Lifting the veil

Michael Giraud and Verena Roberts reflect on global transparency legislation developments over the past five years.

Significant events occured in 2010: the first iPad was introduced (a technological milestone); Dubai's Burj Khalifa was opened (an engineering marvel); the Deepwater Horizon rig spilled into the Gulf of Mexico (an environmental disaster); an Icelandic volcano erupted (causing massive delays to European air travel); and, of course, the Foreign Account Tax Compliance Act (FATCA) was introduced (forever changing the financial industry).

For trustees globally, FATCA was a seminal moment as, among other things, it kick-started a wave of similar legislation aimed at promoting greater international transparency in financial services, with trustees being firmly within scope. To fully convey what this means for a Jersey-based trustee, it may be useful to mention a few of the most significant recent developments since the introduction of FATCA:

■  In May 2014, the Common Reporting Standard (CRS) was introduced - a global standard for automatic and multilateral exchange of financial information between tax authorities, developed by the OECD and modelled on FATCA in order to prevent cross-border tax evasion.

■  In April 2016, a new persons with significant control regime came into force, which required all UK companies (including those administered overseas) to maintain registers of people with significant control and to record their details in a new statutory register (the PSC Register).

■  In June 2017, the UK Trust Registration Service (TRS) was implemented, requiring all UK trusts and non-UK trusts with UK tax liabilities to report up-to-date and accurate records of their beneficial owners and potential beneficiaries to Her Majesty's Revenue and Customs through the TRS.

■  By 30 June 2017, every Jersey-registered company and limited partnership registered with the Jersey Financial Services Commission (JFSC) as at 1 January 2017 was required to file a return to confirm its current beneficial ownership and control and has since been required to notify the JFSC within 21days of knowledge of any change.

■  On 1 January 2019, the Taxation (Companies - Economic Substance) (Jersey) Law 2019 came into effect, passed as legislation targeting corporate structures, yet affecting many private client structures due to how wide the drafting is (this has been included as, despite not being directly linked to FATCA/CRS, the resulting workflows are quite significant).

The good news is that it does not stop here, and it is expected that the implementation of the EU Fifth Anti-Money Laundering Directive will add to the above, already long, list.

These newly introduced transparency regulations and requirements have changed the day-to-day business of a trustee in its entirety . Trustees have had to adapt their business processes, procedures, systems and staff training to be compliant, continue working with reputable financial organisations and, in certain circumstances, remain on the right side of their local legislation.

It is now the norm for a trustee to have specific teams set up to ensure compliance with the new legislation. The compliance and monitoring process for FATCA/CRS alone is onerous and includes an ongoing review of FATCA/CRS classifications, an annual review to identify reportable account holders, the annual reporting itself and keeping due-diligence documentation up to date.

A simple change, such as a change of tax residence for a settlor/beneficiary, now triggers multiple work streams with regard to FATCA/ CRS, the beneficial ownership register, the UK trust register or the PSC Register (as applicable), that need to be identified in a timely manner and processed.

We cannot deny that it is correct to have legislation ensuring that all persons/corporates, on a global basis, pay appropriate tax. However, one of the consequences of the glut of new legislation is that processes within banks and other financial service providers have become even more convoluted and drawn out. Account opening is now universally dreaded by trustees, irrespective of where they may be resident.

While some jurisdictions or providers may have historically chosen to disregard transparency legislation, the international nature of the new legislation, and the penalties for not abiding by it, makes the cost of ignoring it very high.

Despite the introduction of all the transparency legislation, trustees (as with all EU-connected companies) have also had to deal with the EU General Data Protection Regulation. This is also a piece of seminal legislation that addresses how information should be stored and transmitted, and sets out quite stringent penalties for  non-compliance. Therefore, trustees are in an unenviable position of spending capital to amend their working practices and implement systems to facilitate annual filings and the transmission of data, while at the same time implementing new systems and spending capital to ensure that information is kept private at all times. Isn't it ironic, don't you think?

 

Michael Giraud and Verena Roberts, ‘Lifting the veil’, STEP Journal (Vol27 Iss10), p.22, December 2019

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