Following the introduction of a public register of persons with significant control for the British companies and LLP (from April 2016), as well as for the Scottish partnerships (since June 2017), some British dependent territories, under pressure from the UK itself, have created similar registers / databases. However, these centralized registers will be closed, and the access to data from them will be available only to the British competent authorities and only upon request. This decision has become a compromise after many years of negotiations and frictions, since the overseas territories, although partially subject to the law of Great Britain, are still self-regulatory. On the one hand, access to these closed registers / databases will enable the UK law enforcement agencies to monitor tax evasion, as well as terrorists and criminals hiding behind the anonymous companies. On the other hand, this will put an end to the requirements for the introduction of open registers of beneficiaries in the countries partially controlled by Great Britain. Among such states are the Cayman Islands, the British Virgin Islands, the Isle of Man, Bermuda, Guernsey, Jersey, and others. As the British Virgin Islands (hereinafter - the BVI) are the most popular with our clients among offshore jurisdictions, we will consider legislative changes in connection with the agreements reached with the UK.

So, after the exchange of official communications between the governments of the BVI and the UK on June 12, 2017 the Law on Beneficial Ownership Secure Search System (hereinafter - BOSS) was adopted, and from June 30, 2017, it came into force. In accordance with this law, at the moment, the work is in progress on creating a central database (server) on the BVI, which will contain all the information and supporting documents about the beneficial owners of all corporate entities and legal entities registered in this jurisdiction. This database will be used to facilitate the effective transmission of information on the ultimate beneficial owners by the competent BVI authorities at the request of an authorized law enforcement agency of the United Kingdom.

The beneficial owner in the BOSS Act is defined as a natural person who ultimately owns or controls directly or indirectly 25% or more shares or voting rights of a legal entity. It should be noted, that, however, there is a threshold of 25% or more for the purposes of the BOSS legislation for claiming a report on a beneficial owner, in other BVI legislation, on combating terrorism and money laundering, it is set of more than 10%. This means that the registration agent can request information about all persons who control more than 10% of the company’s shares. The information about the trustee or other person who controls these legal relationships is subject to disclosure, as well as information about the founder or another person with whom a nominal agreement is concluded.

The BOSS Act allows each Registered Agent to create its own databases for storing information about the ultimate beneficial owners of legal entities, which, in turn, will be available to officials of one of the following authorized competent authorities:

  • Financial Investigation Agency;
  • Financial Services Commission;
  • International Tax Office;
  • Chamber of Attorney General.

The BOSS Act requires to provide the following information for each beneficial owner:

  • name;
  • address of residence,
  • date of Birth,
  • citizenship.

The requirements for storing information in BOSS are also listed in the Law. The requirements for the relevance of data in BOSS are also established. The companies are required to notify the registered agent of any changes in the beneficial ownership or the information about the beneficial owners provided by law for filing, within 15 days from the receipt of information about such changes, indicating the date of these changes. After this, the registered agent must take all necessary steps to update the BOSS system within 15 days after receiving the notice of the changes.

Strict penalties are imposed on both companies and registered agents for non-compliance with these requirements. Strict punishment for registration agents (fine or imprisonment) is also provided for provision of knowingly false information concerning a corporate legal entity, since this is considered a crime. In conclusion, we note that the BVI has concluded a number of agreements on the exchange of tax information with other countries. In addition, information on beneficial owners has always been available to competent authorities that have submitted a proper request to the relevant BVI body. And this means that BVI, like other offshore jurisdictions, are moving towards transparency with long strides, and the offshore companies are gradually losing their anonymity.


What is important to know when choosing a foreign bank in 2018

Recently, an increasing number of citizens, concerned about their future, the future of their family or business, face the issue whether it is possible to open an account in a foreign bank and what is required for this? Which bank to choose for this: European, offshore bank, etc.? Historically, (and sometimes it is quite justified) the trust to a foreign bank is higher than to local institutions, and obtaining, for example, a loan is possible on more favorable terms than in Ukrainian banks, moreover, many people wish to keep the confidentiality of their actual income.

Regardless of whether you want to open a foreign bank account online in offshore or onshore jurisdictions, a number of aspects need to be considered and analyzed when choosing a bank. That is why the company Finance Business Service works with more than 100 banks around the world. We ask only really necessary questions in the process of selecting banks for our clients.

The current situation in the banking shows that financial institutions are increasingly facing problems of unexpected loss of correspondent accounts in US dollars. In general, the US is only a part of the global pressure on the international banking sector, we should not forget about the OECD program on automatic information exchange, and about the guidance of the BEPS. The complexity of automatic exchange for international banks is not only in the risk of losing a significant number of customers, but also in understanding what and whom to provide as part of the exchange. Tension in the banking sector is clearly traced through the complication of the procedure of opening accounts and building of long-term cooperation, directly influenced by the financial regulators of international banks.

In such a situation, real risk diversification is possible only if you have a spare foreign bank account. It is worth mentioning the risks of owning a bank account in only one country. The vivid examples are the hacker attacks on financial institutions of different countries, the volatile policy of central banks, often aimed at reducing the number of financial institutions in the country, etc. The main criteria for choosing a bank

  1. Before choosing the most suitable bank for opening an account, first of all, you should determine the goals that you need to achieve using this account. They can be very diverse:
    • Saving of personal funds;
    • Private investment of private funds;
    • Earnings on the Internet or online commerce;
    • Sale of goods and services to foreign partners, etc.

    If the purpose of opening an account is a standard commercial activity with a large number of incoming and outgoing payments, then the most important criteria for choosing a bank will be the speed of the transfers carried out by the bank and the convenience of managing the account; in particular - the availability of a remote account management system (Internet bank), as well as the average cost of one transaction. It is also important to clarify whether the bank is working with the list of currencies you need. In the case when the main task of opening an account is to keep the financial resources already earned by the entrepreneur, usually attention is given to the bank’s reliability rating. The interest on the deposit will be relatively low in the banks of high reliability category (“AA” and higher), which is due to the conservative investment policy of the banks of this group. If an entrepreneur raises the issue to make his free funds, untapped in the main business, continue to “work”, creating additional income, then one should consider the option of opening an account in one of the investment banks that place client’s funds professionally in international stock markets, getting relatively high interest income.

  2. Is it necessary to visit a bank to open an account? Many customers prefer to open an account without going to the bank. Opening of accounts is possible remotely, subject to certain requirements of the bank. In addition, in some cases, you should be prepared for the possible need to meet with a representative of the bank in Kyiv or in one of the regional offices of the bank, for example, in Europe (depending on the bank).
  3. Tariffs, cost of service, availability of necessary bank products When analyzing tariff rates, it is necessary to pay attention to the availability of additional bank commissions, for example, for considering a package of documents for opening an account, etc. At the same time, it is important to clarify the fate of these resources, if the bank refuses to open an account - as the tariffs of banks may specify that these commissions are not returned. The banks of Europe (Liechtenstein, Switzerland, Austria, etc.), being respectable and reliable - mainly refer to savings banks. Tariffs for their services are much more expensive than in commercial banks with a priority rate for conducting banking operations. The availability of certain bank products may sometimes become a key factor when choosing a bank. Some banks offer cards that do not contain the owner's name, some cards require special transfer from the account, others are attached directly to the account, etc. Brokerage accounts will be necessary for transactions with securities, FOREX-accounts - for the operations in foreign currency markets.
  4. Do you want to give minimum information about yourself and your business to the bank? The general trends in the world financial system are such that now almost all banks request a lot of detailed information about the business and its ultimate beneficiaries. Banks are forced to comply with the requirements imposed on them by law, otherwise they can incur catastrophic amounts of fines, remain without a license ... The list goes on. Be very careful if your counselor / lawyer recommends working with the bank, arguing that “this bank does not ask anything”. There is a big risk that then you will look for the specialists to return your money earned for years of hard work.
  5. Bank secrecy. If this is one of the main criteria for you and your business, then, on choosing a bank:
    • pay attention to the international agreements of the jurisdiction in which the bank you are interested in is registered, about mutual assistance and the provision of information to other countries;
    • choose a country with high standards of bank secrecy and strict laws regarding the disclosure of bank secrecy (Switzerland, the Cayman Islands, Hong Kong, Singapore, etc.)
  6. The availability of personnel with the knowledge of the Russian language, Russian-speaking Internet banking, technical support in Russian. This is an important point for many customers.

Conclusions

We wish to think, when preparing to become a client of a foreign bank, a potential client chooses his own bank himself. But the reality is that everything is exactly the opposite in banking for non-residents. The bank always makes a decision to open or not to open a bank account for you as non-resident. And it will not risk the existing customer base, the license, the freedom of the bank’s executives and the Compliance officers, because they are responsible (up to their freedom) to ensure that risky and problematic clients not to be included in the number of bank’s customers. Banks have their own and often quite vague list of characteristics that should be initially inherent to a potential non-resident client.

The company Finance Business Service is ready to help you and take painstaking and extensive work on itself. We suggest answering the questions of a specially designed brief for the professional choice of a foreign bank to open an account. It includes a number of issues, best adapted to the general banking standards and requirements. Based on the answers provided, we analyze and select the most suitable financial institution in accordance with your goals and plans.

Note:

By registering a company abroad with the help of Finance Business Service, you receive special tariffs for the package of services, while the standards of the constituent instruments of the companies registered by us meet the strictest requirements of international banks. Thus, the documents will be ready for immediate submission to the bank you need.

In recent years, the world community has realized the importance of the corporate transparency. The Panama Papers, high scandals with corruption and tax evasion have caused a radical shift in the attitude towards anonymous companies. The creation of the registers of beneficial owners (hereinafter referred to as "the UBO registers") is considered as the main instrument for increasing transparency. This idea underlies the EU legislation, FATF recommendations, G20 initiatives, the OECD project to combat on Base Erosion and Profit Shifting.

For the EU Member States, the obligation to establish the UBO registers, stipulated by the fourth Anti-Money Laundering Directive (AMLD IV), entered into force on June 26, 2017. However, there are still many questions about how the UBO registers will work in practice. The European states independently define in the national legislation such terms as "legal entity", "legal structure" and "UBO". The concern about data confidentiality is also increasingly growing in Europe, as the countries are discussing who should be allowed access to the registers and for what purpose. Will they provide information only to law enforcement and regulatory authorities, or yet to financial institutions within the framework of the client verification procedure? Each country also decides independently whether the register will be public. At present, it boils down to an interpretation of that idea who has "legitimate interests".
For example, in Germany, since October 1, 2017, the Transparency Register has been introduced. It contains the information on the identity of beneficial owners and detailed information on the share held by the legal entities, partnerships, as well as with respect to the foreign trusts and funds without legal capacity, which purpose is to serve their founders. The register will be available to the government agencies, individuals who are required to verify the clients and the third parties, such as journalists, public organizations and potential commercial partners, provided that any such third party can demonstrate a legitimate interest in the access to the information.
Great Britain has introduced a register of people with considerable control. This register was introduced one of the first - April 6, 2016, but it contains less information than the UBO register (for example, it does not include information about the beneficial owners of the trusts). The registry data is publicly available, but the British law provides for the ability to close registry data in cases when a company or partnership has reason to believe that the disclosure of the controller may endanger the controller or his relatives.
Following the UK, the UBO registers are being introduced in the British-dependent territories. All crown lands and overseas territories have signed an agreement to enhance the exchange of information on the beneficial owners and controllers between the law enforcement agencies. Thus, only this year such commitments in the national legislation have been introduced by the Governments of Jersey, Guernsey, the Isle of Man, the British Virgin Islands and the Cayman Islands. In these countries, the requirements for the companies to maintain the UBO register have already been introduced. The rest offshore British-dependent territories are ready to provide the British authorities with information on the beneficial owners upon request.
As a result of pressure from the Organization for Economic Cooperation and Development, other offshore jurisdictions also introduce into their legislation a requirement for the companies to maintain the UBO registers. So, in the Seychelles, the amendments to the Law on International Business Companies have been adopted in July 2016. The amendments provide for each Seychelles company to maintain the UBO register, keep it at the registration address in the Seychelles and provide data from the register to law enforcement and regulatory authorities upon the request. The similar requirements have also been introduced into the legislation of Belize, having adopted the amendments in the Law on International Commercial Companies, which came into effect from July this year.
In March 2017, the Companies Act has been amended in Singapore, demanding to keep the registers of the beneficiaries and nominees not only for the companies registered in Singapore, but also foreign companies operating in Singapore. Following Singapore, the government of Hong Kong plans to introduce the relevant changes into its legislation. According to the results of public hearings held by the State Financial Services Bureau, the Parliament has developed the amendments to the Companies Act, which were published in the form of a bill in the official newspaper in June 2017. After the adoption of this law, the companies established in Hong Kong will have to provide the information on beneficial owners only to the competent authorities.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. The companies must keep the information on the beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized state bodies.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. Companies must keep information on beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized public authorities.
Ukraine was among the leaders in this race to disclose the ultimate beneficiaries. The Law on amendments to certain legislative acts of Ukraine regarding the determination of the ultimate beneficiaries of the legal entities and public figures was adopted in 2014, and the May of 2015 was established as the deadline for the fulfillment of the obligation to provide the data on the ultimate beneficial owners to the state register. Moreover, all the data provided were entered in the open register.
The UBO registers simplify the process of customer verification, so they could be extremely valuable for a number of organizations conducting detailed inspections (for example, banks and other financial institutions). But there must be a 100% certainty for this that data can be relied on from the register without being exposed to an increased risk. Unfortunately, the request for additional information from the individuals when creating a company does not guarantee the accuracy, timeliness and completeness of the information provided. To reduce the chances for those who wish to provide false or inaccurate information about the beneficial owner in state registers, special technologies that are already used in the private sector should be used (for example, cross-checking, large data, artificial intelligence used to prevent fraudulent Internet purchases).
Currently, there are many other gray areas around how each state implements the requirement to introduce the UBO registers into the national legislation. On the main issues - who is the beneficiary owner, who is the administrator of the register, its controller - each state has a certain freedom in interpretation. All this complicates the use of the information from the official sources, which is rather scattered. It should also be taken into account that state authorities can be also corrupt and protect a certain business or politicians, and no one will ever know about it unless a leakage similar to the Panama Papers occurs.
The real value of the information about the beneficial owners of the companies is the creation of one centralized register. Thus, the Article 30 of the AMLD IV suggests that by 2019 the UBO registers of the EU member states can be linked through the European Central Platform, providing an integrated source of the UBO information throughout the EU. It is still not clear how exactly this will work, but the European Commission is tasked with drawing up a report on the assessment of the technical conditions and the order of ensuring the interconnection by June 2019.
As for the rest of the countries, unlike the EU, it is, of course, impossible to establish universal obligations for all of them. However, the voluntary initiatives already exist, and the countries will join them under the pressure of international and public organizations. After the Global Anti-Corruption Summit in London in May 2016, the OpenOwnership was created - a project to create an open Global Register of Property Rights, the data from which will be interconnected between jurisdictions, industries and with other data sets. The creator and manager of the Global Registry is a consortium consisting of leading international organizations for the struggle for transparency: Transparency International, OpenCorporates, Global Witness, Worldwide Web Foundation, Open Contracting Partnership, ONE Campaign and B Team. The first country that officially confirmed its readiness to integrate data on the beneficial owners of companies into the Global Register was Ukraine in April of this year.
Only in the last year the mankind has significantly advanced in the direction of increasing the transparency of corporate ownership. And this trend is only increasing. The most civilized countries either have already introduced the requirements for the maintenance of the UBO registers, or they are at a certain stage of consultations on this issue. While access to the data remains one of the most controversial issues, the countries are striving to find the right balance between maintaining the principle of transparency and fears about the safety of the potentially vulnerable individuals and cyber security. However that may be, it is becoming increasingly difficult to hide the information about the owners of the company through offshore zones and nominal shareholders. The business will have to revise its corporate structures and learn to work in full transparency, including the ability to track any transactions. The companies need to create a literate history today for both enterprises and their beneficiaries.

On July 27, the list of organizational and legal forms of foreign counterparties on the countries / territories was officially published (and therefore entered into force), operations with which can be recognized as controlled for the purpose of control of transfer pricing (TP). This list was approved by the Resolution of the Cabinet of Ministers of Ukraine No. 480 of July 4 of this year (hereinafter - the List) for the implementation of the provisions of the Tax Code of Ukraine on TP, namely the clause "d" 39.2.1.1 art.39, and it is another criterion for the recognition of the operation as controlled one. If we look more widely, this can be seen as the next step of our government within the framework of global campaign on de-offshoring, namely to fulfill the commitments to implement the BEPS plan (its minimum standard), which Ukraine assumed with the acquisition of an official BEPS membership from 1 January, 2017.

The list includes more than 90 organizational and legal forms from 26 countries and territories. The absolute majority of organizational and legal forms on the list are partnerships (about 80% of total amount). There were also some forms of investment funds and companies, limited liability companies, associations, international companies, etc. It is noteworthy that the List includes the forms of the companies not only of those jurisdictions that are traditionally used in tax planning schemes (for example, the British LLP or the UAE free zone company), but also organizational and legal forms in the jurisdictions with traditional tax load (Germany, France, Poland) and even exotic for our perception types of the companies of Asian countries (Korea, Japan, Israel).

The Government used the data of the OECD report on taxation of partnerships, as well as the information bases of the International Bureau of Fiscal Documents, to compile the List. The main criterion was the payment of profit tax.

That is, from now on, the fiscal authorities believe that if a non-resident is established in one of the organizational and legal forms of one of the states specified in the List, he does not pay the tax on the profit of the enterprise, including the income outside the state of registration, and / or he is not a tax resident of the country of registration. Accordingly, all the transactions of the Ukrainian taxpayers with such counterparties, with the volume of more than 10 million UAH for the reporting period will be recognized as controlled, and therefore the TP rules will be applied to them.

The only way to avoid control is to prove the opposite, that is, the payment of tax by a non-resident in the country of registration in the reporting year. Then business transactions with this non-resident in this reporting period will be recognized as uncontrolled, if, of course, there is compliance with other criteria defined by law. This possibility is provided for by the part 2 par. 39.2.1.1 art.39 of the Tax Code.

The bad news is that neither the procedure for confirming the tax payment nor the list of documents by which such payment can be confirmed has been established. And this means that, in practice, a taxpayer may face difficulties in proving the fact of paying a tax in the country of registration to the Ukrainian fiscal authorities.

The matter of the possibility of applying the provisions of agreements on avoidance of double taxation to the payments of such non-residents is not less important. Most likely, it will become difficult to use in practice the advantages of the international agreements in the tax sphere for non-residents, whose organizational and legal form is included in the List.

Another important issue - which reporting period will the transactions with counterparties be started to monitor, which organizational and legal form is included in the List? We assume that the disputes will inevitably arise on this issue, since the Tax Code contains two conflicting norms. Thus, the second part of par. 39.2.1.2 Article 39 establishes the moment when this criterion of the controllability of business transactions comes into force - on 1 of January of the reporting year, following the calendar year in which the countries were included in the List. This means that the deals made since 2018 will fall under the control of the TP.

At the same time, cl.41 Subsection 10 of the Transitional Provisions of the TCU states that economic transactions with non-residents, which organizational and legal form is included in the List, are recognized as being controlled from the date of introduction of the List. And this means that this norm makes report for the operations committed this year already.

We still incline to the first option, because the second one contradicts at once two basic principles of the Ukrainian tax legislation, established in art. 4 of the TCU: presumption of legitimacy of the decision of the taxpayer in the event of legal conflict and stability - a ban on the introduction of any elements of the taxes and fees in less than 6 months before the start of the new budget period.

Summarizing, we want to note that Ukraine is moving towards a worldwide policy to fight with tax evasion and approving the concept of paying taxes at the place of business and earning income. It is also obvious that in the future such a struggle will only intensify. The approval of the List has become, even though expected, but still a challenge for the businesses using the tax optimization schemes with the help of the foreign partners and counterparties. We see this as another signal to the need of revision of such structures.

Ukrainian Parliament

The Verkhovna Rada registered draft law "On the tax sovereignty of Ukraine and offshore companies" № 4380 (hereinafter - the "Project number 4380") and the Draft Law "On Amendments to the Tax Code of Ukraine in connection with the adoption law of Ukraine" About tax sovereignty of Ukraine and offshore companies "» № 4381 (hereinafter - the "project number 4381") on 12 April, 2016.

According to the explanatory memorandum to the draft decision number 4380 of this law aims to determine the content of the tax sovereignty of Ukraine, as well as the content of the sovereignty of foreign states. Besides this, lawmakers plan to minimize the use of offshore companies to evade taxes in the territory of Ukraine or to deal with corruption offenses and money laundering from crime, terrorist financing or other socially dangerous criminal offenses, including those committed by politically exposed persons - Ukrainian residents.

Also Project number 4380 is assumed a definition of concepts which have not yet been enshrined in the legislation of Ukraine, in particular, "the anonymous company", "anonymous account", "offshore company", "offshore zone", "offshore country" and many others. An interesting innovation is the proposal of creating the Unified State Register of offshore jurisdictions and types of offshore companies the holder of which is the Ministry of Finance of Ukraine. With the introduction of this bill lists the Cabinet of Ministers of Ukraine and the low-tax offshore countries will be upgraded into force together with the list of some offshore companies with signs offshore and given to the latter the right to make changes to such lists that will make such lists more dynamic.

The explanatory note to the draft number 4381 substantiates that the adoption of the bill due to the need to achieve the objectives set out in the Law of Ukraine "On the tax sovereignty of Ukraine and offshore companies" reducing tax evasion using offshore companies, including illicit budgetary compensation VAT. Legislative initiative is also the author pointed out that the adoption of these draft number 4381 changes will increase revenue and ensure a balance of the consolidated budget of Ukraine.

Автор: Alexander Sagaidak

senior lawyer of the Finance Business Service company