I spend much of my day chatting to clients and needless to say, there's no knowing what topics will be on the agenda from one day to the next. We might discuss everything from the recent family holiday or the new nanny, to the plans for the family's latest commercial venture or business activity. That said, one topic that's coming up with increasing frequency is the automatic exchange of information, heralding the start of a new era of tax transparency.
I suppose the popularity of this as a topic of conversation shouldn't really come as any surprise given recent press coverage – and particularly given that over 100 jurisdictions have now signed up to exchange information with each other under the new Common Reporting Standard (CRS) provisions.
So what should families and their enterprises be doing to ensure that they understand what the new era of transparency means for them?
Are existing structures still relevant and compliant?
Very often, structures holding a family's wealth will have been put in place for good reason and after due consideration - but many years ago. However, time moves on and so does tax law. Family circumstances change, with younger family members growing up and becoming more internationally mobile. Businesses expand and extend their global footprint into jurisdictions that the founder would only have dreamt of when he or she started their entrepreneurial endeavours.
The upshot of all of this is that the automatic exchange of information under the new CRS will result in family structures coming under much closer scrutiny on a more regular basis. Revenue authorities around the globe fully appreciate the complexities that a family of wealth face in ensuring full compliance with tax laws across jurisdictions, but going forward will have increasingly little sympathy with those who do not appear to place sufficient due care and attention on getting matters right. In jurisdictions such as the UK, HMRC have made it clear that they will be looking not just at the minority who deliberately evade tax but also at those who carelessly do so. Additionally, new "naming and shaming" provisions are going to be introduced - with the potential to seriously harm an influential family's hard earned reputation.
Checking that structures remain tax compliant and fit for purpose is critical. Early action is key especially in jurisdictions where there are "Disclosure Facilities" that will enable, for a short window of time only, errors and omissions to be proactively disclosed to tax authorities, typically also providing a less severe outcome than would be the case if the error or omission were instead discovered by a tax authority.
What about "beneficial ownership registers"?
The UK introduced a public beneficial ownership register from 30 June 2016 under which the ultimate beneficiaries of UK corporates and LLPs have to be disclosed and will appear on a publically available register. Other EU jurisdictions will be following this lead, introducing their own versions by June 2017. The UK may also introduce similar registers for trusts, and for non-UK companies that hold UK land or property.
A key concern here will of course be privacy given the public nature of the registers. High-profile families may naturally have questions about how they can protect their family's privacy and security. It is therefore important for families to understand what information about their affairs might be made publically available and what options they might have to protect their position. For example, in the UK it is possible to make a special application for limited disclosure in certain circumstances.
Getting off on the right foot
It's very important for families to understand what is going to be disclosed about their personal affairs and their enterprises and by and to whom. This may be stating the obvious, but an essential starting point is to ensure that the information held and to be exchanged is correct in the first place. Dealing with a tax authority enquiry that starts off on the basis of incorrect data can be a time consuming, futile and expensive exercise, easily avoided by ensuring correct data is held and exchanged at the outset.
More positively, more transparency is also encouraging some tax authorities to reach out more to better understand their customers and their values and approach to risk, which in turn lessens the likelihood of those misunderstandings that can potentially trigger long drawn out tax controversies. In my experience time invested in open and honest dialogue like this generally benefits all parties.
So when does exchange all start?
The short answer is that it's already happening!
Financial institutions (including trusts) started exchanging information from September 2016, and full implementation of the CRS will have occurred by September 2018. The impact of these data exchanges will be greatest on families with cross-border assets and businesses, as there will be multiple timetables to be aware of and comply with.
Anyway, the long and the short of it is that the new era of transparency is upon us. It is not going to go away and families need to embrace it as the new normal and ensure that they are prepared for its impact. Appropriate actions should be taken now to ensure that families do not inadvertently fall foul of the new sanctions that non tax compliance will bring. Families ignore the importance of this at their peril!
If you would like to discuss the above further, please contact our team, who will be able to assist you themselves or put you in touch with other professionals in the Deloitte network able to advise on CRS, beneficial ownership registers, voluntary disclosure facilities and the like as appropriate.
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.