IFC Review • 2016 13

WE IN THE INTERNATIONAL ADVISORY COMMUNITY ARE entering a brave new

world of increasing transparency. Th e fi nancial aff airs of our high net worth client base face hugely increased and unprecedented levels of global scrutiny where once almost total domestic privacy was ensured by the use of opaque trusts and entities overseas.

Th e new age we fi nd ourselves in was, of course, largely prompted by the huge fi scal pressure placed on OECD governments by the international crisis that began in 2008. It was given added fuel by a continual succession of data thefts that began at around that time from many well-known banks, trust companies and law fi rms.

Th e readership of this publication need no reminder of the Foreign Account Tax Compliance Act (FATCA) enacted by the United States in 2010 or of the Common Reporting Standard (CRS) approved by the OECD Council in 2014. Indeed, it is high in our collective consciousness that we are now in the fi rst calendar reporting year for the early adopting CRS jurisdictions and that most of the rest of the world seems set to follow in due course. However, it is important to appreciate that, although FATCA and the CRS are hugely signifi cant in their own

Global Transparency: The Brave New World

By Andrew Park, Director, Tax Dispute Resolution, BDO LLP, London

right, they are part of a broad direction of travel towards ever increasing transparency in that:• smaller groups of governments

continue to come to further information sharing agreements beyond the CRS and FATCA – for instance, recent initiatives for the automatic exchange of benefi cial ownership information;

• local initiatives requiring details of ultimate benefi cial ownership are gathering pace – for instance, the new UK register of People with Signifi cant Ownership and Control and the anticipated transparent UK property register;

• the leaks and hacks of data from international fi nancial, legal and fi duciary fi rms to journalists and regulatory bodies continue and the experience of the last few years suggests that further leaks have almost certainly already occurred which have yet to be publicised; some may never be publicly known.

Expected ConsequencesBeyond the obvious compliance burdens imposed by initiatives such as the CRS and FATCA and the need for better data security to safeguard client records from malicious or speculative hacks and focusing, as I must as a UK

tax advisor, on the tax implications as already becoming witnessed in the UK, the new age of transparency is prompting:• a harsher, more punitive attitude

to UK residents with overseas tax irregularities – after years of off ering special incentives to voluntarily disclose, HMRC now confi dently look forward to receiving huge amounts of information and to using it to identify potential wrongdoing for themselves – accordingly, and in light also of the unforgiving public and political mood, penalty levels are going up, new types of penalties are being introduced and it is conceivable that the numbers of prosecutions will increase as HMRC gets more ‘hard evidence’ through information exchanges;

• a new harsher climate also towards professional advisors – after years of largely ignoring the role of all but the most blatant facilitators in practice and of largely just focusing on wrongdoing by UK resident taxpayers, HMRC for one, is now beginning to bring in punitive new measures to use against UK and overseas advisors who they hope to be able to demonstrate - from the avalanche of information they expect to get - acted as ‘enablers’ in the loss of

IFC REVIEW 2016.indb 13 07/07/2016 18:10

“Advisers face a riskier and less forgiving environment for their clients, which will place even greater professional demands on them.”

IFC Review • 2016

tax. Th e latest UK measures include new penalties and so-called ‘naming and shaming’ of advisors as well as a new corporate criminal off ence – presently still under consultation - of failure to prevent the facilitation of tax evasion. Th e stated intention is for the legislation to cover such failure by overseas advisors with regard to UK tax as well as by UK advisors with respect to UK or overseas tax;

• overseas arrangements increasingly coming under unprecedented levels of scrutiny and challenge by tax authorities – for instance, the UK has complex anti-avoidance legislation under which UK resident benefi cial owners are potentially personally assessable on the income and capital gains arising in overseas structures – such potential areas of attack are often highly technical and do not rely on proving deliberate wrongdoing – they are often initiated by HMRC on becoming aware, by whatever means, of the connection between a UK resident individual and an overseas structure and opening a formal enquiry to establish the full fact pattern;

• increasing incidences of structures coming under simultaneous enquiries in multiple jurisdictions and the respective tax authorities actively working together and sharing information.Hence advisors face a riskier and

less forgiving environment for their clients, which will place even greater professional demands on them. Th e operational and reputational risks for advisors are increasing hugely in light of the punitive new measures evolving against advisors and in light also of the seemingly undiminishing interest of the international press in publishing details of any alleged unethical behaviour. In turn, this may have an impact on the availability, scope and level of professional indemnity insurance.

What remains unchanged, at least in the UK, is that even as special amnesties and incentives to come forward are withdrawn, the benefi ts for UK residents or holders of UK assets of pre-emptively coming forward to address any potential irregularities can always be expected to far outweigh the likely outcomes where the tax authorities discover potential irregularities through enquiries initiated by the exchange or leak of information – if only because statutory penalty levels are far lower and, in practice, HMRC

are generally more inclined to take the facts presented in a voluntary disclosure on greater trust. As such, HMRC are generally much less likely to want to embark on a full enquiry to revisit all the party’s tax aff airs and those of their businesses beyond the matters for which the voluntary disclosure is required. HMRC are generally minded to believe that few people are foolish enough to come forward to make a voluntary disclosure without making such a disclosure full and complete.

The Way Forward For AdvisorsPractically, advisors need to actively:• review existing structures in even more

detail to ensure that they are fully tax compliant in all relevant jurisdictions ie, that they were set up appropriately according to existing law, that they are not caught by subsequent changes, that the interpretation of any double taxation treaties is correct, that they are not caught by previously unknown or unanticipated changes to personal circumstances or by issues of management and control;

• review procedures and training to ensure that these include explicit, demonstrable safeguards against their people acting inappropriately;

• act going forward on the assumption that all information and documentation regarding international arrangements could potentially fi nd itself in the hands of international tax authorities and adopt a more risk averse approach in documenting their actions, for example, be careful to document board meetings, record discretionary trustees exercising their independent discretion and avoid the use of any ambiguous language that could be misinterpreted;

• avoid, where possible, using complex structures if there are no genuine commercial or other non-tax purposes and the creation of such structures could be interpreted as contrived and against the wording or spirit of any relevant legislation in any potentially relevant jurisdiction;

• carefully consider whether trusts or foundations are appropriate and,

for instance, avoid using civil law foundations where founders and / or benefi cial owners are, or might become, UK resident - given that foundations presently have no certain status for UK tax law and must presently be treated based on the facts as agreed with HMRC and on which of a range of alternative UK common law constructs it is agreed with HMRC they best approximate to;

• sense check existing planning ideas and consider whether greater use can be made, for instance, of more conservative alternatives for which the tax treatment might be more certain – for instance, perhaps increasing use of insurance wrappers such as off shore portfolio bonds in certain circumstances instead of trusts – for which generous and clearly defi ned tax deferral benefi ts are available in jurisdictions such as the UK and which the UK, for one, is presently seeking to make more attractive still by removing various anomalies - even as it generally further limits the available mechanisms for tax avoidance, tax deferral and tax mitigation.

ConclusionTh ese are challenging times that place increasing demands on advisors. However, there will always be a legitimate role for international structures, not least given:• the international mobility of wealthy

people;• the wish of wealthy people to invest

and hold assets throughout the world;• the need for tax neutrality to avoid

potential double-taxation where multiple investors in multiple home jurisdictions are concerned.

More so than ever, advisors need to ensure that any new or existing international arrangements will bear close critical scrutiny in all relevant jurisdictions and that internal procedures and training are beyond reproach. Where any concerns arise, specialist advice should be sought as a matter of urgency and any confi rmed issues should be addressed pre-emptively.

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IFC REVIEW 2016.indb 14 07/07/2016 18:10