Will-writing reforms proposed

Signing Last Will and TestamentThe Law Commission of England and Wales is holding a public consultation on reform of the law of wills. The current law, largely derived from the Wills Act 1837, is understandably antiquated and requires an overhaul. The Commission notes that 40 per cent of people in England and Wales die without leaving a valid will, which often results in application of the unfavourable laws of intestacy.

Background

Significant changes in society, technology and medicine have prompted the Commission to review the wills law. Some of these factors include:

• the ageing population;
• the greater incidence of dementia;
• the evolution of the medical understanding of disorders, diseases and conditions that could affect a person’s capacity to make a will;
• the emergence of, and increasing reliance on, digital technology;
• changing patterns of family life – for example, more cohabiting couples and more people having second families; and
• with more people having substantial amounts of property, clarity about what happens to it after death being more important than ever.

Objectives

The Commission’s objective is to modernise and improve the current, archaic wills law. Some of the key focus areas include:

More flexibility: This would enable courts, when it is clear what the deceased wanted or intended, to dispense with the formalities of a will. If a particular formality, such as having two witnesses sign the will, had been overlooked or incorrectly administered, new ‘dispensing powers’ would enable the court to validate the will.
Capacity review: It may be necessary to improve the test for capacity to reflect the modern understanding of medical conditions such as dementia. This review could result in the introduction of a new test specifically linked to these conditions, where the testator makes a will with specific new guidance and support.
Statutory guidance: It may be necessary to introduce statutory guidance for doctors and other professionals when assessing whether or not a person has the required mental capacity to make a will. This could reduce the need for lengthy, costly litigation.
Undue influence: New rules should be considered to protect testators from being unduly influenced by another person. In particular, elderly and vulnerable testators should be better protected from fraud.
Testamentary capacity: Lowering the age at which a will can be made from 18 years old to 16. A child of 16 or 17 might have significant assets that he or she may not want to pass to an estranged parent under the rules of intestacy.
Electronic wills: It may be necessary to review how technology can be adapted in relation to making a will; it may become easier, cheaper and more convenient to a testator if they are able to do so electronically, though some practical challenges will need to be considered.
Ademption: The Commission would like to encourage discussions as to whether or not the ademption rules need to be reviewed. The rules could be improved to better align the testator’s wishes and intentions with the operation of the law.

Consultation events

STEP is working closely with the Law Commission and the Association of Contentious Trust and Probate Specialists (ACTAPS) on this consultation project. STEP is hosting free consultation events in London, Newcastle and Manchester, and STEP members are invited to provide feedback to Commission representatives.

Consultation event schedule:

London, 13 Sep
Newcastle, 18 Sep
• Manchester (tbc)

The consultation closes on 10 November 2017, and the Commission’s conclusions, along with its final recommendations and a draft Bill, are expected to be published in early 2018.

Emily Deane TEP is STEP Technical Counsel

Are you prepared for the UK’s new corporate criminal offence?

HandcuffsSTEP advised members earlier this year that the Criminal Finances Act 2017 received Royal Assent on 27 April 2017. The Act contains the new corporate criminal offence of ‘failure to prevent the facilitation of tax evasion’, which is anticipated to take effect in September 2017.

Even though tax evasion and facilitation of tax-related crimes are already criminal offences, it has previously been difficult to pin these offences on a corporation or partnership such as a law firm. The new legislation will create a liability on the employer for the actions of its employees and ‘associated persons’ who knowingly facilitate any tax evasion. The definition of ‘associated person’ is very wide in scope and will include employees, partners, consultants and also agents and anyone performing services for or on behalf of the company or partnership.

The Act applies to LLPs and partnerships as well as companies. It does not alter what is criminal but who should be liable for the criminal act.

There are three elements to the new offence:

1. The criminal UK or non-UK tax evasion by a taxpayer under the current law.

2. The criminal facilitation of this offence by an associated person acting on behalf of the company.

3. The company failed to prevent the associated person from committing the criminal act at stage two.

The legislation creates two new offences – a UK offence and an overseas offence. If a UK tax offence is committed then it is irrelevant if the company or associated persons are not UK-based. In accordance with the new legislation, the offence will have been committed and can be tried in the UK courts. This stance reinforces the UK’s position that any individual can be guilty of a UK tax evasion offence, regardless of their location, if they assist someone else to evade UK tax.

If non-UK tax is evaded then the company will be liable for the offence if they have a place of business in the UK, or if any of the facilitation took place in the UK.

Defence

There will be a defence available if the employer put in place reasonable prevention measures, but otherwise the offence is strict liability, and the employer may face criminal prosecution, financial penalties and reputational damage. A reasonable prevention procedure is one that ‘identifies and mitigates its tax evasion facilitation risks’ which will make prosecution more unlikely.

Advice for members

HMRC’s draft guidance dated October 2016 provides six guiding principles that companies should consider when interpreting the new legislation:

Risk assessment

Companies should assess their own risk exposure level in relation to their employees engaging in the facilitation of tax evasion in the course of business. The guidance notes that the bodies most affected by the new offence will be those in financial services, including the legal and accounting sectors. These bodies are advised to review the following additional guidance: The Financial Conduct Authority’s (FCA) guide for firms on preventing Financial Crime, the Law Society’s Anti Money Laundering Guidance, particularly Chapter 2 and the Joint Money Steering Group (JMLSG) guidance.

Proportionality of risk-based prevention procedures

It is anticipated that relying upon existing in house anti-money laundering procedures will not be sufficient to satisfy the defence of having prevention procedures in place. The guidance explores some of the varying common elements that would be considered to be reasonable prevention procedures.

Top level commitment

The top level management of each company should be committed to raising awareness and establishing safeguards intended to prevent the facilitation of tax evasion amongst its employees. Procedures include communication and endorsement of the new legislation within the company, as well as development and review of prevention procedures.

Due diligence

The company should mitigate any risks that it identifies by way of applying advanced due diligence procedures. The guidance notes that bespoke financial or tax related service companies will face the greatest risk, and that merely applying existing procedures will not be an adequate response to mitigating their exposure. New procedures are expected to be applied clearly in conjunction with the new legislation.

Communication (including training)

The company must ensure that its new prevention procedures are widely communicated and understood through internal and external communication with all employees. This communication may vary depending upon the size of the company, however training must be provided, and a zero tolerance policy for facilitation of tax evasion and its consequences must be properly communicated.

Monitoring and review

The company must put in place ongoing monitoring mechanisms and reviews to ensure that the system is effective, and it must make improvements where necessary. The company may choose to have reviews conducted by internal or external parties.

While HMRC’s guidance contains some useful terminology and case studies, it is recognised that further guidance is needed in this area. We understand that HMRC is working with industry bodies to support them in producing more specific guidance and STEP will keep you updated accordingly.

Emily Deane TEP is STEP Technical Counsel

Information exchange reporting FAQs

Emily Deane TEPWith reporting now underway in the UK for both FATCA and the Common Reporting Standard (CRS), STEP has been liaising with HMRC on some of the finer points of reporting.

Can I still submit CRS amendments?

There is some time available following the 31 May 2017 deadline for submission of amendments or corrections. If you need to submit an amendment within the first few weeks of filing then HMRC should be able to include the amendments in the first exchange scheduled for 30 September and the information will be sent to the relevant jurisdiction.

What are the penalties for late CRS reporting?

HMRC has confirmed that they will take a soft approach towards penalties in the early stages of CRS (like FATCA, the US Foreign Account Tax Compliance Act ) – particularly if there are CRS system errors that incur late filing. However, a harder approach may be taken towards people who are deliberately negligent with their filing.

FATCA: what do I do if a US TIN is unavailable?

It has previously been identified that in some cases a nine-zero approach will be accepted when a TIN (Taxpayer Identification Number) is unavailable. Some accounts are being filed with missing TINs which causes difficulties because the system will respond that it has been submitted in an incorrect format. The ‘missing TIN’ cases are inevitably causing issues for users and HMRC and HMRC is waiting for feedback from the IRS later this year on how to resolve it. It may be deemed acceptable that the nine-zero approach continues in the short term.

I have received a FATCA renewal message, what do I do?

If you have received a FATCA renewal message for an FI (Financial Institution) from the IRS then you will need to login, check that renewal is not required and confirm that. For further information see p 84 of FATCA Online Registration, which says ‘FIs notified of the potential need to renew their agreement should login to the FATCA Online Registration System and view the ‘Renewal of FFI Agreement’ page … FIs must determine if they need to renew their agreement and then must submit their determination … All FIs should follow steps 1 through 4 below to determine if they must renew their agreement’.

What is the deadline for client notification?

The UK Client Notification Regulations came into force on 30 September 2016. The obligation for practitioners to notify any clients with offshore accounts and assets that HMRC will soon begin to automatically receive data from over 100 jurisdictions relating to UK tax residents and their offshore accounts, in accordance with the UK’s automatic exchange of information agreements, must be met by 31 August 2017. See this STEP blog for more information.

STEP will continue to consult with HMRC on ongoing technical issues.

Resources:

Emily Deane TEP is STEP Technical Counsel

CRS reporting update, June 2017

Emily Deane TEPSTEP attended the most recent CRS Business Advisory Group hosted by HMRC and discussed the following issues:

FAQs

HMRC advised that new documents on the OECD portal have been published along with some additional FAQs.

Anti-avoidance

Members were interested to know when the OECD will publish its loophole paper which will review loophole reporting strategies.

HMRC advised it does not expect imminent changes to the OECD’s anti-avoidance strategy but does expect a review prior to that planned in 2019.

In the meantime, the OECD has launched a facility for parties to disclose CRS schemes which are potentially used to circumvent CRS reporting.

US TINs – invalid format

The number of the US Taxpayer Identification Number (TIN) to be submitted has to be in a certain format, otherwise the return will be rejected.

In some cases a nine-zero approach will be accepted but some accounts with missing TINs are causing difficulties having been submitted in an incorrect format. The ‘missing TIN’ cases are inevitably causing issues for users and HMRC. Members agreed that there will be problems next year when the nine-zero approach will no longer be accepted.

HMRC recognises these difficulties and has been liaising with the IRS regarding the TIN issues. A member also mentioned that the issue was being raised by industry groups in EU circles.

Invalid self-certifications

Members agreed that HMRC’s guidance is ambiguous if a self-certification is returned to the financial institution but contains errors. For example, would HMRC accept a self cert that had been returned, but not signed, in a time sensitive case?

HMRC declined to generalise on self-certification issues, stating that each example has to be judged on its own specific issues. It confirmed that it is up to the financial institution to decide whether it is satisfied that a person is non reportable. The financial institution should apply due diligence procedures based on guidance and common sense.

The mediation period and the cut off timing were also discussed. HMRC stated that it is up to the individual financial institution’s procedures as to the cut off. It was agreed that it can be a grey area with some contradictions, and in some cases the financial institution may need to decide whether a person is reportable, whilst the validation is undertaken. More clarity on this issue was requested from HMRC.

HMRC customer support

HMRC has been receiving increasing numbers of calls from clients of financial institutions, rather than the financial institutions themselves. This is causing problems, particularly when close to filing dates. As a result, HMRC has asked financial institutions to omit its contact details from notes that accompany the self-certifications, stating these are not relevant to clients and it does not have the resources to deal with additional queries.

STEP will continue to attend the periodic working group to discuss ongoing technical issues with HMRC.

Resources:

STEP Guidance Note: CRS and trusts
Live STEP webinar on ‘CRS and Trustees’ with John Riches TEP and Samantha Morgan TEP, 13 June

 

Emily Deane TEP is STEP Technical Counsel

EU AMLD: where are we now?

Emily Deane TEPOn 21 March 2017, the first political trilogue on the Commission proposals to amend the 4th Anti-Money Laundering Directive (4AMLD), proposed in July 2016, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing took place at the European Parliament (EP).

In the wake of the ‘Panama Papers’ scandal the Commission has been intent on cracking down on the hiding of illicit funds by adopting a coordinated approach at both EU and international level.

The EP, Commission and Council have expressed their willingness to engage in negotiations with a view to a swift agreement, and the EP stressed the importance of transparency in fighting money laundering.

Beneficial ownership debate

STEP has concerns about some of the proposals to amend the Directive. In particular, the requirement for member states to set up publicly accessible central registers for the mandatory registration of the beneficial owners (BO) of all trusts (not just those with tax consequences), and similar legal arrangements (Articles 30-31).

The general consensus of the majority of member states is that the BO information on these registers should be publicly accessible. STEP is arguing that a publicly accessible register is likely to infringe data protection rights, the right for private and family life guaranteed by Article 7 of the EU Charter of Fundamental Rights, and Article 8 of the European Convention on Human Rights.

Publishing details of beneficiaries, particularly vulnerable beneficiaries, would leave them seriously exposed to potential abuse, given the risk of such information falling into the wrong hands and being disseminated for illegitimate purposes.

The state of negotiations:

• The definition of the BO of a company or trust remains in dispute.
• There are questions whether the information on the registers should be publicly accessible and if not, who should be granted access?
• Should registration of a BO be required where the activities are carried out, or where the entity is owned?
• MEP Judith Sargentini is hoping to reduce the threshold for the identification of a BO from 25% to 10% ownership. The Commission continues to state that this should only be the case if it’s a high-risk entity.

The trilogue parties intended to reach an agreement by the end of the Maltese Presidency on 30 June 2017, but the EP has stated it will be difficult to conclude it by then. Estonia takes over the Presidency on 1 July.

The next meetings are on 29 May, 7 June, 28 June 2017.

4AMLD – UK’s obligations

In the meantime 4AMLD implementation into national law is required by 26 June 2017.

The UK’s newly published draft of the Money Laundering Regulations 2017 will be its instrument to transpose the directive. This will revoke and replace the Money Laundering Regulations 2007.

The UK is required to implement a central register of trusts on 26 June, which will apply to worldwide trusts with UK assets that generate a tax consequence. The Directive leaves it to each member state to decide the level of transparency to be applied and the UK has confirmed that access to this register will be limited to law enforcement agencies on the grounds of privacy (see HMRC consultation on 4AML implementation).

The corresponding German bill has faced scrutiny at the committee stage whereby some of its members were pushing for full public access but other members have rejected a fully public registry of company and trust beneficial ownership. The bill will be subject to revision before it is enacted but it is unlikely that public access will be granted.

STEP will continue to monitor the progress on 4AMLD and the revised Directive and keep members updated accordingly.

 

Emily Deane TEP is STEP Technical Counsel

STEP attends FATF Joint Experts’ Meeting on Typologies in Moscow

money laundering
STEP attended the Financial Action Task Force (FATF) Joint Experts’ Meeting on Money Laundering and Terrorist Financing Typologies in Moscow late last month. STEP’s Co-Chair of its Public Policy Committee, John Riches TEP, also attended in his capacity as a trust expert.

STEP was invited to participate in a ‘Challenges of establishing beneficial ownership’ round table discussion. This focused on the private sector perspective of the challenges associated with identifying beneficial ownership for natural or legal persons, and examined the following points:

Is it suspicious to have accounts in other jurisdictions?

STEP was quick to point out that there may be a bona fide business purpose for having trust accounts in alternative jurisdictions. International families will often have their financial counterparties abroad, and this should not be grounds for suspicion. Many may prefer to use a bank or existing custodian to a new one, and trustees are understandably attracted to jurisdictions that are more economically or politically stable and have a clear understanding of trust arrangements.

In the UK it can take as long as six months to open a bank account for this purpose, so a well-regulated jurisdiction that can act faster may be more attractive to a trustee. Many offshore centres are highly regarded due to their regulation of Trust and Company Service Providers (TCSPs). They can also be more flexible and less expensive.

What are specific vulnerabilities in various types of trust arrangements?

Most of those present believed that advisors would not proceed to set up an arrangement unless they have obtained the requisite Know Your Client (KYC) documents, plus a clear understanding of the function and purpose of the arrangement. There should not be any uncertainty or lack of understanding regarding the client, location or objective of the vehicle.

If there was even a slight suspicion that the purpose was illegitimate, the client would be reported to the local authorities.

What are potential risk indicators to practitioners, i.e. red flags?

In its 2013 report, Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, FATF identified some 42 risk indicators. Those discussed in the meeting included a client’s reluctance to provide information, data or documents to facilitate a transaction.

However, it was agreed that it would be unusual for an advisor to act illegitimately and run the risk of significant prosecution, reputational and regulatory penalties.

What challenges are associated with verifying the beneficial ownership?

Those attending agreed it can be challenging to identify a legal entity that is some way down the chain of ownership in multi-layered structures. It can also be confusing to verify the beneficial ownership of the ultimate holding entity. This is often not helped by an absence of proper documentation.

A particularly topical problem with legal arrangements is to ascertain what is meant by a ‘natural person exercising effective control’ in the context of trusts. Also problematic is a lack of understanding as to what information is required in the extended category of ‘beneficial owners’. This creates a lot of confusion and wasted effort for financial institutions and advisors.

Are there indicators of activities being undertaken to obscure beneficial ownership?

The use of shell companies and nominees to hide true beneficial owners appears to be much more common than the use of more sophisticated legal arrangements, such as common-law trusts and civil-law foundations.

It’s worth noting that professional advisors rarely report potential abuse of trusts or foundations in a money-laundering or terrorist-financing context.

Many of the advisors in the meeting confirmed that they have never actually encountered any suspicious activity in their own careers.

Are there particular risk indicators with certain arrangements or jurisdictions?

Most agreed that those with bad intentions would shun more complex arrangements like trusts and foundations in favour of simpler vehicles. These might include companies that can be misrepresented with false information about a single beneficial owner.

Any jurisdiction likely to be seen as requiring less exacting information in the formation of new legal entities will naturally be preferred.

However, public perception about particular jurisdictions can be misleading. Many offshore finance centres regulate TCSPs in a more stringent and well-considered way than ‘onshore’ jurisdictions.

• FATF is planning to collect some real life case studies among attendees to analyse for vulnerabilities and discuss in more detail with advisors. It is also collecting examples of adjudicated and publicly available cases to identify realistic money laundering concerns, which it will share. STEP will keep you updated in due course.

 

Emily Deane TEP is STEP Technical Counsel

Probate fees: how we got to where we are

Emily Deane TEPFollowing the news late last week that the UK government is scrapping its plans to hike probate fees, Emily Deane TEP looks back on an eventful 15 months for STEP and practitioners.

February 2016
In February 2016 the Ministry of Justice (MoJ) issued a consultation paper on reforms to the fee system for grants of probate. The paper proposed to increase the fees for estates of over GBP50,000, with a banded fee structure depending on the estate value. Larger estates faced a 13,000 per cent rise to GBP20,000.

STEP strongly opposed the new system on the basis that the proposed fee would be completely disproportionate to the service provided by the probate court, and would effectively be a new tax on bereaved families.

We raised concerns on the grounds of fairness, practicality and legality, in particular that the new measures being introduced via the Draft Non-Contentious Probate Fees Order 2017 may be ultra vires, i.e. beyond the power of the order.

The consultation was widely circulated, with over 97% of respondents opposing its proposals. Then the matter went quiet for almost a year.

February 2017
On 24 February 2017, STEP received notice from the MoJ that, subject to parliamentary approval, and despite overwhelming opposition to the proposals, the new fee system would be implemented in May 2017: just weeks away.

Concerned that this would have a huge impact on bereaved families and their legal advisors, we set out to highlight the issue to ministers, the media and the public.

We contacted the MoJ highlighting our concerns and requesting a meeting. We received no reply, with the MoJ remaining extremely quiet on the issue. No clear information was posted highlighting the new fee structure to the public, with a discreet link to the consultation response on the gov.uk website the only notice that these changes were coming.

We therefore sought to raise public awareness of the issue, issuing press releases and explaining our concerns to the media, and developing guidance for members of the public.

Our work paid off, with national media including BBC Moneybox, the Daily Mail  and the Mirror  covering the issue. Our guidance for the public was viewed nearly 2,600 times and our social media channels were buzzing with activity.

April 2017
Then at the beginning of April we heard that the influential House of Commons Joint Committee on Statutory Instruments had questioned the legality of the proposals, given that the new ‘fees’ looked very like taxes. But while hopes were raised, the government continued to push forward with no changes to its plans.

Concerned that the issue would not be given proper scrutiny, STEP obtained a legal opinion from leading expert in public law, Richard Drabble QC, who agreed with the SI Committee’s findings and confirmed that ‘the proposed Order would be outside the powers of the enabling Act’.

Then, on Tuesday 18 April, Prime Minister Theresa May called a snap election. The pressure was suddenly on to get all orders through before parliament was dissolved.

On Wednesday 19 April the House of Commons Second Delegated Legislation Committee rushed though the Non-Contentious Probate Fees Order 2017 meeting at 8.55am, with no advance warning that it would be tabled that day. It was approved 10 to 2.

On Thursday 20 April we finally received a response from the MoJ to our earlier letter, dismissing our concerns and advising that the fee changes would be going ahead.

We understood that the Lords were due to discuss the matter on Monday 24 April, so we immediately sent the legal opinion to senior politicians in the House of Lords to inform the debate.

Later that evening press reports suddenly emerged that the proposals were to be dropped, and the next day we received a bulletin from the MoJ stating: ‘There is not enough time for the Statutory Instrument which would introduce the new fee structure to complete its passage through parliament before it is dissolved ahead of the general election. This is now a matter for the next government.’

Success…for now…

Our effort, and those of practitioners across the country, to highlight the issue had paid off. The legal uncertainty highlighted by Richard Drabble QC, combined with the media attention, meant that it could not be pushed through the Lords in time.

We have since heard from senior sources in the Lords that the subject may re-surface as primary legislation post-election, in which case it would need to be approved by both Houses of Parliament. We presume it would be re-introduced as a new tax, rather than an increased fee. If so, the funds will go to the Treasury, not the MoJ.

STEP will continue to work closely with our members and the media to increase awareness of the matter, although we sincerely hope it will not re-emerge in a different guise.

Emily Deane TEP is STEP Technical Counsel

HMRC consultation on 4AML implementation

Emily Deane TEPHMRC invited STEP to attend a consultation on 30 March regarding the UK’s implementation of the EU Fourth Anti-Money Laundering Directive (4AML), in particular in relation to the requirement to implement a central register of trusts.

The consultation was hosted by HMRC’s Policy Specialist, Tony Zagara, and focused on Article 31 – trust beneficial ownership. The UK trust register will be implemented on 26 June 2017 and will register trusts anywhere in the world with UK assets that generate tax consequences.

Information about the settlors, beneficiaries and trustees will be required to be reported in an annual submission and the information could be exchanged with law enforcement and competent authorities, but not the public. The focus group discussed the following key issues:

New registration system

The old paper registration system will be replaced with an online service for registration, which will be introduced in two tranches in June and September. The June online service will replace Form 41G for registering new trusts. Form 41G will be removed from HMRC’s website later this month.

The second online service will be introduced in September, which will allow users to make amendments to existing trusts online, further replacing the paper system.

Annual reporting

The trustees will need to report on the trust on an annual basis, but only if it generates tax in that tax year. HMRC was unable to clarify whether, once a trust has been registered with a tax consequence, it is still necessary to submit annual updates in the following years if it has been dormant and has not generated any further tax consequences.

The panel agreed that annual reporting would probably not be necessary if there have been no changes since the first registration, however they agreed to check and revert back on this point.

Bare trusts will be excluded from reporting and new guidance will be produced on HMRC’s landing page in due course.

Letters of wishes

HMRC said trustees should report the identities of beneficiaries who are named in letters of wishes. Every person named in a letter of wishes would need to be identified, regardless of whether they have received a payment, unless they are included as a ‘class’ of beneficiary.

Practitioners were quick to point out that this could be an impossible task for trustees.

They explained to the HMRC panel that if beneficiaries have not received payments they cannot be associated with money laundering, and if they do receive a payment they will be reported anyway under the regulations. Letters of wishes can also be changed frequently and, more often than not, without the advisor’s knowledge.

HMRC defended the reporting obligation by suggesting that letters of wishes could be used as a loophole for criminals if they were excluded from the regulations.

The general consensus of the attendees was that the word ‘vested’ should be incorporated into the definition so that default beneficiaries in letter of wishes are excluded from being reported on unless they receive a payment.

HMRC will be feeding back the discussions from the consultation to its legal team to redraft the regulations.

Consultation deadline

HMRC’s consultation paper was published on its website (see below) and the consultation closes on 12 April. HMRC is requesting responses as soon as possible since there is a short time frame following the closing date. If you have any drafting points to be incorporated in STEP’s consultation response, please email Emily.Deane@step.org by 10 April.

Emily Deane TEP is STEP Technical Counsel

Have you registered your LEIs?

Emily Deane TEPEvery legal entity will need to get a Legal Entity Identifier (LEI) by 3 January 2018. Emily Deane TEP explains what LEIs are, and how to get one.

What is an LEI?

The Global Legal Entity Identification Foundation (GLEIF) has designed a system where every ‘legal entity’ will need to register and obtain a unique identification number – a Legal Entity Identifier (LEI) before it can trade on financial markets in the UK after 3 January 2018.

The London Stock Exchange (LSE) requires investors who are deemed to be legal entities to obtain an LEI, which is a 20-character alphanumeric reference code that is unique to the legal entity. Legal entities include Trusts (but not Bare Trusts), Companies (Public and Private), Pension Funds (but not Self-invested Personal Pensions), Charities and Unincorporated Bodies that are parties to financial transactions.

Do trusts need one?

Bare trusts have been excluded from the requirement to obtain an LEI, but all other trusts will be obliged to obtain one if they are parties to financial transactions. In the case of discretionary trusts which have legal restrictions and cannot disclose trust details, the LSE will accept a validation from the trust itself and will not require sight of the trust deed. However, in all other cases the LSE will generally accept a scanned copy of the first couple of pages of the trust deed in the same way that many banks do for AML compliance.

Entities other than trusts are obliged to provide information such as their official registry details and business address. All LEI data will be consolidated in one database in an effort to improve global entity identification and standardisation.

What if I don’t apply?

If the LEI has not been obtained by 3 January 2018 then investment firms will not be able to provide the legal entity with investment services. The legal entity itself is ultimately responsible for obtaining the LEI, but some investment firms may agree to apply for the LEI on behalf of their legal entity clients. The LSE has produced a draft format (pdf) which will be acceptable in order to transfer the application authority from the entity to a third party such as a management company.

The LSE will charge an initial allocation cost of GBP115 + VAT and annual maintenance cost of GBP70 + VAT per LEI.

How do I register?

Registration for individual LEI allocation requests started on 5 August 2013. You can request your LEI via the link below, and there are two user guides to help you:

More information can be found on the Financial Conduct Authority’s website:


Emily Deane TEP is STEP Technical Counsel

 

HMRC: no more safe havens

Treasure chestThis week STEP hosted a seminar to update members on HMRC’s latest moves to tackle tax evasion and avoidance.

Entitled, ‘An essential update on HMRC’s activity to tackle tax evasion and avoidance, including information exchange, new powers and its impact on professional advisors,’ the seminar took place at BDO LLP’s office in London. Speakers included John Shuker from the HMRC International & Offshore Evasion Team, and Dawn Register TEP of BDO LLP.

The introduction of the Common Reporting Standard (CRS) this year follows a raft of governmental efforts including the Foreign Account Tax Compliance Act (FATCA) and the EU Directive 2003/48/EC (the EU Savings Directive) to improve cross-border tax compliance. The Offshore Evasion Team has focused on clamping down on UK tax evaders, in particular:

• Moving UK gains, income or assets offshore to conceal them from HMRC
• Not declaring taxable income from overseas, or taxable assets kept overseas
• Using complex offshore structures to hide beneficial ownership of assets.

The tax gap for 2014-2015 is estimated to be GBP36 billion, with GBP 5.2 billion attributed to tax evasion.

HMRC launched the campaign ‘No Safe Havens’ in 2013 with the objective of ensuring that there are no jurisdictions where UK taxpayers can hide their income and assets. It also implemented a number of disclosure facilities to give people the incentive to come forward and pay tax voluntarily, before they are detected and sanctioned.

In the last two years, HMRC has vigorously escalated its tax evasion strategy. The Worldwide Disclosure Facility opened last September, in addition to a new requirement for all financial institutions and tax advisers to notify their customers about new automatic exchange of information agreements.

The following further measures are due to be implemented in 2017:

Corporate Criminal Offences of Failure to Prevent Facilitation of Evasion
This will apply to corporations who fail to prevent their agents from criminally facilitating tax evasion (facilitating evasion is already considered a criminal offence). The offences will apply to domestic or overseas corporations whose agents facilitate the evasion of UK taxes, or a domestic corporation which facilitates the evasion of tax overseas.

Tackling Offshore Tax Evasion: A Requirement to Correct
Taxpayers will be obliged to disclose any outstanding UK tax related to offshore investments or assets, or face ‘failure to correct’ penalties. These penalties will be significantly higher than for those who voluntarily put their affairs in order, and will be a minimum of 100%.

STEP’s Technical Committee has submitted responses to a variety of HMRC’s consultation papers relating to tax evasion below:

 

Emily Deane TEP is STEP Technical Counsel