UK: CRS And Beneficial Ownership

In today's difficult economic climate, countries need more than ever to ensure that they collect all the tax revenues that are due to them in order to fund public expenditure and reduce public debt. The arrival of new technologies has made it easier to collect and exchange information to fight tax evasion.

As the Panama Papers have shown, financial information can be easily stored and retrieved electronically on a global scale. Unsurprisingly, therefore, Governments have been considering the introduction of a global system for the automatic exchange of information. Although the implementation of this system has proceeded at speed, and with minimal scrutiny, it raises major questions about several issues:

1. 'Fantastically corrupt countries'

David Cameron's unguarded comments to the Queen, which were caught on camera, are a stark reminder of the dangers faced by individuals in many parts of the world. Indeed, a number of countries that have embraced the OECD's global standard for information exchange regularly appear on international corruption and crony-capitalism indexes, such as the 2015 Corruption Perceptions Index (CPI) published by Transparency International and the 2016 crony-capitalism index published by the Economist. This raises serious concerns about the potential use of information obtained through automatic exchange, and it may not be a coincidence that a large number of corrupt countries that have joined the information exchange bandwagon.

2. The missing $951m – the issue of cyber-security

As David Cameron's private conversation with the Queen also shows, information that is intended to stay private can easily be intercepted and put to different uses. Recent news about cyber-security breaches – such as the attack on the SWIFT system that led to the unauthorised transfer of $951m (of which $81m could not be recovered) belonging to the National Bank of Bangladesh; and statistics released by the UK authorities showing that two-thirds of large UK businesses are hit by cyber-attacks and that the UK tax authorities are hit by 15m malicious emails annually (leading the government to pledge 1.9bn towards cyber-security) - clearly show the risks posed by automatic information exchange. The recent case involving TalkTalk (the UK telephone and broadband provider) shows the risk of data loss for customers (on 12 May 2015, TalkTalk announced that a recent hacking attack (which resulted in the personal data of nearly 160,000 people being accessed, including phone numbers and bank details) cost the company 42m – or half of its profits. In the words of a cyber-security expert: 'Getting their hands on all the personal and financial data involved in a tax return is a cyber-criminal's dream. Armed with an individual's banking and financial history, their employment information, date of birth, address and login details, a criminal could carry out a sophisticated identity theft. For instance, they could potentially take out a mortgage in that person's name.
In the case of the new EU public registers of beneficial ownership not only hackers, but also common criminals may gain access to sensitive information. Although the EU rules provide that access to the new registers will require the demonstration of a 'legitimate interest', a number of countries (such as the UK) have already opted for full public access, which shows the disproportionate nature of the new measures.

3. A word of warning from the European Court of Justice and data protection agencies

In the recent 'Facebook' case, the European Court of Justice (ECJ) held, inter alia, that:

  • 'legislation permitting the public authorities to have access on a generalised basis to the content of electronic communications must be regarded as compromising the essence of the fundamental right to respect for private life'
  • 'legislation not providing for any possibility for an individual to pursue legal remedies in order to have access to personal data relating to him, or to obtain the rectification or erasure of such data, does not respect the essence of the fundamental right to effective judicial protection.'
  • 'Legislation [that] authorises, on a generalised basis, storage of all the personal data (...) without any differentiation, limitation or exception (...) is not limited to what is strictly necessary [to achieve the legitimate public objective pursued]'

Unsurprisingly, therefore, a number of European data protection bodies have raised concerns about the new rules on automatic exchange of information. These include –

  • the European Data Protection Supervisor (EDPS);
  • the Article 29 Working Group (that was established under Art. 29 of the European Data Protection Directive);
  • the AEFI Group of experts appointed by the EU Commission to supervise the implementation of the EU Automatic Information Exchange Directive; and
  • the Human Rights Directorate of the Council of Europe.

In particular, the European Data Protection Supervisor lamented that 'a number of corrections should have been made (...) to better address data protection issues' and the AEFI Group warned the EU about the risks of rushing through the new rules. In the words of the independent experts 'The Council and the Member States are urged to provide an achievable implementation timetable. Consideration should be given to a phased approach to implementation. This could be achieved by pushing back reporting by 1 year, with the reporting being made in 2018 in respect of both 2016 and 2017 data. (...) The Commission, the Council and the Member States must conduct a careful analysis of legal, constitutional and data protection implications of [the new Directive] and ensure that all steps have been taken to comply with data protection rules.' (...) Ultimately, if the reporting is rushed, the quality of data that governments will be exchanging will be lacking.'

4. When politics gets in the way of policy

In a democratic society based on the rule of law, one would have expected governments to sit up and take notice of the advice proffered by data protection experts, as well as consider the implications of the ECJ's rulings. However, too much is at stake, as the seeds for the global standard of automatic information exchange were sown at the G20 London Summit of 2 April 2009, when governments were struggling to save the world from financial collapse, and the effects of indiscriminate information collection and processing had yet to be revealed by Ed Snowden in 2013 (the ECJ judgment in the Facebook case relied heavily on the effects of those revelations).

Before Snowden, and ever since 9/11, governments were singly focused on collecting information on individuals without any regard for the fundamental rights of privacy and data protection, something that came back to haunt them. For example, the UK Intelligence and Security Committee recently warned the government that 'Given the background to the draft Bill and the public concern over the allegations made by Edward Snowden in 2013, it is surprising that the protection of privacy – which is enshrined in other legislation – does not feature more prominently'.

However, recent events have made it politically unthinkable for governments to pause for breath in their campaign launched nearly seven years ago, when the world was different. The stakes appear to be too high, not least for the OECD, which ironically is comprised of unelected bureaucrats that enjoy extensive privileges, such as exemption from taxation in respect of their salaries. This, and the fact that the new rules have been pushed through by ministers (G5 and G20 leaders – see the introduction to the OECD Commentary) with little involvement from parliaments, shows that the new rules suffer from a democratic deficit.

5. When nobody listens, it's time to speak up

Unfortunately, nobody seems to be willing to raise the disproportionate nature of the rules developed by the OECD and endorsed by G20 governments. Not offshore jurisdictions, who are perceived as inherently dodgy and in many cases depend upon G20 countries. Not the banking community, which has been reeling from a loss of credibility due to a string of appalling scandals. Not even professional bodies, which appear unable or unwilling to elaborate a cohesive message around the underlying legal issues.

In the light of incessant press campaigns and revelations, people might be excused for taking a cautious approach. However, the issues raised by a system of indiscriminate exchange of information without safeguards for individuals' right to privacy goes to the heart of democracy. I am, of course, not talking about the right to privacy of tax evaders – who do not deserve it - but of the right to privacy of everybody else.

For this reason, I have written to the European Data Protection Supervisor, the Art. 29 Working Group, the AEFI Group of Experts and the Human Rights Directorate of the Council of Europe urging them to take urgent action.

6. Don't throw out the baby with the bathwater

As the fight of tax evasion is an important objective, the letter to these bodies contains proposals which would enable countries to collect their taxes in a way that would respect the fundamental right to privacy, especially in cases where confidentiality is a real concern (e.g. in countries where corruption is rife). These proposals include the implementation of final withholding tax agreements (under which financial institutions would withhold the correct amount of tax and transfer it to the relevant tax authorities), and the idea – which was first mooted by another professional – of introducing a global clearing house which would provide financial institutions with the relevant tax calculations based on data fed into a single secure system, thus by-passing direct data traffic between poorly resourced tax authorities.

In addition to reducing the intrusion into individual's private life to the minimum, the taxpayer's option to choose between information exchange and withholding tax would reduce the administrative burden for tax authorities, which under the current system of global exchange of information would have to make sense of many terabytes of complex information.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.