European Data Protection Supervisor voices privacy concerns over 4AMLD

George HodgsonThe European Data Protection Supervisor’s Opinion on proposed amends to the Fourth EU Anti-Money Laundering Directive (4AMLD) shines a welcome spotlight on data protection implications and the ‘significant and unnecessary risks to an individual’s right to privacy’.

The Opinion, published on 2 February 2017, raises questions as to whether or not the proposed collection of personal data is proportionate to the fight against money laundering and terrorism financing and scrutinises the access to beneficial ownership information and the significant and unnecessary risks that this might cause an individual who has a right to privacy and data protection.

STEP has been heavily engaged with Brussels for some time on proposed revisions to 4AMLD. We have also, via our relevant STEP branches, been active on the issue in several EU Member States.

The existing 4AMLD recognises that many trusts are sensitive family arrangements, often designed to protect the interests of vulnerable family members. Trusts are therefore treated differently to corporate structures: beneficial ownership information on trusts is not publicly available and is only accessible by recognised competent authorities, and registers of trusts are confined to trusts with tax consequences, reflecting the fact that any risk assessment suggests that this is where the highest risk of abuse lies.

The proposed revisions to 4AMLD effectively put trusts on the same basis as most corporate structures. This means Member States would be required to establish comprehensive beneficial ownership registers of ALL trusts – a change that will impact on millions of ordinary families. It also would require that such register should be available, as a minimum, to anyone who has a ‘legitimate interest’ (not defined – but understood to include journalists and NGOs with an interest in this area), and allowing Member States to open such registers even to those with no demonstrable ‘legitimate interest’ in the information.

In spite of STEP’s best efforts, and the best efforts of other professional bodies who have been working with us on this issue, our arguments against these proposals were getting little attention from policy makers. The original proposals for the revision were sparked by a wave of terrorist attacks in Brussels, and then were increasingly seen as a necessary political response to the Panama Papers scandal. Brexit then did few favours for those trying to argue in Brussels for the merits of what are still generally seen as ‘Anglo-Saxon trusts’…

It is encouraging, therefore, that the European Data Protection Supervisor, a powerful voice in Brussels, has now weighed in with a stinging review of the proposed amendments. They are seen as having muddled objectives underpinned by little objective risk assessment and paying scant regard to the issue of proportionality, particularly in the proposal to allow wide access to beneficial ownership information on family trusts. We can only wait and see how this impacts on the intense debate that is currently going on in the EU Parliament on the proposals.

 

George Hodgson is Chief Executive of STEP

April 2017 changes to the UK’s taxation of long-term resident, non-domiciled individuals

Update on discussions relating to the treatment of trusts

Following the consultation paper issued on 19 August 2016, members of STEP’s UK Technical Committee have been closely involved in discussions with HM Treasury and HM Revenue & Customs in relation to the latest proposals.

The most difficult area is the treatment of offshore trusts set up by non-domiciliaries who become deemed domiciled in the UK as a result of having lived there for 15 years in a 20 year period.

When the changes were announced in the July 2015 budget, much was made of the fact that assets held in trust would be protected from inheritance tax, capital gains tax and income tax (other than in relation to UK source income which would continue to be taxed as it arises). A deemed domiciled settlor would only be taxable on benefits received from the structure or conferred on close family members.

One significant surprise in the August consultation paper therefore was a proposal that a deemed domiciled settlor would be taxed on all of the gains of an offshore trust once the settlor or a close family member has received any benefit from the trust – ie the receipt of the benefit would mean that the capital gains tax protections would be lost for the future.

As part of the consultation discussions, a paper has been prepared by a barrister with input from colleagues from various representative bodies including STEP. The paper is very much in draft form but sets out a potential alternative approach to legislating the trust protections. A copy of the paper can be found below.

We have been asked to make it absolutely clear that the paper was not commissioned by HMRC or HMT. Nor does it represent an approach to trusts preferred either by HMT, HMRC or the government. The paper was prepared to facilitate discussion at a consultation meeting between HMRC/HMT and various representative bodies to consider alternative approaches to how it is best to legislate the protections and it should be read in that context.

Having said this, it is important that STEP members are aware that alternative proposals are being put forward and discussed and that the final proposals may well be different to those made in the 19 August 2016 consultation paper.

We are expecting the government’s position to be announced as part of the Autumn Statement on 23 November 2016 with draft legislation being available by 5 December as part of the draft Finance Bill.

 

STEP UK Technical Committee

French trust register goes live to public on 30 June

George HodgsonFrance has taken the unprecedented decision to put its register of trusts online and freely accessible this week.

From 30 June the French trusts register can be accessed by using a number of search criteria, including the name of the trust, or identity of the trustee, settlor or beneficiaries.

France obtained this information as trustees of trusts which have a French connection, eg resident settlor, beneficiary and/or holding French assets, have been required to file reports with the French tax authorities since 1 January 2012. Failure to comply is punishable by a fine of at least EUR20,000, or 12.5 per cent of trust assets, if higher.

STEP is highly critical of the move, noting that the data was supplied for tax purposes in good faith, and with no permission for it to be made public.

There is no protection offered for details of vulnerable beneficiaries, such as children, elderly people, or those with limited mental capacity.

This information is strongly biased towards non-French structures, which are being treated on a different basis to French structures.

In addition, there has been no attempt to ensure that the information remains relevant or up to date; nor is there any facility to remove data that is no longer correct.

 

George Hodgson is Interim Chief Executive of STEP