corporate Transparency & Disclosing a Beneficial Owner Necessary?

From the get-go, all panellists agreed that greater corporate transparency and disclosing a beneficial owner are necessities.

Peter Wilson, Tax Partner at Simmons Gainsford Global Tax LLP, says, “transparency is all about helping the governments of the world identify those who should be paying tax and maybe haven’t paid,” and allow them to “pursue those who haven’t fulfilled their obligations.” He also mentions, though, that “in the circumstances in which companies and the people behind those companies behave properly, one could argue that there isn’t a need to know who the companies are owned by.”

Robert Palmer, Campaign Leader at Global Witness, believes the world should return to “that idea of the [limited liability] company as a way of creating economic growth, not as a way of hiding what’s going on.” He is a big proponent of “not just governments needing access to information and company ownership, but also their business partners, their suppliers, their customers, their employees, journalists, politicians and academics.”

Alex Cobham, Director of Research at Tax Justice Network, agrees, “there is no good reason not to know who you’re doing business with and there’s certainly no good business reason.” He doesn’t see additional disclosure as an “unreasonable imposition” on businesses, but simply as “a straightforward movement back to the aligning of those rights and responsibilities.”

Finally, Maxim Shvidkiy, Managing Partner at SHFM Overseas Advisors, suggests transparency is positive as long as it is not “a block for the growth of the business” in the form of additional “transactional costs.”

The panel’s moderator, Geraldine Noel, Managing Partner at Acumum Legal & Advisory, shares Maxim’s concerns, adding “there needs to be a balance between transactional costs and the proposed laws or discussions around beneficial ownership registries.”

Trusts, Foundations and Other Personal Asset Structure Vehicles: How Are They Different?

Concerning personal asset structure vehicles such as trusts and foundations, our panellists agree that, as Alex mentions, “trust structures have different implications for the clarity of the beneficial owner.”

Alex approves of the way the US’s FATCA is dealing with trusts, and he believes the world “will increasingly see some agreement on the extent to which you can reasonably cut through trust structures in order to identify the beneficial owner and use that to reduce opportunities for abuses.”

Robert Palmer stresses the point that, regardless of the different ways used to manage assets, “you want to know who you’re doing business with and we don’t feel that people should use whatever structures are out there to hide their identity.” Furthermore, given his involvement in the development of the UK’s Beneficial Ownership Registry, he says companies “can apply to have their beneficial owner information not put in the public domain if they feel there’s a good reason, particularly over physical safety,” as in the cases of life science research and animal testing.

Maxim came back to the issue of transactional costs. In his business, he utilizes trusts given their flexibility for, say, employee co-ownership models, and he believes greater disclosure might be “too costly for business, and governments should provide the proper solution to this.”

Do Professional Advisors Have a Responsibility to Promote Transparency?

In terms of the professional responsibility of financial advisors, Geraldine and Peter are adamant in their position as advisors that “we owe an obligation to society to make sure that the advice that we give is in accordance with the rules and regulations.” Both agree, as Peter says, they “will not work for anybody who wants to pay no tax.”

Sadly, according to Robert, “there’s a small minority of advisors who are central to setting up these sorts of structures” that “facilitate corruption, money laundering or tax evasion.”

Why is a Public Registry to Find Beneficial Owner Information Needed?

Robert, who's been actively involved in the development of the UK Beneficial Ownership Registry, highlights why there’s a need for a public registry.

According to Robert, “the pressure for this came from law enforcement officials in the UK, who said they simply find it very challenging to find beneficial owner information in their own cases.” Furthermore, “there’s a lack of information and it’s probably worse in financial centres, such as the UK and certainly the United States, than perhaps it is in some of the more traditional offshore centres, where at least on paper the rules are stronger.”

Robert also sheds light on the actual legislation, which, as of January 2016, requires “all companies, registered companies and limited liability partnerships in England, Scotland, Wales and Northern Island to collect beneficial owner information” and, as of April 2016, “provide this information to the UK Companies House so that it will be available for the public.” The legislation does not cover the Channel Islands or foreign companies that register branches in the UK. Despite the legislation not being “comprehensive,” Robert believes “the UK’s step is a really important first step,” being “the first country in the world to do this.” And Europe, as established by the latest Anti-Money Laundering Directive, “will require member states to create central registries with different tiers of access for law enforcement, obliged entities, lawyers, accountants and the public.”

Alex mirrors Robert’s position, favouring public registries as a way of setting up “a system that picks up failures to provide accurate data, which we simply don’t have in most cases now, and taking the step towards reducing the scale of the problem.” In terms of the trade-off between privacy and the availability of information, he adds that additional transparency via a public registry will allow greater questioning by the authorities when, say, a European member state has “what appears to be a disproportionate number of cases where they agree to retain anonymity.” At the end of the day, there might be systematic and cultural differences in the implementation of public registries, he says, but there will a common push towards “greater transparency and accountability.”

Peter agrees with the need for central registries and believes there should be uniformity across the board to facilitate the exchange of information. He then suggests that a lot of information is already out there via global forum peer review reports, which might not be up-to-date but “set out a substantial amount of information on the local country legal obligation with respect to companies and trusts and how the revenue authorities deal with that.”

Regarding these registries, Maxim raises several concerns pertaining to foundations without any beneficiaries or trusts with minors as beneficiaries. He cites the case of large foundations in Sweden composed of many families who own huge financial industrial conglomerates and who technically aren’t beneficial owners. He questions whether it is viable to include this information in these central public registries.

What about Non-EU Countries, Public Registries and Beneficial Owner Information?

With regards to non-EU countries and their efforts to enforce greater transparency, Alex believes “there’s quite a good chance we’ll see something like a race to the top in this area.” Once some of the larger economies implement such regulations, Alex thinks pressure can be put on smaller jurisdictions, like the Channel Islands or the UK’s overseas territories, to adopt these changes. This process, he says, “has the potential to be a much more positive dynamic than that of the late 1990s when governments were putting some of the usual small offshore financial centres against the wall.”

Peter is a little bit more hesitant in terms of the desire of these non-EU jurisdictions to fall in line and adopt public registries. He cites the case of Hong Kong, which “doesn’t seem encouraged to sign up to a lot of the mutual assistance and multilateral exchange for information regulations that are coming about.” He does believe, however, that “if it becomes a requirement of the country that’s backing inbound foreign direct investment (FDI) to actually know who the owners are of the companies that are providing FDI, then, yes, there will be a move to greater transparency.”

Robert reiterates the fact that this push towards transparency is a global phenomenon being discussed at the G20, G7 and the United Nations. He also reminds us that this is a “step-by-step process” that should begin with the major financial centres, “see how it works in Europe and elsewhere, develop and refine the way in which it works, and hopefully get towards a global situation where you can’t use company ownership to hide what you’re doing.” The goal, at the end of the day, is to “close down the space in which the corrupt can operate.”

Maxim again brings up the need for a cost-benefit analysis. He would prefer that these transparency efforts focus on international money laundering and corruption rather than on companies that operate cleanly. Furthermore, he suggests that there should be an efficient, low-cost procedure to acquire beneficial owner information in order not to place additional burdens on legitimate companies.

Geraldine brings up an excellent point in that smaller jurisdictions that rely on financial services for survival may not want to embrace these types of legislation. Alex does believe “for some jurisdictions where the one advantage they have is a relative lack of transparency, then that is going to be a difficult process.” He adds, “it doesn't preclude them at all from conducting good financial business, but if they’re relatively dependent on more opaque business then it is going to affect their business model.”

Conclusions on Beneficial Ownership

Here are our panellists’ final thoughts:

• Geraldine Noel: “I hope these discussions do not divide the world into a “them and us” or bullying scenario. At the end of the day, what do we want? We want to end tax evasion and money going into drug trafficking, laundering and terrorism. That is the end, not to have a “them and us” situation.”
• Peter Wilson: “I do think there may be a bright future for low tax jurisdictions, in that they may be able to attract substantial banks or professional advisors to go and work there, which would then represent a bank of substance for the companies that are actually based there. Once the companies that are based there have a substantial substance in their own right, then purely from a tax viewpoint, the inquiries that the revenue authorities are going to make are to be less probing.”
• Maxim Shvidkiy: “I think that these particular offshore financial centres should change their model in the way of more substance in their territory, not just to have a paper company, but to have a real company, hiring local people to promote growth. And any sort of beneficial owner policy should be done step-by-step, year-by-year, not everything altogether or it will be a mess.”
• Alex Cobham: “It is important to reflect on the power dynamics and if it collapses back into putting pressure on small jurisdictions while the major economies don’t do their share, then it won’t provide the kind of benefits globally and it will be very unfair on those jurisdictions and the people who live there.”
• Robert Palmer: “I think it’s interesting that no EU state listed the United States in the EU Blacklist despite the fact that, out of every other country in the world apart from Kenya, it is easier to get an anonymous company there. From our perspective, we want to see the sort of world, society and economy where we have growth and business and entrepreneurship, but we also have accountability and transparency.”

For more information on the webinar, check our event’s page HERE.