Transparency & Data Protection: Is the Pendulum about to Swing Back?
We're back from Barcelona following Beyond Borders, our very successful second annual international tax conference, and it's time to share some of the presentations and discussions with all of you.
Our first keynote speaker was Filippo Noseda, a Partner with Mishcon de Reya in the UK, who wowed us with his funky turquoise shoes and passionate and entertaining screed on how our fundamental rights to data protection and privacy are being trampled by initiatives such as FATCA, CRS, beneficial ownership register, DAC6 and the like.
Here are some of Filippo's most memorable quotes!
On the Sheer Size of the Automatic Exchange of Information & Its Danger
Filippo Noseda: "Last year, the European Union published a report, which confirms that in the first year of automatic exchange within the EU, there was an exchange in relation to 8.2 million accounts, those were all high value accounts, i.e., accounts with a balance of $1 million of equivalent or over for an amount of 2.9 trillion Euros. Now I'm a poor lawyer, I don't quite understand what a trillion is, I understand it's a lot, so I try to find some comparables. Does anyone know how much 3 trillion Euros is? Well, it's the combined market capitalization of Microsoft, Apple and Amazon."
"The biggest private bank in the world, which is Bank of America Merrill Lynch, has got under management $2.7 trillion. UBS, the biggest Swiss private bank, has got $2.3 trillion. So, effectively, what the EU did last year took the whole database of UBS, put it on emails and sent it to 27 other countries. You can imagine the kind of information that we've got and the kind of risks that we have…but this is where we are at the moment and nobody actually said anything. You know we complain about so many things nowadays…but when the European Union said that, effectively, the whole database of UBS was put on emails and swapped between tax authorities, including the tax authorities in Bulgaria whose tax database was hacked, nobody said anything. We've been so beaten by the CRS and FATCA into submission; we simply accept it is part of life."
On the Limits to Your Right to Privacy
Filippo Noseda: "Article 26 of the OECD model was consistent with the European rights of privacy because Article 8 of the European Convention on Human Rights (and Article 5 of GDPR) says that anyone has got a fundamental right to privacy. However, that right is not absolute. The authorities can, of course, limit my right. For example, if I go to the airport with a hand in my jacket, a policeman can stop me, and if I say, 'Sorry, it's my private life.' What is the he or she going to say? The policeman is going to say, 'Sorry, I'm allowed to look under your jacket.' Because he or she needs three things. First, there is a law and you might have regulations in the airports. Second, it's in pursuance of a public objective. What public objective would the police officer be pursuing if he or she wants to look under my jacket? Security or prevention of crime, absolutely. Those are public objectives recognized under the European Convention of Human Rights. But, third, the request must be proportionate. It must be necessary to achieve the objective. So if he says, 'Can you take the hand out of your pocket?' that's proportionate. If they say can I put a finger up your…maybe that's not proportionate."
On CRS Being Deadlier than FATCA
Filippo Noseda: "People say it's FATCA on testosterone. I call it like a Zika mosquito. It's like a mosquito; 99% of its DNA, it's a mosquito. But then you have a bit of a mutant gene that makes the mosquito deadly. And what makes the CRS deadly by comparison to FATCA is that, in relation to passive entities, i.e. to trust companies and foundations holding a bank account effectively. In order to look behind that structure, whereas FATCA says, 'Tell me who is the US taxpayer,' the OECD borrowed the concept of controlling person that the FATF had for years developed or been developing for KYC for anti money laundering. Now, if you are a compliance officer, and your concern is to find Pablo Escobar and Pablo Escobar's lawyer tells you, 'Oh, yeah, Mr. Escobar is the founder of the foundation. But you know what, under Colombian law, he doesn't owe tax, and therefore you shouldn't get information about him.' Would the compliance officer care if his or her task is to fight money laundering? No, whereas FATCA and the CRS were introduced to fight tax evasion. So whether or not someone owes taxes or not should be relevant, but because the CRS borrows the very wide definition of controlling persons from the KYC and AML world, now you have the Zika, which is a system that provides information for the sake of information without any connection anymore with taxation."
On the Huge Disconnect Between Two Industries over Transparency
Filippo Noseda: "Does CRS allow for any opt out? Can you go to the bank and say, 'Dear bank, I live in Malta, and I have a bank account in Lebanon. I'm concerned that the Lebanese tax authorities might not deal with my data properly, and therefore, dear bank in Lebanon, the account here at the bank in Lebanon is declared in my tax return with a signature and the print and actually a receipt.' What does the bank in Lebanon say? 'I don't care, I must declare the information.' What if you come with an opinion that says I am a beneficiary and like in America I'm not taxed until and unless I receive distributions? What does the bank say? 'I don't care.' So we wrote to the UK tax authorities and they said to us that it doesn't matter because to allow people to come with excuses would perpetuate tax evasion and would become very costly so it's a question of cost of implementation. But this runs against the principles of data protection as they've been outlined, stressed upon and decided by the European Court of Justice and the data protection authorities."
"So, as a result of that, there was this huge disconnect between the tax world and the finance industry over here, which actually say, 'We must have more transparency and, unless we have more transparency, we are not a good country.' So if you look at Bermuda's announcement on the beneficial ownership registers, they said two days ago, 'We are at the forefront…' Forefront of what? Forefront of trampling upon human rights, it doesn't matter. In the finance, banking and tax world, transparency in DAC6 and BO registers is the way forward. But, over here, the courts and the data protection authorities said we have real concerns."