The key changes to the Economic Crime (Transparency and Enforcement) Act 2022
The UK’s Economic Crime (Transparency and Enforcement) Act 2022 came into force on 15 March 2022. The government enacted the legislation to introduce new measures to try to tackle “illicit finance” in the UK real-estate market. The Act represented a significant shift in the disclosure requirements for foreign companies who hold real-estate interests in the UK.
One key component of the Act is the creation of a new public Register of Overseas Entities, which will require the disclosure of those beneficial owners who own UK real-estate through non-UK entities which was purchased on or after 1 January 1999, and in Scotland since 8 December 2014. A beneficial owner needs to be registered if they hold more than 25% of the shares or voting rights in an entity; can appoint or remove a majority of its directors; or have some other significant influence or control over it (including through a trust or partnership structure).
A six-month transitional period has been given to allow overseas entities to either sell their real-estate or to register. In addition to the initial registration, there is an annual compliance requirement to file a confirmation statement notifying of any changes to registrable beneficial owners or confirmation that the beneficial owners have not changed.
Furthermore, the Act makes changes to the existing Unexplained Wealth Order regime by now including company directors and owners of real-estate held both in trusts and offshore. Real-estate for which there are reasonable grounds to suspect that it has been obtained through unlawful contact will also be included in the Unexplained Wealth Order regime. The requirement that those breaching sanctions laws must have known or suspected that they breached the law will no longer be in place and can now be imposed a monetary penalty.
The future plans of HMRCs Business Risk Review
In 2019, HMRC updated its approach to assessing the risk posed by large businesses via its revised Business Risk Review (‘BRR+’) process. By updating its process, HMRC aimed to increase its ability to influence taxpayer behaviour to adopt a lower risk approach to managing their tax affairs as well as more accurately reflecting the risk profile of taxpayers. The new approach also intended to align different UK tax governance measures including Senior Accounting Officer (‘SAO’), Corporate Criminal Offences for facilitating tax evasion (‘CCO’), Automatic Exchange of Information (CRS/FATCA) and UK Tax Strategy.
HMRC has indicated that it will be increasing their Business Risk Review activity during 2022/3 from 480 to around 600. HMRC aims to provide an annual conversation with taxpayers who will not have a BRR during the year. The key areas for 2022/3 BRR’s include (i) Corporate Criminal Offence, (ii) Making Tax Digital, (iii) Supply chains and (iv) Uncertain Tax Treatments.
HMRC will likely focus on taxpayer specific issues and additionally attempt to increase the level of training provided to Customer Compliance Managers which aims to improve the level of consistency applied across different BRRs.
Crypto asset developments, changes to the CRS and the introduction of the CARF
Given the growing importance of crypto assets across a range of investment and financial activities, the Organisation for Economic Co-operation and Development (OECD) has initiated its work on the development of a new tax transparency framework for cryptoassets, referred to as the ‘Crypto-Asset Reporting Framework’ (CARF). The OECD seeks to put in place a formal framework through a consultative process.
Alongside the CARF, the OECD is also seeking to overhaul the Common Reporting Standard (CRS) regime. The CRS refresh will be the first revision undertaken by the OECD and draws on the experiences of the past seven years since it was first adopted. The CRS proposals seek to extend the scope of the CRS to cover electronic money products and Central Bank Digital Currencies.
Changes to the US Qualified Intermediary Agreement
The US Internal Revenue Service (IRS) has issued Notice 2022-3 which includes proposals to update the Qualified Intermediary (QI) Agreement. The amendments set out a QI’s commitment to comply with the provisions of section 1446(a) of the Internal Revenue Code regarding distributions from Publicly Traded Partnerships (PTPs) and section 1446(f) with respect to the transfer of interests in a PTP.
The expected changes will now allow a QI to assume primary withholding responsibility on a distribution from a PTP, depending on whether the QI assumes primary withholding responsibility for the entire distribution. However, clearing organisations have indicated that they will not embrace withholding responsibility for PTP payments and consequently non-withholding QIs may have to adopt primary withholding responsibility to continue offering these products to their account holders.
It is important to note that the ability to rely on documentary evidence to support treaty benefits is not available with regards to payments of PTP income. In order to support reduced withholding on PTP income, a QI will be required to obtain Form W-8BEN or
W-8BEN-E. The W-8 must mention the PTP for which the account holder claims reduced withholding.
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