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Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011
PHASE 1 + PHASE 2
August 2011 (reflecting the legal and regulatory framework as at June 2011)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011: Combined: Phase 1 + Phase 2: Legal and Regulatory Framework Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews, OECD Publishing. http://dx.doi.org/10.1787/9789264118164-en
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. Revised version, September 2011. Detail of revisions available at: http://www.oecd.org/dataoecd/37/2/48645493.pdf OECD 2011
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TABLE OF CONTENTS 3
Table of Contents
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Information and methodology used for the peer review of the United Kingdom. . . 9 Overview of the United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 45 53
B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 58 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 68 C. Exchanging information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange-of-information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange-of-information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 71 73 84 85 87 88
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4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations . . . 95 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . .101 Annex 2: List of all Exchange-of-Information Mechanisms in Force. . . . . . . .103 Annex 3: List of all Laws, Regulations and Other Relevant Material . . . . . . .111 Annex 4: People Interviewed during On-Site Visit . . . . . . . . . . . . . . . . . . . . . .115
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EXECUTIVE SUMMARY 7
Executive summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in the United Kingdom (UK) as well as practical implementation of that framework. The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and in turn, whether that information can be effectively exchanged with its exchange of information partners. 2. As a major world economy and with one of the leading financial centres in the world (City of London), the UK has a long history in negotiating double taxation conventions (DTCs) leading to a network of agreements covering 122 jurisdictions. Further, it has negotiated taxation information exchange agreements with 22 jurisdictions, 8 of which are also covered by a DTC. This leads to a network of exchange of information agreements with 136 jurisdictions which includes all of the UKs main economic and diplomatic partners as well as financial centres. The large majority of these agreements allow the UK to exchange information to the standard. Nevertheless, the UK should continue its program of updating the last of its older agreements. The UK is also able to exchange information under some multilateral mechanisms. 3. The UK legal environment ensures in most circumstances that the necessary ownership information is maintained for all relevant companies, partnerships, trusts and other entities and arrangements. This is in particular thanks to the registration requirements for companies and limited partnerships, anti-money laundering legislation requiring a range of service providers to conduct customer due diligence, and requirements to report information to HM Revenue and Customs for tax purposes. Nevertheless, further action should be taken to either ensure that robust mechanisms are in place to identify the owners of bearer shares or amend its legislation to eliminate such shares. 4. The UK legislation also contains provisions requiring accounting information and underlying documentation to be kept for a minimum of five years for all relevant entities and arrangements. Further, UK legislation ensures that bank information is available for all account-holders.
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8 EXECUTIVE SUMMARY
5. In cases where the taxpayers name is known, access to information for international exchange of information (EOI) purposes is ensured through information gathering powers granted in the UK tax law as well as strong sanctions and a strong compliance culture. However, a noteworthy shortcoming has been identified as the UK cannot currently use its statutory information gathering powers for international exchange of information purposes where the name of the taxpayer is not known. As a result element B.1 is considered not to be in place. The UK should ensure that there is a legal basis to access third party information for EOI purposes in line with the standard even in cases where the name of the taxpayer cannot be established. The UK should within six months of the Global Forums adoption of this report provide an intermediate report on steps taken to address the recommendations made in this regard. 6. With its involvement in developing a very comprehensive network of tax agreements, and its key position in international trade, the UK is a very active country in the field of exchange of information in tax matters, receiving approximately 1 200 requests a year. This volume of requests and the will of the UK authorities to provide comprehensive answers to their partners show the deep involvement of the UK in exchanging information for tax purposes. However, several peers expressed their concerns that it takes too much time to receive information in cases where a formal information notice has to be issued and approved by a Tribunal, in particular in cases regarding bank information. The UK should review the process for issuance of a formal notice to obtain information with a view to ensuring that it is compatible with effective exchange of information in tax matters. 7. Most international exchange of information for direct tax purposes is dealt with by an EOI Team in the Centre for Exchange of Intelligence (CEI) within HMRCs Risk and Intelligence Service in London. The EOI team is sufficiently resourced to ensure its mission is being exercised in a good way, even considering the very large number of EOI matters it manages. Due to extensive information holdings, including access to many registers, about half the responses to international requests for information in tax matters are provided by the competent authority without needing to exercise information gathering powers. 8. Notwithstanding the need to strengthen some areas of the UK system, all 22 of the UKs peers that provided detailed comments indicate that the UK is a very important and, notwithstanding some imperfections, a very good EOI partner. The UK is committed to the international standards of transparency and exchange of information for tax purposes, actively exchanging information for international tax matters with a large network of jurisdictions across the globe.
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INTRODUCTION 9
Introduction
Information and methodology used for the peer review of the United Kingdom
9. The assessment of the legal and regulatory framework of the United Kingdom (UK) and the practical implementation and effectiveness of this framework was based on the international standards for transparency and exchange of information as described in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information For Tax Purposes and was prepared using the Global Forums Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on the laws, regulations, and exchange of information mechanisms in force or effect as at June 2011, other information, explanations and materials supplied by the UK during and after the on-site visit that took place on 7 to 11 February 2011, and information supplied by partner jurisdictions. During the on-site visit, the assessment team met with officials and representatives of the relevant UK public agencies including HM Treasury; HM Revenue & Customs (HMRC); Financial Services Authority (FSA); Companies House; Department for Business, Innovation and Skills (BIS), Office of the Third Sector (Cabinet Office) and Charity Commission for England and Wales (see Annex 4). 10. The Terms of Reference breaks down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchange of information. This combined review assesses the UKs legal and regulatory framework and the implementation and effectiveness of this framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made regarding the UKs legal and regulatory framework that either: (i) the element is in place; (ii) the element is in place but certain aspects of the legal implementation of the element need improvement; or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. In addition, to reflect the Phase 2 component, recommendations are also made concerning the UKs practical application
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10 INTRODUCTION
of each of the essential elements. As outlined in the Note on Assessment Criteria, following a jurisdictions Phase 2 review, a rating will be applied to each of the essential elements to reflect the overall position of a jurisdiction. However this rating will only be published at such time as a representative subset of Phase 2 reviews is completed. This report therefore includes recommendations in respect of the UKs legal and regulatory framework and the actual implementation of the essential elements, as well as a determination on the legal and regulatory framework, but it does not include a rating of the elements. 11. The assessment was conducted by an assessment team composed of two expert assessors and two representatives of the Global Forum Secretariat: Yanga Mputa, Deputy Director with the South African Revenue Service; Koki Harada, Deputy Director with the Japanese Ministry of Finance; as well as Beat Gisler from the Global Forum Secretariat.
1. 2. 3.
The currency of the UK is the Pound Sterling (GBP). In 2010 the average exchange rate GBP/USD was 1 GBP = 1.546 USD. As at 22 February 2011, GBP 1 = EUR 1.1805. (Source: Bank of England). Source: IMF World Economic Outlook Database, accessed 20 October 2010. www.uktradeinfo.com/index.cfm?task=summaryTrade, accessed 31 March 2011.
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INTRODUCTION 11
4. 5. 6.
The Crown Dependencies Jersey, Guernsey and Isle of Man are all members of the Global Forum. Some of the Overseas Territories, namely Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat and Turks and Caicos are Global Forum members. As of 1 March 2011. Parliament of the United Kingdom website, MPs, Lords and Offices, www.parliament.uk/mps-lords-and-offices/lords/lords-by-type-and-party/
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12 INTRODUCTION
Legal system
17. The UK does not have a single legal system since it was created by the political union of previously independent countries. Today the UK has three systems of law each having its own court system and legal profession: England and Wales, Scotland, and Northern Ireland. The systems in England, Wales and Northern Ireland, are based on common-law principles while the Scottish legal system is a hybrid of common-law and civil-law principles. There is no written (codified) constitution. The constitution thus consists mostly of a collection of disparate written sources, including statutes, judge-made case law, and international treaties. There is no technical difference between ordinary statutes and constitutional law. To remove any possibility of conflict in the case of a tax treaty, the texts of such treaties are incorporated into UK domestic law and the specific UK legislation that achieves this states that the provisions of the agreement shall have effect notwithstanding any other enactment. Secondary legislation is made in the form of statutory instruments, most commonly Orders in Council, regulations, rules and orders, which are issued by parliament followed by approval by her Majesty by Order in Council or approval by a Minister of the Crown.7 18. The implementation of EU legislation is based on s. 2(1) of the European Communities Act 1972. Based on this law, European law is considered to be a valid and binding source of UK law. Where European law exists on a particular subject, it can override any inconsistent UK law, including Acts of Parliament. Section 2(2) provides a general power for further implementation of EU obligations by means of secondary legislation. 19. The following steps have to be taken to bring a signed DTC or TIEA into force: The arrangement is scheduled to a draft Order in Council (secondary legislation), which is laid before the House of Commons (the lower House of the UK parliament). Once the House of Commons has approved the order in draft, it is transmitted for approval by her Majesty by Order in Council. Once the Order is made, the arrangement becomes law in the UK.
Taxation system
20. Taxation in the UK is split between central and local government. Central government tax revenues come primarily from a mixture of taxes on income, capital gains and consumption. The majority of national taxes, including income tax and VAT, as well as national insurance contributions are administered and collected by Her Majestys Revenue and Customs
7. When referring to acts, regulations and schedules the references section, regulation and paragraph are used respectively. The same convention is applied in this report.
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INTRODUCTION 13
(HMRC), a government department accountable to the Chancellor of the Exchequer. The Commissioners for HMRC are the UK competent authority for the purposes of exchange of information under tax treaties, including double taxation conventions (DTCs) and taxation information exchange agreements (TIEAs) which are given effect for EOI purposes through s. 173 of Finance Act 2006. 21. Under the UKs tax system, liability to pay taxes on income and capital gains is primarily determined by residence status. UK resident companies and the vast majority of UK resident individuals are liable to tax on their worldwide income and gains wherever they arise. Further, UK source income is generally subject to UK taxation regardless of the place of residence. For individuals, residence in part depends on the amount of time an individual spends in the UK. A small minority of individuals (who are UK resident, but not UK domiciled, or not ordinarily resident in the UK) can elect to be taxed under the remittance basis which means their foreign source income and gains are only taxed when remitted to the UK. For companies, UK residence applies if a company is UK-incorporated or if its central management and control are in the UK. 22. For the majority of UK taxpayers, income tax is collected in full by their employer or pension provider through the Pay As You Earn (PAYE) system or, in the case of savings income, the tax due is deducted and accounted for at source in the case of interest or covered by a tax credit in the case of dividends. For individuals whose income tax liabilities are not covered by PAYE, deducted at source, or covered by a tax credit, the UK operates a self-assessment tax regime, which includes rules on notifying liability to tax and obligations to complete a tax return when asked to do so by HMRC. 23. In tax matters, independent tribunals play an important role. Appeals in particular cases are heard in the first instance in the First Tier Tribunal, which also considers applications by HMRC to use certain statutory powers to obtain information. Appeals will proceed to the Upper Tribunal, followed by the Court of Appeal or Court of Sessions (Scotland) and finally the Supreme Court, which is the ultimate judicial authority in the UK.
Overview of commercial laws and other relevant factors for exchange of information
24. The Companies Act 2006 (Companies Act) forms the primary source of UK company law and governs the formation and regulation of companies. The act also codifies some existing common law principles, such as those relating to directors duties, and implements a number of EU Directives. Companies are also subject to the Insolvency Act 1986, non-statutory guidance such as the UK Corporate Governance Code, and case law of the UK courts.
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14 INTRODUCTION
25. General partnerships are formed under the Partnership Act 1890, which governs the rights and duties of the partners. The Limited Partnerships Act 1907 governs the formation and regulations of limited partnerships. The Limited Liability Partnerships Act 2000 allows partnerships formed under it to have a separate legal personality and they are governed by both partnership and company law.
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INTRODUCTION 15
insurance market, with gross premium income of GBP 24.5 billion (EUR 28.9 billion) in 2008. The UK is the global market leader in marine insurance with a 17% market share (2008); exchange / securities markets: The London foreign exchange market is the largest in the world, with average daily turnover of around USD 1.8 trillion in April 2010. This represented 37% of global turnover, more than New York and Tokyo combined. The London Stock Exchange has a higher number of foreign listed companies than any other exchange and is one of the leading centres for foreign equity trading. It is also one of the leading locations for raising capital with a fifth of global further issues in the first nine months of 2009. London is also a leading centre for trading international bonds; fund management: Nearly one third of the GBP 3.7 trillion (EUR 4.37 trillion) of assets managed in the UK are managed on behalf of overseas clients. London is the leading European centre for private equity and is an important centre in the sovereign wealth market as a clearing house and a location from where some of these funds are managed; and professional services: London is one of the two leading centres for international legal services. Based on revenue the top three law firms in the world are international law firms based in London. London and the UK are a major international market for accounting and related services generating net exports of GBP 983 million (EUR 1.16 billion) in 2008. Core services include audit, tax advice, corporate finance and business recovery services.
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16 INTRODUCTION
dissolve limited companies; examine and store company information delivered under the Companies Act and related legislation; and make this information available to the public. Companies House makes sure that registered entities provide the necessary information. It examines information to ensure appropriate standards are met before acceptance and then places the information on the public record. Companies House has no power or duty to check the accuracy of the information given nor does it have any investigative powers. However BIS has extensive investigative powers. 30. HM Treasury is responsible for the Money Laundering Regulations 2007 (MLR) as amended. It provides for various steps to be taken by the financial services sector and other persons to detect and prevent money laundering. It imposes obligations on relevant persons who are credit and financial institutions, auditors, accountants, tax advisers and insolvency practitioners, independent legal professionals, trust or company service providers, estate agents, high value dealers and casinos. 31. Businesses regulated under the Money Laundering Regulations 2007 are supervised by various authorities depending on the type of business they conduct: Financial Services Authority (FSA): credit and financial institutions authorised by the FSA; Office of Fair Trading (OFT): Regulates consumer credit institutions and estate agents and holds a separate register of these businesses regulated by the OFT for AML purposes; Gambling Commission: Casinos; Professional bodies: There are 22 professional bodies representing accountants, lawyers, etc.that supervise the relevant professions; and HM Revenue and Customs (HMRC): High value dealers, money service businesses, trust and company service providers, auditors, accountants and tax advisers not supervised by another body (including FSA). 32. The FSA takes enforcement actions against firms and individuals for breaches of their AML obligations and supervisory action to address shortcomings in firms AML compliance. They also conduct thematic reviews and carry out inspections by specialist financial crime supervisors. 33. Charities play an important role in the UK society. The Charity Commission for England and Wales is a Non-Ministerial Government Department responsible for the support and supervision of charities. Similar commissions have been established in Northern Ireland and Scotland.
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INTRODUCTION 17
Recent developments
34. A new Mutual Assistance Directive was adopted by the European Council on 15 February 2011 and will come into force on 1 January 2013. 35. In June 2010, the UK announced plans to reform the financial regulatory framework to provide the Bank of England with control of macroprudential regulation and oversight of micro-prudential regulation. Under the new regime, the FSA will cease to exist and its powers will be divided between new regulatory bodies. 36. In July 2011, the UK Parliament passed legislation in Finance Act 2011 regarding HMRCs information gathering powers. The new legislation provides powers to allow access to information where the name of the taxpayer is not known in EOI cases where there is a serious prejudice to the assessment and collection of tax. Importantly, the new powers, once they come into force in April 2012 will apply from then on, in relation to tax, regardless of whether the tax became due before, on or after 2012 The new legislation also modernises powers to obtain bulk bank information (interest payments) including for EOI purposes and strengthens the power to require a legal or nominee holder of shares or securities to provide ownership details. 37. Until that legislation comes into force, the UK cannot use its statutory information gathering powers for international exchange of information purposes where the name of the taxpayer cannot be established (although it can exchange information already held by HMRC or which was provided voluntarily). These powers, which are provided for in paragraph 5 of Schedule 36, can only be used for domestic tax purposes. This results in a limitation to accessing third party information which cannot be considered to be to the international standard. 38. The UK authorities have also announced that they will extend access to information where the name of the taxpayer is not known, even in the absence of a serious prejudice to the assessment and collection of tax. Consultations are currently underway on how to implement this change prior to introducing the Bill.
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A. Availability of information
Overview
39. Effective exchange of information requires the availability of reliable information. In particular it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report describes and assesses the UKs legal and regulatory framework on availability of information. It also assesses the implementation and effectiveness of this framework. 40. A good legal and regulatory framework for the maintenance of ownership and identity information is in place in the UK. It relies primarily on requirements on the legal entities themselves to maintain ownership and accounting information. Further, financial institutions and certain professions are required to conduct customer due diligence (CDD). These requirements, along with registration requirements and obligations to submit certain information to government authorities, assure that overall relevant ownership and accounting information is available. Very few areas relevant to transparency and international exchange of information for tax purposes are devolved or regulated differently in the four countries within the UK. Differences have been analysed but none of them were considered significant in the context of this report.
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the UKs international partners have not identified any cases where a request for ownership information was not responded to because the information had not been maintained in accordance with the law.
49. Companies House statistics show that, as of 10 February 2011, more than 2.5 million registered entities were private limited companies, about 105 000 entities were private companies limited by guarantee, there were 10 000 public limited companies, 6 500 private unlimited companies and 24 SEs. Further, as of November 2010, 10 373 overseas companies (i.e. companies incorporated outside the UK) were registered with Companies House.
11. Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information.
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may be destroyed after two years from the date the company was dissolved (s. 1084 Companies Act). However, its present practice is to keep all electronic information indefinitely.
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years (s. 808 and s. 816). According to the UK authorities, in practice, larger companies frequently issue section 793 notices to gather information on all of their shareholders and others with an interest in the shares. 64. While tax returns for companies typically do not contain information on the ownership of the company, companies must keep such records as may be needed to deliver a complete and correct tax return (para. 21, Schedule 18 to Finance Act 1998) and may be required to produce these records during an enquiry (para. 27, Schedule 18 to Finance Act 1998). There are also various provisions under the Corporation Tax Act 2010 which requires a company to be able to prove continuity of at least 50% of the shareholders (s. 719). For example: where a change of more than 50% of the ownership of a trading company14 has taken place and there has been a major change in the nature or conduct of trade, trading, losses made prior to the change of ownership cannot be carried forward to set off against profits made after the change in ownership (s. 673); where a change of more than 50% of the ownership of a trading company has taken place, if the new owners feed in activity that has initial losses, these losses cannot be offset against profits arising prior to the change in ownership (s. 674); where a change of more than 50% of the ownership of a company with an investment business has taken place and there is a significant increase in capital or change in the conduct of the business, or the activities of the business prior to the change in ownership were negligible, any unrelieved management expenses and charges arising prior to the change in ownership may not be carried forward to an accounting period after the change in ownership (ss. 677 and 692); and where there is more than a 50% change in the ownership of a company carrying on a UK or overseas property company and major changes in the nature or conduct of business, losses incurred prior to the ownership change cannot be carried forward to offset against profits made after the change in ownership (ss. 704 and 705). 65. The above requirements to keep ownership information apply to UK companies as well as foreign-incorporated but UK-resident companies. 66. Corporation tax returns may be taken up by HMRC for enquiry on a risk-assessment basis. For the purposes of these provisions, HMRC regularly enquires into companies tax returns where information held would indicate that the above provisions apply (for instance, where press releases,
14. A trading company is generally a company whose business consists wholly or mainly in the carrying on of a trade or trades as opposed to holding companies.
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Service providers
68. HM Treasury is responsible for the UK Money Laundering Regulations 2007 (MLR) as amended. It provides for various steps to be taken by the financial services sector and other persons to detect and prevent money laundering. It imposes obligations on relevant persons who are credit and financial institutions, auditors, accountants, tax advisers and insolvency practitioners, independent legal professionals, trust or company service providers, estate agents, high value dealers and casinos. 69. The term financial institution covers inter alia a person whose regular occupation or business is the provision investment services or the performance of an investment activity by way of business (regulation 3(3)(b), MLR). The term trust or company service providers covers all persons or firms providing these services by way of business.15 The term covers firms or sole practitioners who by way of business provide services to other persons such as forming legal persons; acting, or arranging for another person to act as officer
15. A trust or company service providers is acting by way of business if it has set up the business with the intention to undertake relevant activity, advertises or publicises the provision of the relevant activity or receives referrals from other businesses, carries the activity out with a view to profit and the relevant activity is pursued with reasonable and recognisable continuity.
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of a company, as a partner of a partnership or in a similar position in relation to other legal persons; providing a registered office, business address, correspondence or administrative address or other related services for a company, partnership or any other legal person or arrangements; acting, or arranging for another person to act as a trustee of a trust or similar legal arrangement, or a nominee shareholder for a person other than a company whose securities are listed on a regulated market (s. 3(10)). 70. The MLR requires regulated businesses to carry out customer due diligence (CDD), i.e. to identify the customer and verify the identity of the customer on the basis of documentation, data or information obtained from reliable and independent sources. Further, CDD includes identification of the beneficial owner. Verification of the identity of beneficial owners may be done on a risk sensitive basis in such a way that the regulated business is satisfied that it has confirmed who the beneficial owner is, and this includes, in the case of a legal person, trust or similar legal arrangement, taking measures to understand the ownership and control structure of the person, trust or arrangement (s. 5(b)). In line with the Third EU Anti-Money Laundering Directive, the beneficial owner means an individual who ultimately owns or controls (whether through direct or indirect ownership or control, including through bearer share holdings) more than 25% of the shares or voting rights of the company or otherwise exercises control over the management of the company (s. 6). CDD must be undertaken when a business relationship is established, when an occasional transaction is carried out, or in certain other high-risk situations (s. 7). 71. Trust and company service providers supervised by HMRC are visited as part of a risk based assurance programme. Part of the inspection procedure is for officers to ascertain that appropriate verification has taken place of the beneficial owners. As a tax authority HMRC also receives information on a wide variety of topics which is processed through our national Risk and Intelligence Service. Any information indicating irregularities in the beneficial ownership of a company that was known to be a client of a supervised entity, or indeed any information that caused concern about the AML compliance of such an entity in any respect would be forwarded, on a risk basis, to the assurance teams for investigation.
Nominees
72. According to the Companies House, nominee shareholding is quite common for listed companies where custodian ownership is the norm. UK law does not contain any obligation to indicate the fact that shares are held in a nominee capacity though the details of the beneficial owner of the shares has to be provided if the nominee receives a Companies Act s. 793 notice (see section A.1.5, below).
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Conclusion
75. There are comprehensive provisions in company law, AML law and financial regulations requiring UK incorporated companies to keep and, to a wide extent, file ownership information with Companies House and the FSA. While carrying on business as a nominee shareholder or nominee director is regulated, nominees holding shares in a non-professional capacity are not required to maintain information on the person for whom they act. 76. Companies incorporated in another jurisdiction but centrally managed and controlled from within the UK are considered UK resident for tax purposes. In UK tax law certain tax positions are subject to a maximum shift of ownership. Therefore, such companies need to keep ownership information in order to be able to deliver a complete and correct tax return. It is also highly likely that such companies operate bank accounts in the UK and may use the services from AML regulated professions such as lawyers, external accountants and auditors. Customer due diligence conducted by financial institutions and other service providers would result in information being gathered on the owners with at least 25% interest in the company. HMRC reports that it has never experienced any difficulties in obtaining ownership information for foreign incorporated companies which were centrally managed and controlled from within the UK. Nevertheless, as there are no direct mechanisms that assure that ownership information is available for such companies, it is recommended that the UK continue to monitor the availability of ownership and identity information for these companies to ensure that all necessary information can be provided to foreign authorities in accordance with international agreements.
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Conclusion
80. Even though share warrants to bearer are reportedly rare, where such warrants exist information concerning their owners may not be available.
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liability of its members for debts of the LLP. The LLP is therefore subject to certain requirements under company law, such as in relation to accounts and audit. 82. Scottish partnerships have legal personality separate from the partners (s. 4(2), Partnership Act). However, like other UK partnerships, they are transparent for tax purposes. 83. There are also European Economic Interest Groupings (EEIGs) (Council Regulation (EEC) No. 2137/85 of 25 July 1985 on the European Economic Interest Grouping), a form of association between companies and other legal bodies, firms or individuals from different EU countries who operate together across national frontiers. An EEIG has a separate legal personality but it is transparent for UK income and corporation tax purposes (s. 842, ITA 2007 and s. 990, CTA 2010). 84. Companies House statistics show that, as of February 2011, there were approximately 18 500 registered limited partnerships, 45 500 LLPs and 236 EEIGs. Currently, 520 900 general partnerships are registered with the HMRC for tax purposes, including 379 200 two-person partnerships.19
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Conclusion
101. UK partnership, tax and AML legislation ensures that information is available that identifies the partners in any partnership that has income, deductions or credits for tax purposes or carries on business in the UK; or is a limited partnership formed under UK law.
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Income tax
106. For tax purposes, trustees are deemed to be a single person, with taxation dependent on their residency status and the nature of the trust (ss. 474476, Income Tax Act 2007). A professional trustee who is not resident in the UK will be treated as being resident if at any time he/she acts as trustee in the course of a business he/she carries on in the UK through a branch or agency or permanent establishment. The residency status of the trust is determined as follows: if all the trustees are UK resident, the trust is UK resident; if none of the trustees is resident, the trust is non UK resident; or if some trustees are UK resident, the trust is UK resident if the settlor when providing funds for the settlement was resident, ordinarily resident or domiciled in the UK.
20.
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107. Where a trust is considered UK resident, the UK asserts taxing rights on worldwide income and gains. Where a trust is non-UK resident, trustees are charged to income tax on UK source income. Beneficiaries of UK trusts are entitled to a tax credit funded by the income tax paid by the trustees. For bare trusts, income tax and capital gains tax are charged on the beneficiary, as if the trust did not exist. 108. There are two income tax provisions which require information to be provided to HMRC when a trust comes into existence: UK-resident settlors are required to notify HMRC of any settlements where the trustees are not resident in the UK (Taxation of Chargeable Gains Act 1992 schedule 5A, as amended by s. 97, Finance Act 1994); and UK-resident and non-resident trustees must notify HMRC of their chargeability to income and capital gains tax when they expect the trust to be chargeable to tax (s. 7, TMA). 109. Also, information has to be provided when assets are distributed, or on cessation if there are potential inheritance tax or capital gains tax consequences. 110. Where there is UK-taxable trust income or gains arising, the trustee has to submit an income tax return and account for any tax due. In addition, beneficiaries who are within the UK self-assessment regime have to include trust income in their self-assessment tax return. HMRC is normally notified through receipt of form 41G (Trust) Trust Details when the trustees expect to pay income tax or capital gains tax, although the use of this form is not mandatory. The form sets out the settlor, the trustees and the settled assets. 111. Irrespective of whether HMRC is notified in advance, trustees must complete the core pages of the Trust and Estate Tax Return form SA900 for every tax year as long as the trust exists and has income or gains to declare. Where the trust has no income or likelihood of income, or where all income is taxed at source (e.g. tax deducted from bank interest or dividends with a tax credit) and that tax is equal to the trustees liability HMRC practice is to require trustees to complete a full return only once every five years (s. 8A, TMA 1970)21
21.
If a return notice has been issued, a nil return still has to be submitted. HMRC may then under their care and management powers (s. 1, TMA) decide not to issue returns for future years. But as a matter of policy HMRC will issue a return every five years to check the position of the trust.
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Inheritance tax
114. Irrespective of their residence, trustees must file IHT returns when assets exceeding GBP 325 000 (EUR 384 000), irrespective of their location, have been transferred by a UK-resident settlor to the trust and on every tenth anniversary thereafter. The settlor will be liable to tax where the trust is not regarded as resident in the UK, i.e. its general administration is not ordinarily carried on in the UK and a majority of the trustees are not resident in the UK (s. 201 and s. 216 IHT Act). The tax return principally details information relating to the settlor and trustees on whom the taxing provisions fall. Supplementary pages include details on when and to whom gifts or other transfers are made from a trust and if assets ceased to be held on discretionary trust. 115. A professional who acts to set up a non-resident trust for a UK settlor must inform HMRC within three months of the settlement (s. 218, IHT Act 1984). They are required to provide the name and address of the settlor and the names and addresses of the trustees.
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trustees have a duty of care to act in accordance with the wishes of the settlor. As a matter of good practice trustees would keep sufficient records to enable them to perform their duties. 117. Trustees should obtain good receipt from beneficiaries when they distribute trust property. This requires trustees inter alia to establish that the person receiving the trust property is the correct beneficiary of the trust property being distributed (Evans v. Hickson (1861) 30 Beav 136 and Re Hulkes (1886) 33 Ch D 552). Further, trustees of a trust taxable in the UK will be required to know the identity of the settlor and beneficiaries in order to comply with tax requirements and file a complete and correct tax return. 118. Under s. 21(3) of the Limitation Act 1980, there is a six year limitation period for breach of trust. Therefore, trustees would generally retain all relevant documents relating to the trust for six years. Where trustees are required to have identity information for tax or AML purposes they have to retain information for a minimum of five years. 119. AML and FSMA CDD and retention obligations, as described previously in section A.1.1, apply equally to trust and company service providers. These professionals are obliged to conduct CDD. MLR regulation 6(3) defines beneficial owner in the case of a trust as: any individual who is entitled to a specified interest in at least 25% of the capital of the trust; the class of persons in whose main interest the trust is set up or operates; and any individual who has control over the trust.
Conclusion
121. Information on the trust will be available in all cases where the settlor is a UK resident. In addition, information will be available in all cases where there is UK-taxable income or gain, either because there is a UK-source or the trust is considered UK resident because all trustees are UK resident. In cases where the settlor is not UK resident and some of the trustees are not UK resident and there is no UK source income, information about the trust may
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Mutual societies
125. Building societies, credit unions and friendly societies exist to provide financial services to their members. A building society is a mutual financial services institution, primarily funded by its members, mainly to lend funds for housing. A credit union is a co-operative financial institution owned and controlled by its members and operated for the purpose of providing credit at reasonable rates and other financial services to its members. A friendly societys main purpose is to assist members financially during sickness, unemployment or retirement, and to provide life assurance. However, other purposes are possible such as the lawful promotion of sports and games. Further, there are Industrial and Provident Societies in the form of co-operative societies or community benefit societies which are run for the benefit of their members or the community respectively. 126. All mutual societies have to register with the FSA.22 Also, as separate legal entities they have to submit corporate tax returns with the HMRC on the
22. Section 1 Building Societies Act 1986; ss. 7 and 8 Friendly Societies Act 1974 or s. 6 Friendly Societies Act 1992; s. 1 Credit Unions Act 1979 referring to IPS Act
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same basis as companies. Financial mutuals are regulated under the MLR, although certain mutual financial undertakings (i.e. those with small investment businesses) are exempt (regulation 4(1), MLR). Thus, they are required to undertake CDD on their members. Members have to be registered.23
23. 24.
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Charities25
135. Charities are organisations set up for specified charitable purposes or public benefit. They do not have owners and cannot distribute their profits. They are regulated by a charity regulator (in England and Wales: Charity Commission). Charities can take a variety of legal forms, the most common being charitable trust, unincorporated association, or company limited by guarantee. In addition to charity law, charities must comply with law specific to their legal form such as company law and trust law. On dissolution any remaining assets must be applied in accordance with the governing document. Where this is not possible, it is likely that they will be applied for similar charitable purposes. The charitys trustees are the people jointly responsible for administering a charity. If they have an annual income over GBP 5 000
25. Charities are governed under acts and law specific for England & Wales, Northern Ireland and Scotland. However, there are no significant differences relevant to this review and unless otherwise stated, where there are differences, the description in this report is based on the situation in the England and Wales.
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(EUR 5 900), charities usually have to register and prepare annual accounts. If they have an annual income over GBP 25 000 (EUR 29 500) they are required to file these accounts with the Commission. Upon registration they must provide details of their trustees, copy of their trust deed and evidence of income level. Documents provided may or may not include the name of the settlor of a charitable trust. 136. Statistics show that there are currently 180 658 charities registered with the Charity Commission. Annual returns are filed by registered charities on time (82.7% of the time) or within a year after the end of the financial year (94.8%). Where a Trustees Annual Report and accounts have to be filed, compliance for this is at 84.70% and 95.2% respectively. The Charity Commission advises that it currently holds the latest due accounts for over 99% of the sectors income.
Companies Act
138. Where a company fails to submit reports to Companies House, the directors commit an offence and are liable on summary conviction to a fine not exceeding GBP 5 000 (EUR 5 900) and for continued contravention, to a daily fine of up to GBP 500 (EUR 590) (ss. 451-453, Companies Act). In addition, where a company fails to file an annual return, the company, its directors and its officers can be liable to civil penalties not exceeding GBP 5 000 (EUR 5 900) and for continued contravention, to a daily penalty of up to GBP 500 (EUR 590) (s. 858, Companies Act). For the accounting period 2009-2010 Companies House fined 230 000 private limited companies with GBP 110 million (EUR 130 million) and 1 075 public limited companies with GBP 2.5 million (EUR 2.95 million) for late filing of accounts. 139. Companies House makes sure that registered entities provide the necessary information. It examines information to ensure appropriate standards are met before acceptance and then places the information on the public record, although it does not have investigative powers or duty to check the accuracy of the information. However, BIS has powers to investigate companies under s. 447 of the Companies Act 1985, to compel the production of information, to enter business premises and to search for and seize documents
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Partnership law
143. If a limited partnership does not provide necessary information to Companies House, each of the general partners is liable to a fine of GBP 1 (EUR 1.2) for each day the default continues (s. 9, Limited Partnerships Act). Companies House statistics show that for the accounting period 1 April 2008 31 March 2009, Companies House fined approximately 4 500 limited partnerships with more than GBP 2.5 million (EUR 2.95 million) for late filing of accounts. 144. An LLP which fails to maintain a register of members (part 5, Limited Liability Partnerships (Application of Companies Act) Regulations 2009) is liable on summary conviction to a fine not exceeding GBP 5 000 (EUR 5 900) and to a daily default fine of GBP 500 (EUR 590).
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145. The LLP and its designated members are liable to a fine not exceeding GBP 5 000 (EUR 5 900), for failing to deliver an annual return when required, in addition to a daily default fine not exceeding GBP 500 (EUR 590) for continued contravention. 146. A person guilty of an offence in relation to s. 1200 and s. 1201 of the Companies Act (using partners names when communicating with public) is liable on summary conviction to a fine not exceeding GBP 1 000 (EUR 1 180) and, for continued contravention, a daily default fine not exceeding GBP 100 (EUR 118).
Tax law
147. Failure to give notice of chargeability for income or capital gains tax is subject to a tax-related penalty which varies according to the underlying behaviour up to 100% of the tax due. There are penalties for late filing: an initial penalty of GBP 100 (EUR 118), between 3 and 5 months there is a daily penalty of GBP 10 (EUR 18), and a penalty of GBP 300 (EUR 354) or 5% of the tax due after 6 and 12 months (Schedule 55 to Finance Act 2009). The penalty will also apply to each partner in a partnership where a partnership return is filed late. There is also a penalty for tax returns which are deliberately or carelessly incorrect; up to 100% of the tax owing (Schedule 55 to Finance Act 2009 and Schedule 24 to Finance Act 2007). 148. The penalty for failing to give notice of chargeability for corporation tax is up to 100% of the tax due (Schedule 41 to Finance Act 2008). Failure to file a company tax return is punishable by a fixed-rate penalty of GBP 100 (EUR 118) or GBP 200 (EUR 236), and potentially a tax-related penalty of 10% or 20%. Penalties increase to GBP 500 (EUR 590) and GBP 1 000 (EUR 1 180) for non-filing in the third or later successive year of default (paras. 17 and 18 Schedule 18 to Finance Act 1998). The penalty for an inaccurate return is dependent upon the behaviour (careless, deliberate, and deliberate and concealed) and up to 100% of the tax due. 149. The penalties for failing to notify HMRC of any income or capital gain that may be taxable; providing an inaccurate self-assessment return; or failing to file a return on time can reach up to 200% of the tax owed where assets and income are hidden abroad. The penalty rate is linked to the level of exchange of information the UK has with the jurisdiction in which the income or assets are held. 150. If an EEIG fails to deliver a return or accounts required by a HMRC notice, the EEIG will be liable to a penalty not exceeding GBP 300 (EUR 354) and to a daily fine of GBP 60 (EUR 71) for each day the failure continues. Where an EEIG fraudulently or negligently delivers an incorrect return, accounts or statement, the EEIG is liable to a penalty not exceeding
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Conclusion
153. There is a range of sanctions available under each of the relevant laws to ensure that information required to be maintained or disclosed to administrative authorities is in fact maintained. The range of penalties allows for the authorities to apply a sanction proportionate to the nature and level of a breach of these laws. These penalties appear to be dissuasive enough to ensure compliance, even by legal persons. 154. In a small number of areas (most notably with respect to partnerships not filing documents with Companies House) the size of the applicable penalty appears low. However, the UK has strong regulatory authorities (including Companies House) with active inspection or monitoring programs. This
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likely underpins the rather high compliance rate which authorities indicate all types of entities demonstrate. The compliance culture is complemented by the HMRCs broad powers to compel the production of information from natural and legal persons (see Section B of this report). 155. With the exception of one case where poor retention practice of a bank was mentioned, the UKs international partners have not identified any cases where a request for ownership information was not responded to because the information had not been maintained in accordance with the law.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations There may be a limited number of bearer shares in circulation at present but no instances of bearer shares were found in the course of the review. Nevertheless, the mechanisms in place to ensure the availability of information allowing for identification of their owners are insufficient. Recommendations The United Kingdom should either take necessary measures to ensure that robust mechanisms are in place to identify the owners of bearer shares or eliminate such shares.
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27. 28.
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a company must keep such records as may be needed to enable it to deliver a correct and complete return and must include all receipts and expenses in the course of the companys activities and in the case of a trade dealing in goods, all sales and purchases (paras. 21 and 22 Schedule 18 to Finance Act 1998). A company failing to maintain records for tax purposes is liable to a penalty not exceeding GBP 3 000 (EUR 3 540) (para. 23 Schedule 18 to Finance Act 1998). Companies are also be required to maintain accounting records for VAT purposes (Schedule 11 to VAT Act 1994 and Part V VAT Regulations 1995).
Partnerships
161. Neither the Partnership Act nor the Limited Partnerships Act has specific requirements for general or limited partnerships regarding accounting records. However, partners are bound to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives (s. 28, Partnership Act). The partnership books must be kept at the place of business of the partnership and be open to inspection by all the partners (s. 24(9) Partnership Act). This duty for partners to account to one another is defined by reference to case law, which states that regular accounts shall be kept of all receipts, payments, transactions and so on [] and [partners have the right] to have constant access for the purpose of inspecting the accounts (Rowe v Wood, 37 Eng. Rep 740 1557-1865. (1822) 2 Jac & W 553). Hanlon v Brookes and Ors [1996] also finds that partners owe each other fiduciary duty and this duty requires that all information which the fiduciary knows with regards to the property or transaction must be disclosed to the partners. There is therefore a clear obligation on partners to maintain accounting records in order to fulfil their fiduciary duty. 162. General and limited partnerships are not required to file accounts with Companies House. However, according to s. 5 of the Partnerships (Accounts) Regulations 2008, partners of a qualifying partnership (i.e. partnerships in which each partner is a limited company or otherwise has limited liability) have to prepare accounts for the partnership as if the partnership were a company and submit them to Companies House. Every person who is a members or director of a qualifying partnership is liable on summary conviction to a fine not exceeding GBP 5 000 (EUR 5 900) if audited accounts are not produced within 9 months of the end of the tax year.
societies and provident societies; associations, such as housing associations and trade associations; co-operatives; other unincorporated associations; groups of individuals carrying on a business that is not a partnership; charities, or companies that are subsidiaries of or wholly owned by a charity.
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Trusts
166. Under common law, trustees are under a fiduciary duty to keep accounts of the trusts and to allow the beneficiaries to inspect them as requested (Pearse v. Green (1819) 1 Jac & W 135). Further, trustees should obtain good
29. www.companieshouse.gov.uk/about/pdf/companiesRegActivities2009_2010.pdf, accessed 2 April 2011.
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receipt from beneficiaries when they distribute trust property (Evans v. Hickson (1861) 30 Beav 136 and Re Hulkes (1886) 33 Ch D 552). 167. UK resident trusts or trusts with UK source income are required to maintain accounting records in relation to UK tax matters. They are required to keep all such records as may be necessary to deliver a correct and complete tax return (s. 12B, TMA). This includes such accounts, statements and documents relating to the information in the return that may be required (s. 8(1)(b), TMA). Where a trust carries on a trade, profession or business, accounting records must include all amounts received and expended and, if dealing in goods, all sales and purchases. A trust which does not comply with the above requirements is liable to a penalty of GBP 3 000 (EUR 3 540) (s. 12B, TMA). A trust governed by UK law which has UK trustees but is neither considered resident for tax purposes nor in receipt of UK income will not be subject to record keeping or reporting requirements for tax purposes but may be required to keep records pursuant to the terms of the trust or, if acting by way of business, for AML purposes. In practice, to date there have been no cases where information could not be provided because of the failure by UK trustees to keep accounting records. However, the UK should continue to monitor any cases wher the absence of reporting requirements for tax purposes results in a failure to provide information for EOI purposes.
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Charities
170. All charities in England and Wales are required to maintain accounting records and prepare annual statements of account (Part VI Charities, Act 1993). The trustees must ensure that accounting records are sufficient to show and explain all the charitys transactions and will disclose at any time with reasonable accuracy the financial position of the charity at that time. Charities in the form of a company have to comply with company law accounting rules (s. 41(5), Charities Act 1993). Any person who, without reasonable excuse, is persistently in default in relation to preparing an annual report or making it available may be guilty of an offence and liable on summary conviction to a fine not exceeding GBP 2 500 (EUR 2 950) (s. 49, Charities Act 1993).
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(s. 12B(3)(a) and (b), TMA). Supporting documents include, but are not limited to, deeds, contracts, vouchers and receipts (s. 12B(6)). 174. While UK trust law does not specifically state the underlying documents a trusts need to keep, UK tax law requires trusts to keep supporting documents relating to all receipts and expenses in the course of trade or business activities, and records of the matters in respect of which those receipts and expenditure take place, and records of all sales and purchases made in the course of any trade involving dealing in goods (s. 12B(3)(a) and (b) TMA). Supporting documents include, but are not limited to, deeds, contracts, vouchers and receipts (12B(6)). Further, trustees must keep records of any discretionary income payments made to beneficiaries, as this information is required as part of the Trust & Estate income tax return (Question 14). Trusts are required to keep and provide if asked to do so all such records as may be required to deliver a complete and correct tax return (s12B and s. 8A(1)).
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Conclusion
183. UK company, partnership and trust law together with tax law, provide in most cases the necessary requirements to maintain accounting records that should correctly explain all transactions, enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any
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time and allow financial statements to be prepared. Where record keeping requirements may be insufficiently prescribed in entity-specific legislation, sufficient requirements can be found in UK tax law. A retention period below the standard of five years is usually overridden by a six year period for tax purposes (Finance Act 1998). 184. However, under UK partnership and tax law, limited partnerships formed under UK law (other than qualifying partnerships) with no UK resident partner and no business activity in the UK are not subject to recordkeeping requirements for tax purposes. Therefore, accounting information in line with the standard may not have to be available in the UK for partnerships and trusts under these circumstances. 185. The tax laws retention period for a trusts non-business income and capital gains is a minimum of 21 months (s. 12B(2)(b) TMA) following the end of the tax year. However, trustees generally retain all relevant documents relating to the trust for six years due to the limitation period for breach of trust (s. 21(3), Limitation Act 1980).
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT UNITED KINGDOM OECD 2011
Conclusion
190. There are sufficient legal obligations in place for financial institutions to keep transaction and CDD information available. Though, in connection with a specific request, one peer mentioned poor record retention by a bank. However, this seems to have be an isolated incident.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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B. Access to information
Overview
191. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether the UKs legal and regulatory framework gives the authorities access powers that cover all relevant people and information, and whether rights and safeguards are compatible with effective exchange of information. It also assesses the effectiveness of this framework in practice. 192. In the majority of international exchange of information (EOI) cases where the UK provides information, this information is either already in the hands of HMRC (including Companies House information, accessible online) or it is provided on a voluntary basis. In all other cases, HMRC has to issue a formal notice to the information holder which is either approved by the person the information relates to or approved by a Tribunal. Non-compliance or destruction of requested information can be sanctioned with significant penalties. In cases where access to third party information requires Tribunal approval, the UK Competent Authority has to go through a very time-consuming procedure and this has been pointed out by several peers as a considerable concern. 193. Schedule 36 of Finance Act 2008 provides for comprehensive access to ownership, identity, accounting and banking information in specific cases. However, the UK cannot currently use its statutory information gathering powers for international exchange of information purposes where the name of the taxpayer is not known. This results in a limitation to access third party information which is not considered to be to the international standard. Only for domestic tax purposes and even there only for cases where a serious tax loss is suspected, can third parties be required via an information notice to
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Ownership, identity and banking information (ToR B.1.1) and accounting records (ToR B.1.2)
196. HMRCs access powers for direct tax purposes including for EOI purposes are gathered in Finance Act 2008, Schedule 36. In addition, the TMA and regulations in connection with the EU Savings Directive provide powers for bulk access to certain banking information.
30. These powers cannot currently be used for EOI cases as they are limited to checking the UK tax position of concerned persons. The Finance Act 2011 includes a provision to extend these powers to EOI cases, thus removing the restriction on providing information where the name of the taxpayer cannot be established in EOI cases where there is a serious prejudice to the assessment and collection of tax. Although the amendment comes into force in April 2012, importantly, the powers apply in relation to tax regardless when it became due, whether before, on or after that date.
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Schedule 36
197. Following the merger of the former Inland Revenue and HM Customs and Excise in 2005, HMRCs powers to access information in specific cases, including for foreign taxes covered by an EOI agreement, have been gathered in Schedule 36 of Finance Act 2008. Schedule 36, in force since 1 April 2009, regulates HMRCs powers to access information either through issuance of a formal information notice or inspection of a business premises. Subject to certain conditions, Schedule 36 provides the right to make enquiries, to inspect, copy and remove documents that are produced, but not to search for or seize documents. It provides the power to access any document in a persons possession or power, or supply any other information. This might include, for example in the case of a bank, copies of bank statements, records of authorised signatories, etc. and any other relevant documentation which might help determine the sources and amounts of income and who had control of it. It also includes documents older than the retention period if this information is still available (see para. 20, Schedule 36 referring to documents older than six years).
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limits for EOI32, assist in establishing the name of the taxpayer where possible based on available data. Case officers would for instance check information already held by HMRC, e.g. bank account numbers provide for repayment purposes or bulk data on interest payments received from UK banks under ss. 17 and 18 of the TMA and the EU Savings Directive in respect of interest payments (see below).
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receipt of the information and exchange with the requesting country 1 week. 208. Since 2007, 70 information notices have been issued on behalf of treaty partners. In the period under review no draft notice has been declined by the Tribunal. 209. The UK provides its EOI partners with a checklist regarding information required to obtain a formal Schedule 36 notice. A previous version gave the impression that the name of the bank, sort code or branch address, and account number had to be provided. However, this is not a requirement in UK law. It is sufficient that there is enough information to allow identification of the particular customer relationship. The UK informed that this checklist has been amended and now states that the aforementioned information and the name of the accountholder are required if available.
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Use of information gathering measures absent domestic tax interest (ToR B.1.3)
213. As noted previously, the UK can use its powers, including the notice powers, to obtain information requested by competent authorities of partner jurisdictions. There is one area (see paragraph 201 above) where these powers are limited by a domestic tax interest; if the taxpayers name is not known, the UK cannot use its powers to access information from third parties unless it relates to a taxpayer that is currently under examination for UK tax purposes. While a situation where the taxpayer is not named seldom arises and HMRC will use all of its extensive information holdings to assist in finding the name of the taxpayer, two of the UKs peers brought up the taxpayer identification requirement as a concern and also referred to cases where information could not be exchanged due to the lack of the name(s) of the taxpayer(s).
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Tribunal. In exceptional cases, where a significant amount of tax is at stake, there is provision for the Tribunal to impose a tax-related penalty. A penalty would be set aside by HMRC or on appeal by the Tribunal if the UK resident had a reasonable excuse for not complying, such as not having access to the information required by HMRC (Part 7, Schedule 36). 215. Further, a person is guilty of a criminal offence if he/she conceals, destroys or otherwise disposes of a document required by a formal notice or a document that it has been informed is likely to be the subject of a formal notice under Schedule 36. On summary conviction, the maximum fine in England, Wales and Northern Island is GBP 5 000 (EUR 5 900) (GBP 10 000 EUR 11 800 in Scotland) and on conviction on indictment, the person may be subject to imprisonment for up to two years, a fine or both. 216. If a financial institution fails to make returns of interest paid under sections 17 and 18 of the TMA or under regulations made under section 199 of the FA 2003, section 98 TMA provides for an initial penalty not exceeding GBP 300 (EUR 354). After that penalty is imposed, the financial institution is liable to a penalty of up to GBP 60 (EUR 71) a day for so long as the failure continues. All penalties may be appealed to a tribunal. 217. Compliance with the Schedule 36 notices is high. So far, HMRC has not needed to apply the sanctions described above in EOI cases.
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Professional privilege
220. The common law concept of legal professional privilege,34 which attaches to certain confidential communications between a barrister or solicitor and his/her client applies to UK tax law. A person cannot be required to provide information or produce documents to which a claim to privilege could be maintained in legal proceedings (para. 23, Schedule 36). There are essentially two types of privilege: legal advice privilege and litigation privilege. Legal advice privilege concerns lawyers giving legal advice to their clients (and requests for advice); and litigation privilege applies to all documents created primarily for the purpose of ongoing or anticipated litigation. 221. There are also relevant statutory rules which create a particular form of privilege. Such statutory creations avoid disputes as to the nature of privilege in tribunal litigation, which is typically less formal. For example, the concept of legal professional privilege is extended to certain confidential communications between a client and a number of other admitted legal representatives such as a representative in a case before a First-Tier Tribunal to whom effective rights of audience and representation are given (Rule 11 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009). This effectively provides something similar to litigation privilege for confidential communications between the appellant and the representative concerning the conduct of their tax appeal. The representative need have no qualifications whatsoever, legal or otherwise. Further, the UKs tax legislation protects the appeal papers from disclosure (e.g. para. 19(1)(a), Schedule 36 to Finance Act 2008). The class of documents covered will be the same as under litigation privilege. 222. Whilst accountants and tax advisers can enjoy a statutory privilege in tribunal litigation, as explained above, ordinary legal advice privilege does not apply to communications between them and their clients.35 However, Paragraphs 24 to 26 of Schedule 36 (Finance Act 2008) create a particular form of privilege for auditors and tax advisers regarding information they hold or documents they have produced in their capacity as auditors or tax advisors for the taxpayer or another person acting as auditor or tax adviser of the taxpayer. This latter statutory privilege does not cover working papers or documents executed in the course of a transaction itself. In other words,
34. 35. In Scotland there is a similar concept, confidentiality of communications as between client and professional legal adviser (in Scotland a professional legal adviser is an advocate or solicitor). However, there is currently a challenge going through the UK Courts that the common law privilege ought to extend to confidential communications with accountants in the same way that it does for confidential communications with barristers, solicitors and advocates. The Supreme Court will hear the appeal later in 2011 or 2012.
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this provision will protect all information/documents produced when acting as an auditor or tax adviser but cannot protect the professional from disclosing evidence of the fact of a transaction (including contracts, deeds or other instruments). The privilege also does not protect evidence belonging to the tax adviser which explains any information or documents that the adviser has assisted in preparing for, or delivering to, HMRC (para. 26(1), Schedule 36).
Conclusion 223. Professional privileges in the UK encompass not only communication between an attorney or another person who is acting as a legal representative and their client related to legal proceedings or legal advice, but also documents produced by an auditor or a tax adviser for his clients concerning advice about the clients tax affairs. This latter privilege is beyond the exemption for attorney-client privilege under the international standards. However, the privilege does not cover working papers or documents executed in the course of a transaction itself and cannot protect the professional from disclosing evidence of the fact of a transaction (including contracts, deeds or other instruments). Also it should be noted that in practice, these exceptions have never been invoked to prevent HMRC from obtaining information for the purposes of an exchange of information request. Nor have any peers indicated they have experienced difficulty getting requested information due to professional privilege. Nevertheless, the UK should monitor the effect of this privilege for auditors and tax advisers to ensure it does not interfere with international exchange of information in tax matters.
Determination and factors underlying recommendations
Phase 1 determination The element is not in place. Factors underlying recommendations The UK cannot currently use its statutory information gathering powers for international exchange of information purposes where the name of the taxpayer is not known. Recommendations The UK should ensure that there is a legal basis to access third party information for EOI purposes in line with the standard even in cases where the name of the taxpayer cannot be established.
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the requirement to notify the taxpayer if it is satisfied that HMRC has reasonable grounds for believing that notification might prejudice the assessment or collection of tax. 226. Based on the above legislation, HMRC routinely names the taxpayer in a third party request and sends a notification to the (foreign) taxpayer. Exceptions are made if the applicant jurisdiction has reasonable grounds to believe that a taxpayer notification would regarding naming the taxpayer jeopardise, or regarding notification of the taxpayer seriously jeopardise the foreign tax investigation. In these cases HMRC will ask the Tribunal for an exception. The existence of such exceptions ensures that the notification procedure is consistent with the principle that rights and safeguards should not unduly prevent or delay effective exchange of information. 227. There is no appeal or other process that a taxpayer can use to prevent EOI. When the First-tier Tribunal (Tax) is considering whether it should issue a Tribunal-approved notice, the third party can make representations to the Tribunal, but there is no appeal against a Tribunal-approved notice once it has been issued. Appeals can only be made against sanctions for non-compliance with a notice. If however a notice is taxpayer-approved (which according to the UK authorities is rare in the EOI context) then the third party can appeal to the Tribunal on the grounds that it would be unduly onerous to comply with the notice or any requirement in it (para. 30, Schedule 36).
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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C. Exchanging information
Overview
228. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanisms for doing so. A jurisdictions practical capacity to effectively exchange information relies both on having adequate mechanisms in place as well as an adequate institutional framework. This section of the report assesses the UKs network of EOI agreements against the standards and the adequacy of its institutional framework to achieve effective exchange of information in practice. 229. The UK has a very extensive network of bilateral agreements that provide for exchange of information in tax matters, currently covering 136 jurisdictions through 122 double tax conventions (DTCs) and 22 tax information exchange agreements (TIEAs).36 Seven of the TIEAs are not yet in force as they are awaiting finalisation of the necessary procedure by either or both parties. All DTCs, with the exception of the 2010 treaty with Bahrain and the 2011 treaty with Ethiopia, are in force. The large majority of these agreements meet the international standards. Nevertheless, the UK should continue its program of updating the last of its older agreements. The UK is also able to exchange information under some multilateral mechanisms.
36.
Following the dissolution of the Netherlands Antilles on 10 October 2010, two separate jurisdictions were formed (Curaao and Saint Maarten) with the remaining three islands (Bonaire, St. Eustatius and Saba) joining the Netherlands as special municipalities. The TIEA concluded with the Kingdom of the Netherlands, on behalf of the Netherlands Antilles, continue to apply to Curaao, Sint Maarten and the Caribbean part of the Netherlands (Bonaire, St. Eustatius and Saba) and are administered by Curaao and Saint Maarten for their respective territories and by the Netherlands for Bonaire, St. Eustatius and Saba. The count of 22 TIEAs signed by the UK includes Curaao and St. Maarten but not the Caribbean part of the Netherlands which is a part of the country of the Netherlands.
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Summary
235. There is a variety of different instruments bilateral and multilateral agreements as well as EU Directives and Regulations through which the UK can assist other tax authorities and seek assistance from them in relation to both direct and indirect tax liabilities. These include: double taxation agreements (DTCs); tax information exchange agreements (TIEAs); the joint Council of Europe/OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters;37 the new EU Council Directive 2011/16/EU of 15 February 2011 on administrative co-operation in the field of taxation, replacing Council Directive 77/799/EEC concerning mutual assistance by the competent authorities of the Member States of the EU in the field of direct taxation and taxation of insurance premiums; Regulation (EC) No 904/2010 concerning administrative co-operation by the EU Member States in the field of value added tax; Regulation (EC) No 2073/2004 concerning administrative co-operation by the EU Member States in the field of excise duties; and Directive 2010/24/EU on mutual assistance by the EU Member States for the recovery of claims relating to certain levies, duties, taxes and other measures. 236. When more than one legal instrument may serve as the basis for exchange of information for example where there is a bilateral agreement with an EU member which also applies Council Directive 77/799/EEC the problem of overlap is generally addressed within the instruments themselves (see in particular Article 27 of the Council of Europe Convention and Article 11 of the 1977 EC Directive Applicability of wider-ranging provisions of assistance). There are no domestic rules in the UK requiring it to choose between mechanisms where it has more than one agreement involving a particular partner and thus the competent authority is free for any exchange to invoke all of the available mechanisms or to choose the most appropriate.
37.
The UK has signed but not yet ratified the amending protocol to the Convention.
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Member States and non-EU countries. The total numbers of records exchanged per year exceeds 1 million.
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41. 42.
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248. The DTCs with four out of the 52 above mentioned jurisdictions specifically exclude certain residents of those jurisdictions from the scope of the arrangement to ensure that they do not benefit from the provisions concerning the avoidance of double taxation. According to the UK this restriction also applies to EOI. However, two of these jurisdictions, Malta and Antigua and Barbuda, are covered by the EU Council Directive 77/799/EEC and a TIEA respectively. The UK should take necessary steps to make sure that its EOI arrangements with the remaining two jurisdictions, Barbados and Jamaica, allow for exchange of information for all persons, including companies established under the International Business Companies Act for Barbados and companies established under enactments relating to International Business Companies and International Finance Companies for Jamaica. Though it has to be noted that presently no such entities seem to exist in Jamaica.43 249. The UK competent authority has advised that it has never had any difficulties with any of its EOI-agreement partners with respect to this scope issue. The UK has provided and received information unrestricted by the residence or nationality of the person to whom the information relates.
Global Forum Peer Review Phase 1 Report Jamaica, section 29. Though in the case of Saudi Arabia, exchange of information held by financial institutions or persons action in a fiduciary capacity, etc. is covered in the protocol, subject to reciprocity. Antigua and Barbuda, Belize, British Virgin Islands, Grenada, Guernsey, Isle of Man, Jersey and Saint Kitts and Nevis.
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48. 49.
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jurisdictions are not covered by agreements that allow the UK to exchange all types of information. Further, there may be limitations in place in the EOI framework of some of the 68 treaty partners referred to in the fifth bullet point above that prevents EOI to the standard. In these cases, the absence of a specific provision requiring exchange of bank information unlimited by bank secrecy may serve as a limitation on the exchange of information which can occur under the relevant DTC. The UK should continue its program of renegotiating its older treaties with relevant partners not yet to standard in order to incorporate wording in line with Article 26(5) of the OECD Model Tax Convention. The UK should also examine ways to bringing the deficient post-2005 arrangement up to the international standard as soon as practicable.
51.
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Exchange of information in both civil and criminal tax matters (ToR C.1.6)
258. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to information requested for tax administration purposes (also referred to as civil tax matters). The UK provides assistance at the administrative level when the requested information relates to a criminal tax matter in the requesting jurisdiction. The UK will, on request, give as much priority to such cases as possible. 259. All of the UKs EOI agreements provide for exchange of information in both civil and criminal tax matters. However, UKs TIEA with Liechtenstein signed 11 August 2009 includes an accompanying Memorandum of Understanding which sets out the terms of a five year taxpayer assistance and compliance program by Liechtenstein and a five year special disclosure facility by the United Kingdom. Article 6(e) of the TIEA states that a requested State may decline a request if:
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the request is made on or before 31 March 2015 and does not relate to a criminal tax matter in respect of which the requesting State has formally commenced a criminal investigation, and the person identified in a request according to Article 5(6)(a) has not applied to disclose under a tax disclosure facility of the requesting party where he is eligible to do so, accordingly, for avoidance of doubt, the competent authority of the requested party may not decline a request by the requesting party for information relating to a person who has applied to disclose under a tax disclosure facility of the requesting party. 260. Therefore, in respect of requests made prior to 31 March 2015 in a civil tax matter or in a criminal tax matter where investigations have not commenced, the request may be declined unless the taxpayer has applied to disclose their tax position under the tax disclosure facility. Accordingly, at present, this agreement is not to the standard. That said, the UK authorities are of the view that the TIEA, the taxpayer assistance and compliance programme and the disclosure facility, must be considered together. Their combined effect is strong co-operation between Liechtenstein and the UK.
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Conclusion
271. The UK has one of the worlds largest treaty networks and EOI programmes encompassing around 80% of Global Forum members. However, due to shortcomings identified in Part B of this report, the UK is not able to comply fully with the standard in all cases, notwithstanding its practice of assisting requesting jurisdictions to establish the name of the taxpayer based on data available to HMRC.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of this element require improvement. Factors underlying recommendations The United Kingdom has a very extensive network of EOI agreements. The legal framework in the UK does not however allow the terms of its agreements to be given full effect due to limitations in the UKs domestic laws which affect only one limited category of cases. Recommendations It is recommended that the UK enact necessary legislation which will enable it to comply with and give full effect to its EOI agreements.
It is recommended that the UK continues its program of renegotiating the last of its older treaties which are not yet to the standard.
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272. The UKs network of 144 signed bilateral agreements and two multilateral agreements encompasses a wide range of counterparties, including all of the EU member States and all of the 33 OECD member economies. It also covers: all of its 10 primary trading partners (USA, Germany, the Netherlands, China, France, Ireland, Belgium, Italy, Spain, Switzerland) 17 of the 18 other G20 jurisdiction (except Brazil) 79 Global Forum member jurisdictions; and 22 jurisdictions in Africa, 30 in Asia, 15 in the Caribbean, 2 in Central America, 47 in Europe, 2 in North America, 6 in Oceania and 10 in South America. 273. The UK has never declined to establish an EOI agreement with a jurisdiction seeking the same. The UKs network of agreements includes DTCs as well as TIEAs. It is the UK policy to negotiate a TIEA instead of a DTC when there is no need for a treaty on taxation rights. 274. It can be seen that the UK has an extensive network of agreements allowing for exchange of information for tax purposes. In addition, the UK authorities have an ongoing programme of establishing agreements and revising agreements where necessary in order to bring them to standard. As the UK has EOI agreements to standard with its most important trading partners, commonly its new agreements arise from requests received from other jurisdictions seeking an agreement with the UK. 275. The UKs most significant EOI relationships measured inward and outward requests and the volumes of spontaneous and automatic exchanges over a number of years are: France, Spain, Ireland, USA, Australia, Germany, Italy, Netherlands, Sweden and Canada. This does to some extent reflect the economic relationships with these jurisdictions but there are also other factors such as thresholds applied in other jurisdictions or nature of economic relationship and nature of requests that influence the number of requests.
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C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
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287. None of the UKs DTCs require the provision of request confirmations, status updates or the provision of the requested information, within the timeframes foreshadowed in Article 5(6) of the OECD Model TIEA. However 16 out of the 22 TIEAs do so. The remaining 6 TIEAs instead provide that the requested Party shall use its best endeavours to forward the requested information to the requesting Party with the least possible or least reasonable delay.56
Statistics
288. The UK competent authority received approximately 1 200 requests a year over the last three years. According to the UKs 22 EOI partners that have provided detailed peer input, over 50% of cases, the UK is able to provide information within 90 days. Where information cannot be provided within 90 days, in some cases no status update is provided. The UKs own figures for the period 2007-2009 show that HMRC provided final responses to information requests within 90 days in approximately 54% of cases. Approximately 22 % of requests are finally responded to between 90 and 180 days and 17% between six months and one year. In almost 8% of cases, responses take more than a year, see response time described under B.1 for cases that require a Tribunal-approved notice. It needs to be noted though that the data provided by the UK calculates the time elapsed between the date of receipt of a request to the date the case was closed on the EOI database. The date of closure is often later than the date that the information was provided to the requesting country; for example, where there is any doubt as to whether or not the requesting country will require further assistance, the requesting country will be asked to confirm that the information provided is sufficient before the request is closed on the EOI database. Therefore, the average response time will be faster than is shown by these statistics. 289. The UK does not have statistics on the number of requests that have been declined, but to their knowledge, the numbers are small. They include cases where the information requested is outside UK jurisdiction, and therefore it is simply not possible for HMRC to provide it. In other situations, the EOI team would seek clarification or further background information if the purpose or scope of a request was unclear, rather than decline a request outright. Further, there are no statistics available on the numbers of cases where further enquiries have been made by EOI partners because of a perceived incomplete or inadequate response, but such instances too are considered to be rare. The most common reason for being unable to provide information is that the information is not held within UK jurisdiction. The most common reasons for needing additional information or clarification include:
56. Bahamas, Gibraltar, Guernsey, Isle of Man, Jersey and Liechtenstein.
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Organisational process and resources (ToR C.5.2) Competent authority for exchange of information
293. The competent authority57 for the United Kingdom are the Commissioners for Her Majestys Revenue and Customs (HMRC) or their authorised representative. In practice, the Commissioners delegate their competent authority responsibilities to a (relatively) small number of named officers of HMRC. References in this report to the UK competent authority mean officers of HMRC with delegated competent authority status, and usually those located within the Centre for Exchange of Intelligence. 294. All direct tax exchanges of information as well as indirect tax exchanges with countries other than EU Member States is in principle dealt with by an EOI Team within the Centre for Exchange of Intelligence (CEI) in HMRCs Risk and Intelligence Service in London.58 The EOI team comprises 11 staff working full time on exchange of information, including two with delegated competent authority status, working to an Assistant Director who also has competent authority status. The CEI deals with requests for information in both civil and criminal cases under DTCs and TIEAs. All the staff in the Exchange of Information team have up to several years of experience with EOI and receive training on EOI mechanisms, confidentiality obligations and internal processes. This is delivered through desk training, written and oral guidance and mentoring. There is no formal training course. All but one of the team has worked in exchange of information for over three years. The six most senior officers are trained tax inspectors with extensive experience. Quality of work is monitored by the two delegated competent authorities in the team, who review and sign all international correspondence. In addition, there are quality monitoring reviews of cases that took more than six months to close. 295. Approximately 10% of EOI requests are referred to and handled by specialised teams within HMRC, such as the transfer pricing team or UK members of the Joint International Tax Shelter Information Centre (JITSIC). Both of these teams have been delegated competent authority status and handle international matters without reference to the CEI. For all other requests, including the use of formal information-gathering powers, all the
57. 58. The term competent authority means the person or government authority designated by a jurisdiction as being competent to exchange information pursuant to a double tax convention or tax information exchange. Exchange of information with EU Member States under the EC Regulation 1798/03 (VAT administrative co-operation) is dealt with by the UK VAT Central Liaison Office. Exchange of information with other EU Member States under the EC Regulation 2073/04 (administrative co-operation in excise) is made by the UK Excise Central Liaison Office (CLO), or by any Liaison Department or Competent Officials.
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Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed. Factors underlying recommendations Data from peers shows that the UK does not routinely provide requesting parties with status updates when requested information is not provided within 90 days of receipt of the request. Recommendations The UK should ensure that it has the necessary processes in place to be able to provide status updates within 90 days.
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Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1) Phase 1 determination: In place, but certain aspects of the legal implementation of the element need improvement. There may be a limited number of bearer shares in circulation at present but no instances of bearer shares were found in the course of the review. Nevertheless, the mechanisms in place to ensure the availability of information allowing for identification of their owners are insufficient. The United Kingdom should either take necessary measures to ensure that robust mechanisms are in place to identify the owners of bearer shares or eliminate such shares.
Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
59.
The ratings will be finalised as soon as a representative subset of Phase 2 reviews is completed.
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Determination Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
Recommendations
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1) Phase 1 determination: Not in place. The UK cannot currently use its statutory information gathering powers for international exchange of information purposes where the name of the taxpayer is not known. The formal process to obtain information (other than information already in the possession of HMRC or information which is voluntarily provided to HMRC) is complex and on average takes 12 months to complete before information is provided to the requesting jurisdiction. This process unduly delays effective exchange of information. The UK should ensure that there is a legal basis to access third party information for EOI purposes in line with the standard even in cases where the name of the taxpayer cannot be established. The entire process for issuance of a formal notice to obtain information should be reviewed with a view to ensuring that it is compatible with effective international exchange of information in tax matters.
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Determination
Recommendations
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1) Phase 1 determination: The element is in place, but certain aspects of the legal implementation of this element require improvement. The United Kingdom has a very extensive network of EOI agreements. The legal framework in the UK does not however allow the terms of its agreements to be given full effect due to limitations in the UKs domestic laws which affect only one limited category of cases. It is recommended that the UK enact necessary legislation which will enable it to comply with and give full effect to its EOI agreements.
It is recommended that the UK continues its program of renegotiating the last of its older treaties which are not yet to the standard. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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Determination
Recommendations
The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) Phase 1 determination: In place. The UK should continue to develop its EOI network to the standard with all relevant partners.
Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.
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Determination
Recommendations
The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Data from peers shows that the UK does not routinely provide requesting parties with status updates when requested information is not provided within 90 days of receipt of the request. The UK should ensure that it has the necessary processes in place to be able to provide status updates within 90 days.
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ANNEXES 101
The UK would like to express its appreciation for the work done by the assessment team in evaluating the UK for this combined review. The UK supports the work of the Global Forum on Transparency and Exchange of Information and welcomes the progress made to improve international transparency and effective exchange of information to help combat tax evasion and avoidance. The UK will consider the findings of this review and how to address the recommendations made in advance of providing our intermediate report. The UK is committed to effective exchange of information. The UK has a long history of exchanging information for tax purposes and has an extensive network of agreements for exchange of information to meet these aims, one of the largest in the world. We reply to hundreds of requests for information every year from our international partners. The UK recognises the importance of providing prompt responses to requests for exchange of information to be effective. As a consequence of the introduction of the new EU Administrative Cooperation Directive, the UK has changed its targets for responding to requests to: two months where the information is readily available to HMRC; 6 months if information needs to be gathered from third parties; and more than 6 months in complex cases. We are also implementing changes to our internal procedures to ensure that the UK routinely provides 90 day status updates. The UK accepts that at the time of this report, its information gathering powers did not allow it to comply with the international standard in certain, rare circumstances where the name of the taxpayer is not available but other identifying information can be provided by the requesting jurisdiction. However, on 19 July 2011, the Finance Act 2011 received Royal Assent. This Act provides powers to access information where the name of the taxpayer is not known in EOI cases where there is a serious prejudice to the assessment and collection of tax. Importantly, these new powers, once they come into
60. This Annex presents the jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
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102 ANNEXES
force on 1 April 2012, will apply from then on in relation to tax regardless of whether the tax became due before, on or after April 2012. Moreover, the Exchequer Secretary to the Treasury announced on the 5 July that the UK Government will introduce further legislation in the spring of 2012 to extend access to information where the name of the taxpayer is not known, even in the absence of a serious prejudice to the assessment and collection of tax, thus bringing the UKs information gathering powers fully into line with the international standard. The Government issued the consultation document Modernising Powers, Deterrents and Safeguards: Bringing HMRCs information powers into line with international standards for tax information exchange on 7 July 2011 to explore how this change could be implemented. A copy of the consultation document is available on HMRCs website: www. hmrc.gov.uk. Finally, there have been a few developments regarding the UKs network of exchange of information agreements since the draft report was prepared by the assessment team. The UK has now ratified the Protocol to the joint Council of Europe/ OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. We deposited our instrument of approval of the Protocol on 30 June 2011 and the Protocol will enter into force in respect of the UK on 1 October 2011. Two new Double Taxation Conventions have also been signed. A new DTC with China was signed on 27 June 2011; this will replace an existing DTC. A first-time DTC with Armenia was signed on 13 July 2011. Both DTCs provide exchange of information to the standard. The UK Parliament has now approved all of the TIEAs and DTC protocols that are referred to in the report as signed but not yet in force. The UKs ratification procedures for these agreements are now complete in all but 5 cases, with the procedures for the remaining 5 expected to be completed by the end of October 2011.
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OECD Convention on Mutual Administrative Assistance in Tax Matters and Amending Protocol. The UK has ratified the Convention and signed the Protocol. The other parties are Azerbaijan, Belgium, Canada, Denmark, Finland, France, Georgia, Germany, Iceland, Ireland, Italy, Korea, Mexico, Moldova, Netherlands, Norway, Poland, Portugal, Slovenia, Spain, Sweden, Ukraine, United Kingdom and United States of which only Azerbaijan, Canada and Germany have not yet signed the Protocol which will come into force 1 June 2011.
Bilateral agreements
Type of EoI arrangement TIEA DTC Protocol TIEA DTC TIEA DTC DTC Protocol Protocol Protocol DTC TIEA DTC DTC DTC Protocol DTC DTC DTC Protocol DTC Protocol Protocol TIEA TIEA
Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 Anguilla Antigua and Barbuda Argentina Aruba Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium
14 15
Belize Bermuda
Date signed 20-07-09 19-12-47 05-03-68 18-01-10 03-01-96 05-11-10 21-08-03 30-04-69 17-11-77 18-05-93 11-09-09 23-02-94 29-10-09 10-03-10 08-08-79 26-03-70 18-09-73 31-07-85 07-03-95 01-08-87 24-06-09 19-12-47 08-04-68 12-12-73 25-03-10 04-12-07
Date in force 17-02-11 19-12-47 19-09-68 19-05-11 01-08-97 17-12-03 N/K N/K N/K 19-11-10 03-10-95 07-01-11 08-07-90 26-11-70 12-12-73 30-01-86 04-10-89 19-12-47 08-03-69 12-12-73 10-11-08
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sqdf62qsmklf63
Jurisdiction 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Bolivia Bosnia and Herzegovina Botswana British Virgin Islands Brunei Darussalam Bulgaria Canada Cayman Islands Chile China Cte DIvoire Croatia Chinese Taipei Curaao62 Cyprus 63 Czech Republic Denmark
Type of EoI arrangement DTC DTC DTC DTC TIEA DTC Protocol Protocol DTC DTC Protocol DTC DTC DTC DTC DTC DTC TIEA DTC Protocol DTC DTC Protocol Protocol
Date signed 03-11-94 06-11-81 09-09-05 29-10-09 29-10-09 08-12-50 04-03-68 12-12-73 16-09-87 08-09-78 07-05-03 15-06-09 12-07-03 26-07-84 26-06-85 06-11-81 08-04-02 10-09-10 20-06-74 02-04-80 05-11-90 11-11-80 01-07-91 15-10-98
Date in force 23-10-95 18-09-82 04-09-06 12-04-10 12-04-10 08-12-50 N/K N/K 28-12-87 18-12-80 04-05-04 20-12-10 21-12-04 23-12-84 24-01-87 16-09-82 23-12-02 18-03-75 15-12-80 20-12-91 17-12-80 N/K N/K
62. 63.
The count of 22 TIEAs includes Curaao and St. Maarten but not the Caribbean part of the Netherlands which is a part of the Netherlands jurisdiction, see footnote 35. Note by Turkey: The information in this document with reference to Cyprus relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the Cyprus issue. Note by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.
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Type of EoI arrangement TIEA DTC DTC DTC DTC DTC DTC DTC Protocol Protocol Protocol Protocol Protocol DTC DTC DTC DTC Protocol DTC DTC TIEA DTC DTC Protocol TIEA DTC Protocol Protocol TIEA DTC DTC DTC DTC DTC DTC
33 34 35 36 37 38 39
Jurisdiction Dominica Egypt Ethiopia Estonia Falkland Islands (Malvinas) Faroe Islands Fiji
40
Finland
41 42 43 44 45 46 47 48 49
50 51 52 53 54 55 56
Date signed 31-03-10 25-04-77 10-06-11 12-05-94 17-12-97 20-06-07 21-11-75 17-07-69 17-05-73 16-11-79 01-10-85 26-09-91 31-07-96 19-08-08 08-11-06 20-05-80 13-07-04 04-02-10 30-03-10 20-01-93 24-08-09 25-06-53 04-03-49 25-07-88 31-03-10 24-06-52 14-12-94 20-01-09 20-01-09 31-08-92 21-06-10 28-11-77 30-09-91 25-01-93 05-04-93
Date in force 23-08-80 N/K 18-12-97 03-06-08 27-08-78 05-02-70 07-07-74 25-04-81 N/K N/K N/K 18-12-09 02-08-07 05-07-82 11-10-05 17-12-10 30-12-10 10-08-94 15-12-10 15-01-54 04-03-49 14-12-88 24-06-52 03-01-95 27-11-09 27-11-09 18-12-92 20-12-10 27-12-78 19-12-91 25-10-93 14-04-94
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Jurisdiction 57 Ireland
58
Isle of Man
59 60 61 62 63 64 65 66
67 68 69 70 71 72 73 74 75
Kiribati Korea (South) Kuwait Latvia Lesotho Liberia Libya Liechtenstein Lithuania
Type of EoI arrangement DTC Protocol Protocol DTC Protocol Protocol Protocol TIEA DTC Protocol DTC DTC DTC DTC Protocol Protocol TIEA DTC DTC Protocol DTC Protocol/ EoN Protocol Protocol DTC DTC DTC DTC DTC TIEA DTC TIEA DTC Protocol
Date signed 02-06-76 07-11-94 04-11-98 29-07-55 19-12-91 14-12-94 29-09-08 29-09-08 28-09-62 20-04-70 21-10-88 16-06-73 02-02-06 24-06-52 14-12-94 10-03-09 10-03-09 22-07-01 21-03-94 18-09-97 31-07-73 20-01-76 10-05-50 04-03-68 25-07-74 25-10-96 21-07-99 08-05-98 17-12-97 01-11-10 17-11-08 11-08-09 19-03-01 21-05-02
Date in force 23-12-76 21-09-95 23-12-98 29-07-55 19-12-91 N/K 02-04-09 02-04-09 N/K 25-03-71 31-12-90 31-12-73 12-10-06 24-06-52 N/K 27-11-09 27-11-09 24-03-02 15-12-96 02-11-98 N/K 30-09-77 10-05-50 23-10-68 25-07-74 30-12-96 01-07-00 30-12-98 23-12-97 08-03-10 02-12-10 28-11-02 28-11-02
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sqdf Type of EoI arrangement DTC Protocol Protocol Protocol DTC Protocol Protocol DTC Protocol DTC DTC Protocol Protocol Protocol DTC Protocol DTC DTC DTC DTC Protocol Protocol DTC Protocol DTC DTC Protocol DTC TIEA 64 DTC Protocol Protocol DTC DTC
64
Jurisdiction 76 Luxembourg
77 78 79 80
81 82 83 84 85 86 87 88 89 90 91 92
Mexico Moldova Mongolia Montenegro Montserrat Myanmar Morocco Namibia Netherlands New Zealand Nigeria Norway
Date signed 24-05-67 18-07-78 28-01-83 02-07-09 25-11-55 12-07-68 10-02-78 17-12-97 22-09-09 12-05-94 11-02-81 23-10-86 27-03-03 10-01-11 02-06-94 23-04-09 08-11-07 23-04-96 06-11-81 19-12-47 06-04-68 09-12-09 13-03-50 04-04-51 08-09-81 28-05-62 14-06-67 26-09-08 10-09-10 04-08-83 04-11-03 07-11-07 09-06-87 12-10-00
Date in force 12-07-68 N/K N/K 28-04-10 25-11-55 13-09-68 14-03-79 08-07-98 28-12-10 27-03-95 19-10-81 N/K 22-10-03 15-12-94 18-01-11 30-10-08 04-12-96 16-09-82 19-12-47 04-12-68 13-03-50 04-04-51 29-11-90 19-12-62 27-11-67 25-12-10 16-03-84 23-07-04 28-08-08 27-12-87 21-12-00
64.
See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the Netherlands.
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Jurisdiction 93 94 95 96 97 98 99 Oman Pakistan Papua New Guinea Philippines Poland Portugal Qatar
100 Romania 101 Russian Federation 102 Saint Kitts and Nevis 103 104 105 106 Saint Lucia Saint Vincent and the Grenadines San Marino Saudi Arabia
107 Serbia 108 Sint Maarten 65 109 Sierra Leone 110 Singapore 111 112 113 114 115 Slovak Republic Slovenia Solomon Islands South Africa Spain
qsdf Type of EoI arrangement DTC Protocol DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC TIEA TIEA TIEA TIEA DTC and Protocol DTC TIEA DTC Protocol DTC Protocol DTC DTC DTC Protocol Protocol DTC Protocol DTC DTC DTC
65
Date signed 23-02-98 26-11-09 24-11-86 17-09-91 10-06-76 20-07-06 27-03-68 25-06-09 20-10-10 18-09-75 15-02-94 19-12-47 18-01-10 18-01-10 18-01-10 16-02-10 31-10-07 06-11-61 10-09-10 19-12-47 18-03-68 12-02-97 24-08-09 05-11-90 13-11-07 10-05-50 08-04-68 25-07-74 04-07-02 08-11-10 21-10-75 15-03-95 21-06-79
Date in force 09-11-98 09-01-11 08-12-87 20-12-91 22-01-78 27-12-06 17-01-69 15-10-10 21-11-76 18-04-97 19-12-47 19-05-11 19-05-11 19-05-11 01-01-09 16-09-82 19-12-47 16-01-69 19-12-97 08-01-10 20-12-91 11-09-08 10-05-50 24-01-69 25-07-74 17-12-02 N/K N/K 21-05-80
65.
See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the Netherlands.
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Type of EoI arrangement DTC DTC DTC DTC Protocol Protocol Protocol Protocol DTC DTC DTC DTC DTC DTC TIEA DTC Protocol Protocol DTC DTC DTC Protocol DTC DTC DTC DTC Protocol DTC
120 Switzerland
Tajikistan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Turks and Caicos Islands
128 Tuvalu 129 Uganda 130 Ukraine 131 United States 132 Uzbekistan 133 Venezuela 134 Vietnam 135 Zambia 136 Zimbabwe
Date signed 08-03-75 26-11-68 30-08-83 08-12-77 05-03-81 17-12-93 26-06-07 07-09-09 31-07-85 18-02-81 31-12-82 15-12-82 19-02-86 31-07-85 22-07-09 10-05-50 04-03-68 25-07-74 23-12-92 10-02-93 24-07-01 19-07-02 15-10-93 11-03-96 09-04-94 22-03-72 30-04-81 19-10-82
Date in force 08-10-77 18-03-69 26-03-84 N/K 10-05-82 19-12-94 22-12-08 15-12-10 18-04-97 20-11-81 22-12-83 20-01-84 26-10-88 30-01-86 25-01-11 10-05-50 23-10-68 25-07-74 21-12-93 11-08-93 19-07-02 31-03-03 10-06-94 31-12-96 15-12-94 29-03-73 14-01-83 11-02-83
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Company law
Companies Act 2006 Overseas Companies Regulations 2009 Companies (Company Records) Regulations 2008 Insolvency Regulations 1994 Uncertificated Securities Regulations 2001
Partnership law
Partnership Act 1890 Limited Partnerships Act 1907 Limited Liability Partnerships Act 2000 Limited Liability Partnerships (Northern Ireland) Act 2002 European Economic Interest Grouping Regulations 1989 Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act) Regulations 2008 Limited Liability Partnerships (Application of Companies Act) Regulations 2009 Partnerships (Accounts) Regulations 2008 The Insolvent Partnerships Order 1994
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Trust law
Convention on the Law Applicable to Trusts and on Their Recognition 1985 Recognition of Trusts Act 1987 Trustee Act 1925 Trustee Act 2000 Evans v. Hickson (1861) 30 Beav 136 Knight v. Knight (1840) 3 beav 148 Pearse v. Green (1819) 1 Jac & W 135 Limitation Act 1980 Public Trustee Act 1906 Public Trustee Rules 1912.rtf Re Hulkes (1886) 33 Ch D 552
Charity law
Charities Act 1993 Charities Act 2006 Charities Act (Northern Ireland) 2008 Charities and Trustee Investment (Scotland) Act 2005 Charities (Accounts and Reports) Regulations 2008
Mutual law
Building Societies Act 1986 Building Societies (Accounts and Related Provisions) Regulations 1998 Credit Unions Act 1979 Credit Unions (Northern Ireland) Order 1985 Friendly and Industrial and Provident Societies Act 1968 Friendly Societies Act 1974 Friendly Societies Act 1992 Industrial and Provident Societies (Northern Ireland) Act 1969 Industrial and Provident Societies Act 1965
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ANNEXES 113
Tax law
Finance Act 1990 Finance Act 1998 Finance Act 2006 Finance Act 2008 Schedule 36 Finance Act 2009 Finance Act 2010 Reporting of Savings Income Information Regulations 2003 Corporation Tax Act 2010 Corporation Tax (Notice of Coming Within Charge Information) Regulations 2004 Inheritance Tax Act 1984 Taxes Management Act 1970 Tribunals Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 Commissioners for Revenue and Customs Act 2005 Value Added Tax Act 1994 Value Added Tax Regulations 1995 Arrangements between HMRC and the British Bankers Association for the issuing of third party information notices to banks under paragraph 2, Schedule 36, Finance Act 2008 Banking or Other Third Party Documentation / Information: Background Information Required to Obtain a Formal Notice Under Schedule 36 Finance Act 2008 (HMRC checklist for EOI partners)
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European law
Council Directive 85-611-EEC Undertakings for Collective Investment in Transferable Securities Council Regulation (EEC) 2137-85 on the European Economic Interest Grouping (EEIG) Directive 2003-48-EC European Savings Directive Directive 2004-39-EC Markets in Financial Instruments Directive Directive 2004-109-EC Transparency Directive Directive 2005-60-EC Money Laundering Directive EU Directive 95-46-EC on Data Protection
Other legislation
Data Protection Act 1998 Government of Wales Act 1998 and 2006 Northern Ireland Act 1998 Scotland Act 1998
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HM Treasury
Deputy Director, International Tax Senior Policy Advisor, International Tax Legal Adviser Head of Anti-Money Laundering Policy, Counter Illicit Finance
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Companies House
Director of Corporate Strategy
Charity Commission
Senior Advisor Legal Advisor
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OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2011 46 1 P) ISBN 978-92-64-11814-0 No. 58581 2011
UNITED KINGDOM
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the Global Forum for Transparency and Exchange of Information for Tax Purposes and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org.
Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011: Combined: Phase 1 + Phase 2, Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews, OECD Publishing. http://dx.doi.org/10.1787/9789264118164-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.
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