What price privacy?

In the next few months, financial information that was once private is to be made public or shared with tax authorities around the world. But at what cost? 

In years to come we may look back at the publication of the Panama Papers as a defining moment in the relationship between law enforcement, tax authorities and citizens. Since 3 April 2016, there have been a significant number of national and international initiatives prompted by the information on Mossack Fonseca’s clients and professional contacts that fell into the public domain.

At an international level these initiatives have included:

• major revisions to the 4th EU Anti Money Laundering (AML) Directive
• JITSIC (OECD) project on information sharing and international collaboration
• EU Consultation on disincentives for advisers for potentially aggressive tax planning schemes.

In the UK, recent initiatives include:

• an investigation into the effectiveness of AML regulations
• the creation of a register of trusts with tax consequences
• disclosure notices served on targeted trust and company service providers (TCSP)
• HM Revenue & Customs (HMRC) investigations into individuals and professional advisers implicated in the Panama papers.

In 2017 we will see the first reports submitted under Common Reporting Standards (CRS), following on from earlier agreements covering the USA (FATCA) and the Crown Dependencies and Overseas Territories (CDOT). In 2018, MIFID II will come into force under which legal entities, including trusts, will be required to obtain Legal Entity Identifiers (LEI) in order to enter into investment transactions. 

Blurred lines

While moves to share financial and other information are aimed at the prevention of tax evasion, money laundering and illicit finance, concern is growing at the erosion of privacy. In the same way that there has been a deliberate misrepresentation of the difference between tax evasion, tax avoidance and tax planning, the distinction between deliberate concealment, secrecy and privacy has also become confused.

Although in the forefront of jurisdictions that will make information on the beneficial ownership of companies publicly accessible, the stance of the UK Government is to keep ownership of trusts private via a register to be maintained by HMRC rather than Companies House. The information it contains will be available to law enforcement agencies. Meanwhile, the French Constitutional Court has annulled the recent law creating public registers of trusts, which had been created from wealth tax returns. It is yet to be seen what effect this will have upon similar EU proposals.

For a more in-depth look at these issues, please email info@nexia.com.

For more information, contact:

Wilson Cotton
Smith & Williamson, UK
T: 020 7131 4224
E: wilson.cotton@smithandwilliamson.com
www.smithandwilliamson.com 

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