New Legislation Requires Increased Transparency from Offshore Tax Havens
May 7, 2018
Last week, Britain’s House of Commons passed unprecedented legislation that will require owners of companies registered in Bermuda, the Cayman Islands, and the British Virgin Islands (BVI’s) to identify themselves in public databases. These jurisdictions have long been offshore tax havens where shell companies have sheltered money. That is now set to change with the new laws designed to “stem the global flow of ‘dirty money’”.
A History of the Legislative Changes
Five years ago then Prime Minister David Cameron promised a register of beneficial ownership of companies registered in the U.K. The register came into force in 2016 but did not apply to Britain’s overseas territories. Since that time, the Panama Papers and Paradise Papers scandals exploded, putting the spotlight on these tax havens. Concurrently, the EU created tougher new anti-money-laundering directives, the most recent of which is scheduled to come into force next year.
In the intervening period of time, many of these havens have vigorously opposed any changes and proposed more limited access to information. An all-party effort, led by Conservative MP Andrew Mitchell and Labour MP Margaret Hodge continued to push for increased transparency. Last week, the Speaker rejected several compromise amendments which would have made the disclosure requirements less stringent, due to the fact that the proposed amendments were tabled late. Instead, the government accepted the more rigorous amendments to the bill proposed by Mitchell and Hodge.
Mitchell told the House of Commons that the justification for the amendments was made “elegantly but passively” by the Panama Papers and the data leaks that revealed the actual owners of thousands of offshore companies. More than 50% of the 214,000 offshore companies named in the Panama Papers were based in the BVI’s, and 70% of the 25,000 offshore corporations named in the Paradise Papers were incorporated in the Cayman Islands and Bermuda.
According to Statistics Canada, Canadians are holding at least $90.5 billion in these three jurisdictions.
The New Requirements
Under the new Bill, the U.K.’s 14 overseas territories, including the aforementioned BVI’s, Cayman Islands, and Bermuda, must introduce public ownership registers by the end of 2020 or face having such registers imposed by the U.K. government.
Reaction from Affected Jurisdictions
In an official statement, Alden McLaughlin, Premier of the Cayman Islands called the new legislative requirements “a gross affront to the constitutional relationship we currently have with the United Kingdom” and stated that “this amendment is based solely on prejudice and a wilful misunderstanding of our current regulatory framework.”
David Burt, Bermuda’s Premier noted, in his own official statement: “this attempt to legislate for Bermuda from London is a return to base colonialism and is an action that has no place in 2018”.
Orlando Smith, the Premier of the BVI’s had his own objections to the new legislation, pointing to privacy concerns and noting “as a constitutional democracy, the BVI believes in the rule of the law. According to the rule of law and our constitution, the fundamental rights of privacy of all citizens and corporate entities will be protected and upheld.”.
The U.K overseas territories say that they are considering legal options to challenge the new legislation.
Corporate Records in Canada
The new legislative change means that these islands will now have more open corporate records than Canada. There is currently no requirement for corporate owners in Canada to list their names in provincial or federal corporate registries. Beneficial owners can shield their identities through lawyers and figurehead directors. It is possible for a person to register a corporation, open a bank account, and send and receive money overseas all without disclosing their name.
We will continue to follow developments in this matter and will provide updates as they become available. In the interim, if you have questions about personal tax planning or corporate tax planning contact Mark Feigenbaum. We can help you reduce your overall tax burden, shield your business from liabilities, and remain compliant and avoid pitfalls that result from improper tax planning. We provide full tax services with respect to your cross-border business initiatives. We offer services to clients in the US, Canada and around the world. Contact us at email@example.com, or call us at (905) 695-1269 or toll free at (877) 275-4792 to learn more about how we can help.