Heike van den Hoevel, senior wealth management analyst at GlobalData, says, “Traditionally, the ATO has relied on audit and review activity to uncover potential irregularities. However, Will Day, the agency’s new deputy commissioner of private groups and high-wealth individuals, has been conducting one-on-one interviews with representatives of Australia’s richest, making tax more of a focal point and bringing it to the forefront of investors’ minds.”

By the end of 2017, the ATO had already conducted 320 interviews, targeting those with among more than US$268mn in turnover or more than US$383mn in net assets. According to the ATO’s latest annual report, 77 cases with HNW individuals were settled in 2016.

This number is likely to be higher in 2018, as greater emphasis is now placed on large and unusual transactions, the misuse of trusts, and lifestyles that do not match after-tax income. A further 1,200 interviews with individuals in lower asset bands are planned during the course of 2018.

Van den Hoevel concludes: “Out of the two thirds of wealth managers surveyed by GlobalData that do not offer tax advice, less than 5% indicated that they are planning to offer this type of service over the coming two years. This is a lost opportunity, and wealth managers that lack the resources or in-house expertise will do well to consider partnerships with accountancy firms.”

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A press release by the government said that the inclusion ignores the clear progress of the country in terms of cooperation and fiscal transparency, by irresponsibly indicating that the preferential tax regime of Panama is ‘harmful’ and that the country did not clearly commit to amend it or eliminate it by the end of 2018.

The Republic of Panama has adopted international commitments in record time, and carried out an unprecedented process to adapt its legal framework. Panama has no outstanding commitments regarding international standards of tax cooperation.

Panama adopted the automatic exchange mechanism consistent with Common Reporting Standard objectives, promoted by the OECD Global Forum. In addition, the country ratified the Convention on Mutual Administrative Assistance in Tax Matters, and has joined the Inclusive Framework of the Project on the Erosion of Taxable Bases and the Transfer of Benefits (BEPS).

In addition, through the Ministry of Economy and Finance, Panama’s commitment to review the preferential tax regimes by 2018 has been clearly stated in writing to the European Union.

These and other commitments resulted in Panama’s approval by the OECD’s Global Forum rigorous peer review process. Many European countries are active participants in the Global Forum. Panama’s score reflects the concrete advances for the modernisation of the financial system.

Given the incorporation of the country in this discriminatory list, the government has decided to call its ambassador to the European Union, Dario Chiru, to chart the future course of action.

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Anyone involved in investing in UK and Europe will be familiar with the significant political and regulatory pressures that are being exerted on corporate structures, particularly those with off-shored elements. This has been driven by international concerns about money laundering, corruption, tax evasion and terrorist financing. Instances like the infamous ‘Panama Papers’ in April 2016 (which involved the leak to a global organisation of journalists of millions of confidential papers held by the Panamanian law firm Mossack Fonseca) left many embarrassed and demonstrated how corporate structures could potentially be used for wrong doing.

1.1 UK Corporate structures
1.2 Since 2011, under the former prime-minister David Cameron, the UK had been pushing for a public register of ‘Beneficial Ownership’ to enhance transparency concerning business interests and assets. The development of the register was linked to the implementation of the European Fourth Anti-Money Laundering Directive (“4th Directive”), as well as the UK’s involvement in the G20 Anti-Corruption Working Group.
1.3 There was a consultation on a new beneficial ownership register in 2013. A law was passed in late March 2015 for the UK to adopt a register for Persons with Significant Control (“PSC”) over corporates from April 2016, which was a year earlier than it was required to do so under the 4th Directive.
1.4 The 4th Directive came into effect on June 26, 2017 requiring all member states to hold information as to the beneficial ownership of corporate entities within their territory. The UK has implemented the 4th Directive by passing the titled Money Laundering, Terrorist Financing and Transfer of Funds (Information on Payer) Regulations 2017 (the “Regulations”). The Regulations make a few additions to the already established UK PSC Register.
1.5 PSC Registers pre-4th Directive
1.6 From April 2016, UK companies and limited liability partnerships (unless exempt) are required to keep a PSC Register and file information of their PSCs at Companies House. A PSC is someone who:
1.7 • Holds more than 25% of the shares of a company, or the right to more than 25% of the assets of an limited liability partnership on winding up;
1.8 • Holds more than 25% of voting rights (if a company) or more than 25% of the rights to vote on such matters decided on by the members (if a limited liability partnership);
1.9 • Has the right to appoint or remove a majority of the board of directors of the company or those entitled to take part in management of the limited liability partnership;
1.10 • Exercises, or has the right to exercise significant control over the company or limited liability partnership;
1.11 • Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which would itself satisfy any of the above conditions in respect of either a company or limited liability partnership, if it were an individual.
1.12 PSC Registers post-4th Directive

As of June 26, 2017, changes have been introduced to the PSC regime, in order to comply with the 4th Directive, which requires member states to ensure that corporate and other legal entities incorporated within their territory, hold adequate, accurate and current information on their beneficial ownership, and that this information is held on a central register.

Two key revisions introduced to the PSC regime are:

•  Updating Companies House
  Under the old regime, most companies and limited liability partnerships under the PSC regime opted to notify Companies House of their PSCs in the submission of the annual Confirmation Statement (which has replaced the Annual Return).
  Under Article 30 of 4th Directive, Member States must hold ‘current’ information of companies and so, as of June 26, 2017, companies and limited liability partnerships are required to update their PSC register within 14 days, and Companies House within 28 days, where there have been changes to the information on their PSC Register.
• Alternative Investment Market (“AIM”) Companies
  Under the old regime, certain companies (including AIM companies) were exempt from the requirement to maintain a PSC register, because they are subject to the disclosure requirements contained within Chapter 5 of the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules (“DTR5”).
  From June 26, 2017, the DTR5 exemptions changed. Companies traded on an European Economic Area or Schedule 1 specified market, will still be exempt. However, the PSC regime now applies to AIM companies (and companies on other prescribed markets including NEX Exchange companies). Under transitional requirements, AIM companies and NEX Exchange companies now falling within the PSC regime had until July 24, 2017 to comply with the same obligations as other companies by holding a PSC Register and recording PSC information at Companies House.

Overseas companies
Whilst the PSC Regime makes it easier to trace the true owners of a UK company or limited liability partnership, the UK government announced at the anti-corruption summit in May 2016 that the UK would create a register showing the owners and controllers of overseas companies that own property in the UK or participate in UK government procurement (“Overseas Register”).
The UK property industry attracts a lot of foreign investment and is often held by overseas entities (many nominee companies), which are not subject to the PSC regime. Purchasing property is a classic way of laundering illicit funds and opaque offshore ownership structures can cause great difficulty for regulators and enforcement agencies trying to prevent this criminal enterprise. The suggestion is that the register will also extend to entities bidding for government contracts so that the government can know who they are dealing with.

The government is currently analysing feedback following its consultation on the proposed Overseas Register, which ended in May 2017. It has been proposed that the information contained within the Overseas Register will largely mirror the disclosure requirements for UK companies under the PSC regime, with the register being publically available at Companies House.

Non-compliance with the Overseas Register could have a very serious impact on UK property investors under the proposals.

Already own UK property?
The proposal is that overseas entities that already own UK property will have a one-year transitional period to register their beneficial owners. If they do not want to disclose this information, they may opt to dispose of their UK property, or restructure the way they hold assets. If, after the transitional period, an overseas entity still holds UK property, and they have not registered their information with the Overseas Register, they will be prevented from dealing with their property.
A note will be added to the title register of the property to reflect that the entity will not be able to transfer, charge or grant a long lease of the property, unless they comply with the Overseas Register registration requirements. A similar concept exists under the existing PSC Regime, where non-disclosure can lead to an owner being prohibited from exercising their rights under their shareholding in a company or their rights in their membership of a limited liability partnership.

Want to acquire UK property?
Under the proposals, overseas entities that wish to buy property will be able to apply to Companies House to participate in the Overseas Register and will be allocated a registration number. When the overseas entity acquires the property, a note will be put on the title register that reflects the restrictions (on transferring the title of the property or registering a long lease or a charge) over the property if the entity is not fully compliant with the requirements of the Overseas Register.
Whilst the restrictions on disposal may incentivise most to participate in the Overseas Register, some entities may not look to deal with the property, so the government is considering whether to make it a criminal offence to fail to provide or update information to the Overseas register.

The future
Clearly the government is committed to increased corporate transparency for those investing in the UK, particularly into the vital property industry; however, this is not without its problems. Some question the legitimacy of these registers and whether they really do help to combat money laundering and corruption. Despite increasing pressure, some offshore tax havens are still resistant to these publically accessible registers. Some are concerned for those who have a legitimate need to protect beneficiaries such as the vulnerable for whom assets are held on trust.

We will have to see how far the UK is willing to take its commitment to being a world leader in corporate transparency. The right balance will have to be struck without deterring investment at a time when the UK is facing economic and political uncertainty.
Alexander Pelopidas is a Partner at solicitors Rosling King

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May 10, 2016: In light of the announcement made by the United States Department of Justice and the United States Department of the Treasury’s Office of Foreign Assets Control regarding a ten-year investigation of the waked organisations, Panama’s Attorney General, Banking Superintendent, and Securities Market Superintendent have issued the following statements regarding immediate actions taken in Panama:

• From Kenia Porcell Diaz, Attorney General of Panama: My office has launched an immediate investigation into the specific individuals and organizations named in the US action. We are cooperating fully with U.S authorities in this matter, and we will ensure justice is served by the people of Panama. This investigation further strengthens our efforts and resolve to vigorously attack criminal activity in Panama so that the rule of law prevails.
• From Gustavo Villa, Secretary General, Banking Superintendency of Panama: As a result of the US actions against the Waked Economic Group and in our overriding interest in protecting the best interest of depositors of Balboa Bank & Trust and its subsidiaries, the Superintendency of Banks of Panama (SBP) is seizing the administrative and operating control of the banking group. The SBP reiterates the stability and soundness of the Panamanian banking system.
• From Marelissa Quintero de Stanziola, Securities Markets Superintendent of Panama: In the interests of protecting the financial assets of investors in Panama’s securities market, we have assumed control of the brokerage house Balboa Securities Corp. This action, which is effective today, will allow brokerage activities to continue but under the oversight and secure control of the Superintendency.

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