Worldwide: Ultimate Beneficiary

Cayman Islands and BVI. On April 8, 2016, a UK-Cayman Islands exchange of notes was signed regarding the sharing of beneficial ownership information. Also on that day, a similar UK-British Virgin Islands (BVI) agreement was entered into. The notes are the same, mutatis mutandis. Articles 2 and 3 of the technical protocol attached to the UK-Cayman Island notes read as follows:

  1. The Government of the United Kingdom has established a comprehensive central register of people with significant control ("PSC register") to be held and maintained by the Companies House. This will be a publicly accessible central register in respect of companies, limited liability partnerships (LLPs) and Societates Europaeae (SEs) incorporated in the United Kingdom. This will be online and searchable free of charge by both name of corporate entity and name of individual. Some PSC information is suppressed from the public central register under exceptional circumstances. All PSC information, including the information suppressed from the public central register, is available to the United Kingdom law enforcement authorities.
  2. Acting only in furtherance of their functions, Cayman Islands law enforcement authorities will be able to request from the United Kingdom law enforcement authorities all of their non-public adequate, accurate and current beneficial ownership information from the PSC register.

By June 30, 2017, each of the BVI and the Cayman Islands will establish a centralized platform of beneficial ownership information to be maintained by the general registry. The platform will provide timely access to adequate, accurate, and current beneficial ownership information about private corporate and legal entities incorporated in the Cayman Islands and the BVI, respectively, as these entities are specifically defined in the EU's fourth Anti-Money-Laundering (AML) Directive. That directive appears to apply only to corporate entities and not to trusts; thus, the notes apply only to private companies. It is not clear, however, whether the BVI and Cayman registries will be publicly searchable.

The UK PSC register and the notes define a beneficial owner as any natural person who ultimately owns or controls a corporate or legal entity through direct or indirect ownership of more than 25 percent of the shares or voting rights or ownership interest in that entity or through control via other means (see article 3(6) of the fourth AML Directive).

The notes reflect the Lough Erne declaration (from the 2013 G8 summit in Ireland, in which "[t]ax authorities across the world should automatically share information to fight the scourge of tax evasion." Moreover, at the 2015 London meeting of the Overseas Joint Ministerial Council in London (involving elected representatives of Anguilla, Ascension Island, Bermuda, the British Virgin Islands, the Cayman Islands, the Falkland Islands, Gibraltar, Montserrat, Pitcairn, St. Helena, Tristan da Cunha, and the Turks and Caicos Islands), it was agreed that company transparency was a high priority; the British territories agreed to hold companies' beneficial ownership information in central registers (or similarly effective systems), with UK law enforcement authorities to develop timely, safe, and secure information-exchange processes for the purposes of law enforcement.

Information sought under the notes will be provided within 24 hours. An urgent request will be attended to within an hour. Due to the criminal element that may be associated with the ultimate beneficiary, the notes provide for possible criminal penalties against a beneficiary who is alerted that information is sought.

A request for information sought by a participant in the exchange of notes must be submitted to the designated point of contact, which will be permanently staffed by individuals who have passed security vetting tests to a standard agreed with the UK National Crime Agency. The notes dictate that the designated point of contact be provided with both secure premises and IT systems.

United States. Proposed Treasury regulations (REG-127199-15) seek to pierce the veil behind a non-US-owned LLC that elects to file as a disregarded entity. A May 5, 2016 letter from the Treasury Secretary to the House of Representatives explains that such a foreign-owned (non-US) LLC has no obligation under the Code to obtain a tax identification number or to report information to the IRS unless it receives US-source income or carries on a US trade or business. Thus, the foreign owners of non-US assets or bank accounts are shielded.

The proposed regulations amend section 301.7701-2(c) and treat a domestic disregarded entity that is wholly owned by one foreign person as a domestic corporation separate from its owner for the limited purposes of the reporting and record maintenance requirements under section 6038A. Thus, the entity must file an IRS form 5472 information return with respect to reportable transactions between the entity and its foreign owner or other foreign related parties. Those transactions are recognized under general US tax principles if the entity is a corporation for US tax purposes. The entity must maintain sufficient records to establish the accuracy of the information return and of the correct US tax treatment of such transactions. Moreover, the entity has a filing obligation and consequently must obtain an enterprise identification number (EIN) by filing an IRS form SS-4 that includes responsible-party information. The introduction to the proposals states that they do not alter the framework of the existing entity classification regulations, including the disregarding of some entities.

Originally published by Canadian Tax Highlights, June 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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