Omar Khan considers recent developments relating to the transparency of beneficial ownership of UK companies.

The “Panama Papers” revelations earlier this year and a new Prime Minister seeking to re-establish ”One Nation” politics add considerable impetus to the existing political will to tackle tax evasion and avoidance, with substantial investment by the UK authorities in specific projects to achieve those aims. 

The last Government’s policy paper on tax evasion and avoidance, published in 2013, outlined plans for minimising the ”tax gap”, i.e. the difference between the revenue HMRC calculated it should have received and the revenue actually collected. As well as statements against avoidance and evasion by large multinational corporations and wealthy individuals, the policy paper emphasised the importance of transparency in company ownership. In short, complex company structures make it more difficult to identify those liable to pay tax. It was suggested that new rules designed to enhance transparency of ownership would make it more difficult for companies and individuals to “launder money, evade and avoid tax, finance terrorism, bribe officials, hide stolen assets and evade financial sanctions”, building on recommendations of the G20’s Financial Action Task Force designed to catch evasion and avoidance facilitated by channelling funds and assets through shell companies that are often registered in offshore financial centres, thereby concealing the identity of the ultimate beneficial owner.

Against this backdrop, new legislation in the form of the Small Business, Enterprise and Employment Act 2015 has created fresh requirements for UK-incorporated companies which, since 6 April 2016, must record their beneficial ownership structure in a central register of “persons with significant control” (PSC), maintained by Companies House.

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A PSC is an individual who:

• holds or controls more than 25% of a company’s shares;

• holds or controls more than 25% of a company’s voting rights;

• can control the appointment or removal of a majority of the board;

• has the ability to exercise significant influence or control over the company; or

• has the ability to exercise significant influence or control over any trust or firm which (under one of the above conditions) would meet the criteria for a PSC.

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Clearly, what will amount to “significant influence or control” is subjective, though statutory guidance is available, this is the area likely to prove most contentious in interpreting the legislation.

If an individual holds their interest in Company A through Company B, Company B may be a ”relevant legal entity” (REL). The REL must be entered on the PSC register of Company A. The individual’s PSC information would be recorded on Company B’s PSC register.

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Information kept on the PSC register includes:

• name, service address, nationality, date of birth and usual residential address;

• in the case of an REL, the corporate/firm name, registered/principal office, legal form and governing law and applicable company register and number; and

• the nature of the control exercised by the PSC with reference to prescribed statements set out in the “Register of People with Significant Control Regulations 2016”, to record which of the five conditions of significant control the registrable person or relevant legal entity meets.

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Where a definitive position as to ultimate control has not yet been determined, or where “disenfranchisement provisions” have been invoked, the PSC register must include certain prescribed statements confirming what steps have been taken to identify registrable persons or relevant legal entities.

It will no doubt be said by the UK Government that it has led the way globally by introducing the PSC register. And in many ways it has, noting that this is unfinished business, both politically and legally.  Although the register only applies to companies incorporated in the UK, the Government is preparing to consult on the provision of beneficial ownership information of foreign companies undertaking certain economic activities in the UK, such as real estate purchase.

The EU’s Fourth Anti-Money Laundering Directive, in force from June 2017, will further require Member States to introduce central registers of the beneficial owners of companies and trusts. The Brexit effect is unlikely to make this something in which the UK will not take part. Many other countries are expected to follow the UK’s example, particularly in view of the fallout from the “Panama Papers” controversy.

Fundamental to greater transparency is that the PSC register is searchable online, free of charge and, in contrast to similar registers to be introduced in several offshore financial centres, its dataset can be scrutinised by journalists, campaigners, businesses, economists and consumers.

There is now general consensus that the privacy loss of a publically available register for innocent beneficial owners is justified in the interests of fighting corruption and curbing the funding of serious criminal activity. Developing nations are said to lose as much as twice the money they receive in foreign aid to hidden company ownership, as money and assets are illicitly transferred abroad.

Despite the apparent unstoppable impetus towards greater transparency, concern has been expressed about the burden the UK legislation imposes on companies, which must take all reasonable steps to establish every PSC. This will be straightforward for most companies, but in some cases will prove complex and a failure to comply by the company and/or its officers will be a criminal offence. Further, if an individual knows or reasonably ought to know they are a PSC, they are under a duty to notify the company; failing to do so will also be a criminal offence. Clearly, diligence and awareness will be paramount for companies wishing to avoid the financial and reputational damage of falling foul of these new transparency provisions.