Controversial recent changes to UK and EU law combined with parallel G8, G20 and OECD measures risk the beneficial owners of certain companies being subjected to unwanted public scrutiny. However, help is at hand for affected individuals.

THE POLITICAL BACKGROUND

Reacting to concerns about tax evasion, money laundering and the funding of terrorism (and probably in an attempt to take the wind out of the sails of some tax campaigners), the UK Government has helped to make “transparency” about the beneficial ownership of companies an international priority.

Under the UK’s presidency at the Lough Erne Conference in June 2013, the G8 countries committed to implementing the Financial Action Task Force’s standards on corporate ownership transparency, and to require companies to obtain and hold information about their ultimate beneficial owners. They agreed that “some basic company information should be publicly available”. The G20 countries have agreed to similar “high-level principles”. Other international measures such as the US’s FATCA regime and the OECD’s forthcoming Common Reporting Standard will also increase the amount of personal data being collected by government agencies, raising data security concerns.

Similarly, the European Parliament has just introduced the Fourth Money Laundering Directive, which will require EU Member States to introduce beneficial ownership registers for companies incorporated in their respective jurisdictions. These registers will be available to government authorities, banks, and others with a “legitimate interest” in their contents.

The UK has gone further and has unilaterally introduced, together with a number of other wide-ranging measures, a full, publicly accessible, register of the details of the beneficial owners of companies (but not partnerships, including LLPs) which are incorporated in the UK.

THE NEW UK RULES

From January 2016, UK companies incorporated under the Companies Acts will be required to obtain and hold a register of all persons who exercise “significant control” over the company. A person will be a “person with significant control” (or “PSC”) if he or she, directly or indirectly:

  • holds 25% or more of the shares in the capital of the company (calculated by reference to their nominal value), or
  • is entitled to exercise 25% or more of the voting rights in the company, or
  • is entitled to appoint the majority of the board of directors (or control their appointment or subsequent removal), or
  • is otherwise able to exercise 'significant influence or control' over the company.

UK companies will be required to register the personal details of such PSCs with Companies House by April 2016 for inclusion in the public register.

AFFECTED STRUCTURES

Of course, for the overwhelming majority of individuals affected by these new rules, the Government’s concerns about tax evasion, money laundering and terrorist financing will seem misplaced, as very few (if any) UK companies are used to evade tax or to engage in nefarious activities.

Individuals have historically put in place corporate structures for a number of reasons. Family Investment Companies are used as a kind of fund for holding family assets, allowing value to be passed down the generations without wealth being dissipated. Companies can also be used to ensure the privacy of individuals and to protect the confidentiality of their personal affairs. In an age of notorious press intrusion and prurient public interest in high net worth individuals, the requirement for such structures will not diminish. Yet the UK’s new transparency rules apparently cut across these needs.

SOLUTIONS FOR AFFECTED CLIENTS

We are pleased to confirm that, depending on the circumstances, and notwithstanding the new UK rules, it is still possible to have the benefits of corporate structures without the obligation to disclose information about beneficial ownership on a publicly available register. Furthermore, such companies can be tax resident either in the UK or overseas as circumstances require.
Nevertheless, the UK, European and international laws relevant to such companies are numerous and complicated and it is important that advice is taken from lawyers accustomed to dealing with the particular issues raised by such structures.