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European tax authorities to gain access to beneficial ownership information


The European Council of Ministers has agreed to grant tax authorities access to information on the beneficial ownership of companies.

Member states must enable access to the information from 1 January 2018.

A person is considered to have beneficial ownership of a company where they benefit from ownership of that company even though the title to that company is in another person's name. The term can also refer to individuals who, directly or indirectly, have the power to vote or influence decisions on a specific security, such as shares in a company.

Information on such ownership is important in preventing money laundering, the Council said.

"The EU has made significant progress in recent years to enhance tax transparency and strengthen cooperation between the member states' tax authorities [but] media leaks such as the Panama Papers, revealing large-scale concealment of offshore funds, have highlighted areas where further measures still need to be taken. The transparency framework must be further reinforced at both EU and international levels," the Council said.

Millions of documents reportedly detailing the use of offshore tax structures in Panama by some prominent public figures were obtained by the media and released in April 2016.

Tax authorities need access to information on the beneficial ownership of intermediary entities and other relevant customer due diligence information, the Council said.

"The directive will enable them to access that information in monitoring the proper application of rules on the automatic exchange of tax information," it said.

"Where a financial account holder is an intermediary structure, financial institutions are required to look through that entity and report its beneficial ownership. Applying that provision relies on information held by authorities responsible for the prevention of money laundering. Access to that information will ensure that tax authorities are better equipped to fulfil their monitoring obligations. It will thus help prevent tax evasion and tax fraud," the Council said.

Tax expert Tori Magill of Pinsent Masons, the law firm behind Out-Law.com said: "Central registers of beneficial ownership will play an important role in shining a long overdue spotlight on the insalubrious side of the traditional haven jurisdictions who market secrecy. The right to privacy does not and should not extend to secrecy."

"Sanctions for jurisdictions that fail to operate or exchange beneficial ownership data will be necessary to give the proposal teeth, though in the current climate the implications of using a structure that utilises a non-compliant jurisdiction will perhaps mean the risk of reputational damage outweighs the perceived benefits," Magill said.

The UK established a beneficial ownership register earlier this year.

"This covers more than just the British Isles," said Magill. "Shell entities were involved in 70% of corruption cases reviewed by the World Bank in the 30 years to 2010. The US was the main provider of these shell entities, followed by the UK’s Crown dependencies and overseas territories."

"It is significant therefore that all the British overseas territories have now agreed to central registries which will be accessible to law enforcement authorities," she said. "The UK has also recently drafted an amendment to the publication of tax defaulter’s details legislation to allow the beneficial owner to be ‘named and shamed’. Beneficial ownership registers have an important part to play in both the detection and deterrence of tax evasion, and the UK must get its own house in order before pointing the finger at the emerging markets."

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