Are you someone with ‘significant control’?

If you have ten minutes, you may like to go online and read Section 1, Schedule 3 of the Small Business Enterprise and Employment Act 2015, which has introduced new provisions to the Company’s Act 2006. In plain English, it is now necessary for a UK company to keep a beneficial owners’ register, which is open to the public. This register is to be known as the PSC register, the initials standing for ‘people with significant control’. The Small Business Enterprise and Employment Act contains five conditions of PSC status. You only have to fulfil one of these conditions and you are a PSC. The conditions are:

  • An individual holds, directly or indirectly, more than 25% of the shares of the UK company.
  • An individual holds, directly or indirectly, more than 25% of the voting rights in a UK company.
  • An individual holds the right, directly or indirectly, to appoint or remove a majority of the board of directors at the UK company.
  • An individual has the right to exercise or actually exercise a significant influence or control over the company, regardless of their shareholding or directorship.
  • An individual (or individuals) is a trustee of a trust or partner in a partnership that in turn allows them to exercise significant control.

The PSC register must be kept by all UK private companies, unlisted PLCs, guarantee companies and unlimited companies. It does not, yet, cover UK limited-liability partnerships, but this can only be a matter of time.

It should be noted that the PSC register must be kept available for inspection at its registered office or at a place specified in regulations under the Act. Rules regarding who may and may not search the PSC register are complicated. For example, individuals who wish to look at it need to supply their names and addresses as well as the purpose for which the information is to be used. There is nothing to stop people who have gathered information from PSC registers from imparting it to third parties. It is, however, possible for a company to write to a court in order to refuse an inspection, but the company has to prove that the information is being sought for a improper purpose. In a nutshell, good luck with that!

What information has to be recorded in the register? The name of the PSC, his or her country or state of residence, nationality, date of birth, service address and the nature of the PSC’s control over the UK company. What if you wish to keep your involvement in a UK company confidential? Beneficial owners will have to disengage themselves from significant control if they wish to avoid the PSC register. This suggests the use of trusts to own UK companies has become prevalent among the small majority of beneficial owners who require legitimate confidentiality. Other measures involving option agreements and split share capital arrangements also suggest themselves. However, these measures will require advice from a UK corporate lawyer.

The implementation of the PSC register has to occur by January 2016; though, if you think you may be affected by these new rules, it is worth taking action now.

Common Reporting Standards

The new PSC register in the UK is part of a worldwide movement by governments towards greater transparency. Various governments and organisations, including the United States, the Organization for Economic Cooperation and Development (OECD), the G20 and the European Union, have been driving to ensure that personal privacy is a thing of the past. Between them they have been instigating a range of legislation and initiatives that include the Foreign Account Tax Compliance Act (FATCA) in America and the revised EU Savings Directive (EUSD) in the European Union. Nor should one forget the multilateral Convention on Mutual Administrative Assistance in Tax Matters (CMAATM) or the Automatic Exchange of Information legislation. Finally, we now have something called Common Reporting Standards, or CRS.

Perhaps the best way to explain the CRS is to point out that until recently a tax authority in one country requiring information from a tax authority in another country always had to ask. This, of course, suited taxpayers because unless you were suspected of wrongdoing there was no reason why information about your bank accounts and shareholdings would be shared. If your tax authority didn’t ask, they wouldn’t be told. Things are a-changing. Over the next few months (by September 2017 at the latest), almost every offshore location in the world will be pushing information about its bank account holders to the jurisdictions where those bank holders are resident. Therefore, if you are a British citizen living in, say, Malta with accounts and other assets in Switzerland, Luxembourg and Panama, you can expect all those countries to be sending information to both the UK and Maltese Governments, without ever being asked. Moreover, the details contained in the reports can be quite extensive including: name, address, date of birth, bank account number, account balance/value and income/sales or redemption proceeds. Your tax identification number will also be disclosed, thereby making it much easier for the receiving jurisdiction to identify who you are. Basically, hidden assets are going to be disclosed to your home tax authority, whether you like it or not.

So what should you do if you don’t like the idea of information about your bank accounts or other assets being sent to your country of residence? Well, to begin with, I am afraid to say you have to forget any hopes that the information will not find its way to the relevant authority. Every jurisdiction in the world of any note has signed up to the CRS.

Your options are, I fear, fairly limited. You can clean up your tax affairs in advance in the hope of avoiding future problems. Many countries are now offering disclosure programs with agreed fixed penalties and freedom from prosecution. You can emigrate (as a new emigrant, you have no tax history). You can try to move your assets to a country that hasn’t signed up to the CRS, although these tend to be rather less stable jurisdictions.

One final point on this rather depressing subject: in anticipation of the movement of people and assets offshore, the UK Government has brought in some new legislation entitled the Offshore Asset Moves Penalty (Specified Territories) Regulations 2015. Basically, this legislation seeks to penalise taxpayers who move their assets (or themselves) in an attempt to avoid the effects of the CRS. If you move your money or your personal residency from a prescribed to a non-prescribed jurisdiction then you will attract an enhanced penalty if you have undeclared tax liabilities. Finally, countries such as Thailand are not prescribed jurisdictions so if you decided to move there in, say, your retirement you could be labelled a tax avoider.

Global transparency is definitely here to stay. There is still plenty that can be done by individuals wishing to ensure their privacy, but if such confidentiality is important to you, you should be acting now while there is still time. Inevitably, a guarantee of anonymity is going to come at a price.