CRS and Charities continued…

donating to charity - giving money - piggybankHMRC has posted its international automatic exchange guidance on the government website, following another meeting held with STEP and charity advisors: International Exchange of Information Manual. The charity guidance will be posted within a week, the HMRC working group promises.

Attendees at the meeting discussed the mechanics of the due diligence process of charities in more detail; in particular, self-certification and tax residency. All beneficiaries and the gifts that they have received must be reported by a charity that is a Financial Institution (FI). Their name, payment and residency must also be reported, and there will be a tick box for UK residency.

In some scenarios, where charities are donating to the homeless and/or destitute, HMRC confirms that it will be difficult to obtain a self-certification of the beneficiary. In these circumstances, if the gift is being made in a reportable jurisdiction, the self-certification can be verified on a verbal basis. It can also be assumed that an apparently homeless person is tax resident in the country that they are present in at the time of the gift. No supporting documentation is required by HMRC if the question of residency appears acceptable, and adheres to a common sense ‘reasonableness’ test. Generally, no follow up of the beneficiary is necessary on this basis.

It is only necessary to acquire the beneficiary’s Taxpayer Identification Number (TIN) when they are resident in a country that provides them (Reportable Information: Tax Identification Number), and when it is reasonable to be able to acquire it. The tick box on the form for the TIN will be optional.

Gifts under approximately £100 (to be confirmed) are not reportable in non-reportable jurisdictions. Food and supplies that are donated are not reportable, and vouchers, whether cash or otherwise, are currently being considered.

HMRC confirmed that there will be a £300 fine for not submitting a report on time and a higher fine for delayed failure for a reporting entity. However, the £300 figure is currently under review and may be increased. There will be a £3,000 fine for an inaccurate report as a result of ‘deliberate behaviour’.

STEP’s meetings with HMRC are conducted on a monthly basis, however HMRC is to run more events with financial entities that will be affected by CRS (the OECD Common Reporting Standard) in order to provide further training.

In the meantime, we welcome any specific queries or input from practitioners which we will pass on to the working group for clarification. Please contact us at policy@step.org.

 

Emily Deane TEP is Technical Counsel at STEP

Registers of beneficial ownership – the end game?

George_Hodgson-2016On Friday (22 April) HM Treasury announced that a further 19 countries have now joined the UK-led pilot project launched with Germany, France, Italy and Spain for the automatic exchange of information on beneficial ownership. These include the Netherlands; Romania; Sweden; Finland; Slovakia; Latvia; Croatia; Belgium; Ireland; Slovenia; Denmark; Malta; Lithuania; Cyprus; Bulgaria; Portugal; Estonia; Greece; and Czech Republic.

Following this, the Informal ECOFIN meeting of finance ministers of all 28 EU member states ahead of the Netherlands Presidency announced that they welcomed the fact that ‘all member states’ will enter into a pilot project for the automatic exchange of information on ultimate beneficial owners. In addition, they also announced that the Netherlands Presidency will take forward and broaden the work on the amendment to the 4th Anti-Money Laundering Directive (which will be submitted to the European Parliament and the Council in June). Ministers encouraged the Commission to ‘consider improvements to address certain issues linked specifically to money laundering, in particular to enhance accessibility of beneficial ownership registers on corporate and other legal entities, as well as on trusts and similar legal arrangements, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership between authorities, and strengthen customer due diligence rules.’

At the recent FATF meeting in Vienna that STEP attended there also growing pressure from the banks to allow them access to any beneficial ownership registers, even if the general public is not allowed access.

Add all this to the announcement from the OECD that the G20 has asked the Global Forum and the FATF ‘to make initial proposals by October 2016 on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information and its international exchange’ and it is clear that international policy agenda has shifted fundamentally since the ‘Panama Papers’ story broke, and few would rule out it shifting further still as more leaks emerge.

We suspect many people will be struggling to keep up with the sheer volume and speed of the announcements now coming out in the area of transparency. To this end we are therefore very fortunate to have the head of CRS implementation at the OECD and a leading spokesman from Transparency International, as well as leading practitioners, joining us for in-depth discussion on these issues at the STEP Global Congress in Amsterdam on June 30- 1 July. This will no doubt provide crucial insight into just what is the end game, and how we can move forward.

George Hodgson is Deputy Chief Executive of STEP

Terrorist financing discussed in Vienna

Vienna ferris wheel. Photo Sean SmithThe Financial Action Task Force (FATF) Private Sector Consultative Forum in Vienna earlier this week explored measures to combat terrorist financing, writes STEP’s Sean Smith.

The first day focused on the risk of terrorist abuse in Non-Profit Organisations – a sector deemed vulnerable because of the resources they use and their geographical spread.

On the second day, the forum considered existing barriers to information sharing and how these could be eased to enable both the private and public sectors to more effectively communicate data, whilst respecting privacy laws.

The final session looked at correspondent banking and how such correspondent banking relationships are established and monitored.

The underlying themes across all of these discussions were reputation, standardisation and communication. In particular, how to build and maintain confidence in the financial and charitable sectors and agreeing definitions of key terms and principles, such as what constitutes a reasonable request for information (RFI), so that the private sector, governments and civil society can work together more effectively.

A delegate opened one of the sessions with the comment that these issues had been discussed many times over the years to the point where each meeting felt like Groundhog Day. That is hardly surprising as trying to balance the needs of charities and their beneficiaries, the financial sector, governments and citizens’ rights to privacy is anything but straightforward.

Thankfully, this meeting felt productive, with useful suggestions being raised, which sadly I can’t divulge just yet.

It will be interesting to see what comes out of the FATF plenary, scheduled for 19-24 June in Busan, Republic of Korea.

 

Sean Smith, STEP Policy Manager

Severe 60 per cent penalty for GAAR schemes

Emily DeaneIt may not come as a surprise that the new draft UK Finance Bill 2016 has introduced more severe penalties for taxpayers that are found to have fallen out of the General Anti-Abuse Rules (GAAR) remit.

A significant change to the rule is the introduction of a new penalty of 60 per cent of the tax involved where a tax advantage is counteracted under the GAAR. The GAAR penalty will be enforced in relation to schemes entered into on or after Royal Assent to the Bill.

The 60 per cent penalty may be incurred on top of an existing penalty for abuse under Schedule 24 of the Finance Act 2007, although the penalty will be capped at a 100 per cent limit (aside from offshore offences, where higher penalties may be applicable). The 60 per cent penalty is described as the ‘value of the counteracted advantage’ – i.e. the additional amount of tax payable as a consequence of the unacceptable arrangement that has been successfully challenged under the GAAR. Sixty per cent seems to be quite steep compared to the existing penalties, such as deliberate error, which is currently subject to a penalty of 20 per cent of the tax due to 70 per cent in the most extreme cases.

For serial tax avoiders the new provisions are a serious deterrent against the continued use of abusive schemes. If three schemes are defeated during a warning period the names of the person involved can be published. In these circumstances, ‘defeated’ is given a wide meaning, and includes any settlement of an HMRC enquiry involving a Disclosure of Tax Avoidance Scheme (DOTAS), whether it is settled privately or by a court decision.

UK Chancellor George Osborne said in his Autumn Statement on 25 November 2015, ‘We said GBP 5 billion would come from the measures on tax avoidance, evasion and imbalances. Those measures were announced at the Budget. Today we go further with new penalties for the General Anti-Abuse Rule we introduced, action on disguised remuneration schemes and stamp duty avoidance, and we will stop abuse of the intangible fixed assets regime and capital allowances.’

HMRC will notify those taxpayers it has identified as potentially within the remit of the GAAR so that they have time to correct the situation before it proceeds to the GAAR Advisory Panel. If adequately corrected, the penalty will not be applied.

 

Emily Deane TEP, Technical Counsel at STEP

OECD: ‘Public release of taxpayer information is not consistent with the international standards for tax transparency’

George_Hodgson-2016STEP yesterday (14 April) received a letter from Mr Kosie Louw, Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which was sent to all members of the Global Forum.

 

The letter contains the following statement:

‘I want to state that the public release of taxpayer information is not consistent with the international standards for tax transparency. Indeed, a key aspect of our work has been concerned with ensuring that when such information is held by governmental authorities it is shared only with persons authorised in accordance with the standard and the applicable international agreements that give effect to both EOIR and AEOI.’

STEP welcomes this statement, which reinforces our message that while we support international initiatives on transparency and anti-money laundering, families have a right to legitimate confidentiality in their financial affairs and there must be effective safeguards to protect their information from risk of abuse.

We look forward to working with the OECD in the weeks and months ahead to support and inform their efforts in combatting tax evasion and any actions that support criminal activity such as money laundering and terrorist financing, and to rebuild public confidence in the international finance system.

 

George Hodgson, Deputy Chief Executive, STEP

PCA Investment Team of the Year Award: what to expect in the judging process

PCA awards

Enhance has been involved with STEP’s annual Private Client Awards for six years now, providing the judges with data analysis to give a clear picture of what firms submitting applications for ‘Investment Team of the Year’ have achieved over the last 12 months.

Using proprietary fintech software, the analysis reviews investment performance and risk over various time periods to confirm that investors have received good results.

To enable this data driven approach, if your firm is submitting applications for the Investment Team of the Year Award, you are asked to provide judges with:

  • Your main or flagship strategy
  • A definition of your investment strategy and the appropriate benchmark
  • A sample portfolio valuation that reflects the relevant strategy
  • 36 months’ worth of performance data
  • Asset and currency allocation for each of the last 4 quarter-ends for a representative portfolio which aligns to the relevant strategy.

To complete the performance and risk part of the application, you will also need to explain any successful asset allocation changes or recommendations made for clients over the last year and the effect this has had on performance.

We then use your data (with strict confidentiality!) to provide the judges with clear analysis. Importantly, our software not only crunches the numbers, it presents the results in a meaningful way. We pull out visuals as part of a detailed report using ‘heat maps’, allowing for easy comparison and ensuring managers’ performances are presented on a common platform so the judges are truly comparing like-for-like.

Risk and Performance data heat map

The data we provide enables the STEP judges to interpret performance and risk more clearly, and ensures their decision-making process is robust – but it’s important to highlight that our data presentation works in synergy with the judges’ expertise, not as a replacement.

 

Barry Hardisty, Managing Director, Enhance Jersey

Where there’s no will, there’s a way…

Alexandra BraunSTEP’s Global Congress, coming up in Amsterdam this summer, will be looking into a number of topical issues, including how wealth is being passed on death to the next generations.

Wills do not represent the only way in which wealth is being transferred on death. A person can use a variety of other mechanisms, including donationes mortis causa, joint tenancies, trusts, life insurance contracts, and nominations in pension and retirement plans.

Indeed, today a significant proportion of wealth is being passed through means other than wills and intestacy. This is not just due to tax considerations but to speed up the transfer on death and to shelter assets from claims of creditors and dependants.

This development questions the role and the scope current succession law rules are having in the transfer of wealth, as many of these mechanisms are not subject to the same policy driven rules applicable to wills. Thus, much of the transmission of wealth is no longer governed by the rules of succession.

In the US, these modes of transfer are grouped under the category of ‘will-substitutes’, that is to say instruments that allow for a transfer of wealth outside conventional probate procedures. Although much has been written about the effect of the use of ‘will-substitutes’ in the US, little is generally known about developments in other jurisdictions. And yet, ‘will-substitutes’ are becoming increasingly popular in many jurisdictions.

The aims of this talk are to provide a comparative overview of the most common instruments used, especially in the US and in Europe, and to explore why people transfer their wealth through alternative devices.

We will also explore the potential problems their use is creating for the operation of current succession laws and discuss the consequences that ensue for creditors as well as family members and dependants.

 

Alexandra Braun, Associate Professor of Law, University of Oxford.

Time flies when you’re having fun!

Cheryl FarnhamI can’t quite believe that my three-year term as Chair of STEP’s UK Practice Committee has reached its end! I was extremely honoured to have held the position, which opened my eyes to the great lengths that STEP members will voluntarily go through to assist fellow TEPs and share their breadth of knowledge.

Guidance notes, blogs, articles, leaflets, webinars, lobbying, consultation responses, surveys and meetings with officials are just a few of the things that we as a committee get involved with.

If you were a fly on the wall at our last committee meeting you would have seen that the new Law Commissioner for property, family and trust law attended to introduce himself and tell us about his new role. We welcomed back representatives of the Law Commission who updated us on the wills project and discussions were had regarding the project’s focus as well as the future Law Reform programmes. Furthermore, members of the committee will shortly be drafting a range of articles covering a plethora of topics; ranging from the pitfalls of acting as trustee, monies passing by nomination without safeguards, issues surrounding family bank accounts and business practice generally.

I would like to personally thank the volunteers who sit on the committee and work tirelessly for the members to add value for the TEP. The committee is a made up of a mix of individuals from across the UK with differing specialisms and interests. We are fortunate to have luminaries of the speaker circuit, authors and editors of our favourite ‘go-to’ guidance books and the (just as important) practitioners on the ground who know the issues facing us day to day as a reality. Each member brings something unique and invaluable to the table. See who is involved at www.step.org/uk-practice-committee.

We are of course always looking for fresh ideas, so if there is anything that you would like for us to be involved with or indeed if you would like to contribute to the cause yourself then please do get in touch via our dedicated email address: ukpractice@step.org.

I am a great believer in keeping things fresh and promoting new ideas. In order to achieve this there naturally needs to be a change of order and I am thrilled to be passing on the baton to Kelly Greig for the next term and look forward to seeing what these changes bring as a continuing member of the committee.

Keep an eye out for our posts on the STEP website and in the News Digests to see what we are up to next…

 

Cheryl Farnham TEP is a Director of Arcadia Legal & Trust Ltd and sits on the UK Practice Committee, England and Wales Regional Committee and West of England Branch Committee.