20 三月 2020
In a world with emergency borders springing up, the relentless march towards trust transparency continues. A fuller analysis is provided in our earlier e-bulletin, with the below highlighting some of the key aspects.
In 2017 the Fourth Money Laundering Directive (4MLD) created the trust register – version 1. Registration was required for UK express trusts with UK tax liabilities and for non-UK express trusts which had UK source income or UK assets which incurred a UK tax liability.
Now, the trust register – version 2 - is being unveiled by the implementation of the Fifth Money Laundering Directive (5MLD), with trustees' obligations being extended considerably.
Despite regulations implementing 5MLD coming into force on 10 January 2020 (the EU's last implementation date), these did not include the required changes to the trust register, to allow for further consultation.
Following the initial consultation in the previous April, a further consultation document was issued in January 2020. Whilst many aspects of the consultation raised as many queries as they clarified, what did become clear is that trustees need to examine their new obligations closely.
The scope of the trust register - version 2 - has been significantly broadened, in line with the UK's EU obligations. The remit has been expanded to include all UK express trusts (regardless of whether there is a UK tax liability) and non-EU resident express trusts where they have a business relationship with an obliged entity in the UK (or if they acquire real estate in the UK).
Given the UK's rich heritage in trusts, such an extension could have exponentially increased the numbers of trusts requiring registration. However in line with 5MLD's objective that measures should be effective and proportionate, the UK government has carved out whole swathes of trusts which would otherwise be caught.
Such trusts are characterised by the fact they are already supervised by HMRC (or other regulatory bodies) or their purpose and structure means payments to beneficiaries are predetermined and highly controlled. These include statutory trusts, pension trusts, charitable trusts, trusts already registered elsewhere and trusts holding life insurance policies, income protection policies or death in service benefits.
Despite the above carve out, a significant number of new trusts will be caught by 5MLD's extension.
As above, non-EU resident trusts which have a business relationship with a UK obliged entity are now required to register.
HMRC's interpretation of 'business relationship' is uncertain, as their approach has differed in the April and January consultations.
What is clear is that the new obligations apply to 'business relationships' post 10 March 2020, which have an 'element of duration' – an ongoing and repetitive nature to the relationship, which at the outset is expected to last more than 12 months.
The April consultation suggested a narrow interpretation, with only non-EU trusts deemed to be UK administered by having one UK resident trustee being caught. However the January consultation seemingly retreated from such an interpretation.
We await the final guidance for clarification on this significant issue.
Having broadened the scope of trusts within the register, 5MLD also expands what can be done with information.
For the first time, the public will be able to see the information provided, subject to meeting certain conditions.
The information needed regarding beneficial owners remains similar to 4MLD, with the country of residence, nationality and the nature and extent of the beneficial interest also being required.
For the majority of trusts, version 2 allows those who can show a legitimate interest to access the trust data. In acknowledgement of the understandable concerns of advisors, trustees and beneficiaries, the government has clarified that each request will be rigorously reviewed on its own merits, using a 'reasonableness' test. Access will only be given where there is evidence that it furthers work to counter money laundering or terrorist financing activity. Any requests need to provide detailed, specific identifying details and supporting information substantiating the money laundering/terrorist financing suspicion.
The second type of potentially much wider public access is where a registered trust holds a controlling interest in a non EEA legal entity. The public requests for such data do not need to show a legitimate concern of money laundering/terrorism, however the government retains an overreaching ability to reject a request if it reasonably believes it is not in line with the directive's objectives.
Importantly, the legislation, in line with 5MLD, provides exemptions for government to refuse access to the data (even if a legitimate interest is demonstrated) if, by granting access to all or some of that information, it would create a disproportionate risk to the beneficial owner – (i) due to the risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation or (ii) because the beneficial owner is a minor or otherwise legally incapable. However the data regarding other beneficial owners will still be made available.
However as trustees may not be notified if an information request is made, HMRC is likely only to use this exemption if the information submitted at the time of registration is comprehensive enough to guide them to this conclusion.
Trustees should therefore exercise extreme caution and thoroughness both in relation to sensitively asking such questions of the other parties, and in how they word the disclosure – the safety of their beneficiaries could depend upon it! We await to see how the courts will view actions from disgruntled beneficiaries if they allege this duty has not been adequately fulfilled.
Whilst current 4MLD timing requirements continue to apply trusts within its remit, for those trusts caught by 5MLD's extended scope, the deadline for registration is 10 March 2022 for trusts currently in existence and those created before 9 February 2022. We await the final legislation with interest!