The recent leak of the Panama Papers has reinvigorated worldwide public calls to try to put an end to tax evasion and minimisation through tax havens. This has resulted in many countries proposing more restrictive rules for offshore trusts and shell companies in an attempt to quash alleged international tax avoidance schemes.

International trust structures have come in for particular attention after the leaked documents highlighted features that may be used to avoid disclosures and consequently taxes.

The New Zealand government has called for an independent review of its disclosure rules in relation to foreign trusts. The key issue is that New Zealand’s disclosure rules relating to trusts are vulnerable as very little information is required. Currently, only the name of the trust and trustees must be disclosed, neither of which are likely to yield information on who actually benefits from the trust.

We expect the independent review to result in more onerous disclosure obligations for foreign trusts, possibly including details of the names and place of residence of the creator(s) and beneficiaries. This may also include details of all beneficiaries who have received a benefit from the trust and the amount. While some countries, such as Panama, have resisted entering into International Agreements for the exchange of information with Australia many so called tax haven countries have done so and pressure will be mounting on those who have not to make such arrangements, if not with Australia, then with other countries with whom Australia has such agreements.

The data dump has also stimulated further discussions on tax avoidance in Europe and the proposal that all trusts be required to disclose beneficiaries. The legislation and the general law concerning trust structures is different in every country and most of Europe uses the civil law, rather than English law, so a universally consistent regime for trusts is not likely.

The United Kingdom is not in favour of wide disclosure laws as UK trusts, like our own, do not always list specific beneficiaries and members of a class of beneficiaries may change.

It has announced plans to create a public register and reveal the identities of beneficial owners of shell companies in a move claimed to be aimed at preventing company tax avoidance. The proposed public register would hold information on those with an interest in more than 25% of company shares or voting rights, or otherwise control how the company is run. Companies will have an obligation to provide updated information at least once every year, including the individual’s name, date of birth and nationality.

Australia’s Assistant Treasurer, Kelly O’Dwyer, has recently announced that the current government plans to follow suit with its own public register for shell companies in a move to prevent company tax avoidance. The proposed scheme is consistent with the G20 standards.

“It does improve transparency. It means that the public and law enforcement agencies know who ultimately controls the company. It means it is a lot easier to expose wrongdoing or fraudulent conduct. It makes it much easier to disrupt illicit financial flows and it makes it much, much harder to engage in tax avoidance” said Australia’s Assistant Treasurer, Kelly O’Dwyer.[1]

Increasing tax transparency and trying to stop tax evasion should no doubt be promoted. However, there are serious privacy concerns in revealing information to competitors and exposing the financial position of individuals.

While a public register would create greater transparency of ownership by allowing people to see who is really in charge, it may also capture individuals with good reasons to protect their privacy. If there is to be an Australian register, we would counsel it to be a private register that can only be accessed by the tax authorities rather than the general public.

Several other responses have been made through political processes and the ATO to the revelations concerning the Panama Papers so far and more can be expected.

How long will it be until both the UK and Australia follow the EU and NZ in requiring further disclosure about trust beneficiaries? It seems likely this is not a question of ‘if’ it happens but instead a question of ‘when’ it happens.

  1. http://www.theguardian.com/australia-news/2016/apr/22/coalition-to-create-public-register-to-reveal-true-owners-of-shell-companies

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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John Tucker

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