New weapon in fight against tax evasion

A recent high-profile tax case involved football star Lionel Messi. Picture: AP

THERE have been many famous tax evasion cases over the years. The recent one involving footballer Lionel Messi has allegedly resulted in tax evasion of around €4m. The scheme has been described as one which routed funds via companies in a number of countries, including the UK, to avoid reporting earnings in Spain. Proceedings are ongoing and Messi and his father, Jorge Horacio, deny any wrongdoing.

In recent years, there has been a move towards cracking down on tax evasion (and avoidance) in the UK. Another phase of this movement is in progress now with the new provisions relating to transparency in company ownership and control about to come into force.

We all (at least theoretically) know about the long tradition of hiding ownership of businesses and assets through layers of companies, foreign entities and trusts. You can look on the Companies House register to see who the shareholders and directors of a company are, but you might find a lot of nominee companies and trusts listed, which lead you to more and more of the same. Your search might lead you all the way to the Cayman Islands or Gibraltar, but the true person in control could be living next door.

This not only facilitates tax evasion in some cases, but also provides a lack of transparency and accountability in terms of corporate governance and responsibility.

Some early steps were taken in this direction a few years ago when the law imposed a requirement for each company to have at least one natural person as a director. Previously you could have companies holding all the directorial posts. The next significant phase is scheduled for next year and establishes a central public register of persons with significant control of companies (the PSC Register). If organised properly and enforced effectively, this could make significant progress in tackling the problems of such hidden ownership.

The key to how this will work is in the definitions. A PSC is defined as an individual who (either on their own or with others) meets one or more of certain conditions. The conditions include:

• owning directly or indirectly more than 25 per cent of the shares or voting rights;

• holding the right directly or indirectly to appoint or remove a majority of the board of directors;

• having the right to exercise, or actually exercising, significant control or influence over the company; and

• where trustees of a trust or the members of a firm are not legal persons, meeting one of the aforementioned conditions in their capacity as such or as they would do if they were individuals, and the individual has the right to exercise or actually exercises significant control or influence over the activities of that trust or firm.

Companies will be required to keep an internal register of persons with significant control from April 2016. More importantly, from June 2016, firms will be required to file such information at Companies House to form the public PSC Register.

The new law provides for enforcement. Companies face duties of investigating, obtaining and updating information on PSCs. If there is a failure to take the relevant steps, an offence is committed by the company and every officer in default (punishable by imprisonment or a fine).

This is just one of a series of measures, which also includes the abolition of bearer shares and corporate directors, designed to keep pulling in the direction of transparency. It is another door slammed in the face of those who abuse the system and every such door that is closed makes it a little bit harder.

• Emma Arcari is an Associate & Alison Marshall is a Partner with CCW Business Lawyers www.ccwlegal.co.uk