HM Treasury is consulting on steps the government proposes to take to transpose the EU fifth anti-money laundering directive into UK law by January 2020, including an extended definition of ‘tax advisor’ and broadening of the requirement to register trusts with HMRC.
The directive passed into EU law in July 2018 and the government intends to implement its provisions in the UK by 10 January 2020. The government expects this to fall within the extended period for the UK’s exit from the EU as foreseen in the Withdrawal Agreement.
The directive widens the scope of businesses to be regulated in relation to tax matters. The government proposes to extend the definition of ‘tax advisor’ in the money laundering regulations to include firms and sole practitioners who provide, ‘directly or by way of arrangement with other persons, material aid, assistance or advice about the tax affairs of other persons’, as specified by the directive. The consultation document seeks views on what additional activities should be caught within this extended definition.
Where regulated businesses have a duty to review their customers’ beneficial ownership information during the course of a calendar year, the directive requires them to apply customer due diligence procedures. The government intends to require customer due diligence where a business has:
any legal duty in a calendar year to contact customers for the purposes of reviewing their beneficial ownership information; or
a duty under the International Tax Compliance Regulations, SI 2015/878, to identify new and pre-existing reportable offshore financial accounts for annual reporting, along with the details of the account holder (including jurisdiction of tax residence).
Rather than specify, the government envisages leaving it to the regulated business to determine what is ‘relevant information’ in relation to the beneficial owner.
The directive also requires enhanced due diligence with respect to business relationships and transactions involving high-risk third countries. However, the government intends to narrow the definition of ‘involving’ to make clear that enhanced due diligence should not apply to UK citizens simply by virtue of their being at the same time nationals of high-risk countries. The consultation seeks evidence on the potential impacts of applying a broad definition of ‘involving’ for the purposes of enhanced due diligence to reduce the risk of money laundering.
The current requirement to register trusts covers express trusts with UK tax consequences. The directive extends this requirement to:
all UK-resident express trusts;
non-EU resident express trusts that acquire UK land or property on or after 10 March 2020;
non-EU resident express trusts entering into a new business relationship with a regulated business on or after 10 March 2020.
While the government does not expect to specify a full list of types of express trust, those likely to fall within the definition are:
discretionary trusts;
interest in possession trusts;
many types of bare trusts;
charitable trusts; and
employee ownership trusts.
HMRC will still require all trusts with UK tax consequences to register on its trust registration service (TRS), even if they are not express trusts or are non-EU resident express trusts without UK trustees. However, the government confirms that non-express trusts with UK tax consequences will not be liable to the wider data-sharing provisions detailed in the directive.
The registration deadlines will change, as the government no longer considers the current TRS deadline of 31 January based on submitting a tax return to be appropriate in the money laundering context. The proposed new TRS registration deadlines are:
31 March 2021 for unregistered trusts already in existence on 10 March 2020; and
for trusts created on or after 1 April 2020, within 30 days of their creation.
Penalties for late registration on TRS are currently based on the self-assessment penalty regime. As the directive extends registration to non-taxpaying trusts, this government no longer considers self-assessment a suitable basis for any future TRS penalty framework. HMRC expects to publish a technical consultation on trusts later this year, covering proposals for data collection, data sharing and penalties, which will take account of responses to the current money laundering directive consultation.
The government intends to include the three main types of cryptoassets within the money laundering regulations:
exchange tokens or ‘cryptocurrencies’, such as Bitcoin;
security tokens, representing specified investments; and
utility tokens, for redemption against specific products or services.
The government is to consult in more detail during 2019 on options for regulation of security and utility tokens.
The consultation also considers additional provisions beyond the minimum requirements of the directive, to cover crypto exchange service providers, peer-to-peer exchange service providers, cryptoasset automated teller machines, issuance of new cryptoassets, and publication of open-source cryptoasset-related software.
The closing date for comments on the consultation, ‘Transposition of the fifth money laundering directive’, is 10 June 2019. See bit.ly/2v5CFmD.
HM Treasury is consulting on steps the government proposes to take to transpose the EU fifth anti-money laundering directive into UK law by January 2020, including an extended definition of ‘tax advisor’ and broadening of the requirement to register trusts with HMRC.
The directive passed into EU law in July 2018 and the government intends to implement its provisions in the UK by 10 January 2020. The government expects this to fall within the extended period for the UK’s exit from the EU as foreseen in the Withdrawal Agreement.
The directive widens the scope of businesses to be regulated in relation to tax matters. The government proposes to extend the definition of ‘tax advisor’ in the money laundering regulations to include firms and sole practitioners who provide, ‘directly or by way of arrangement with other persons, material aid, assistance or advice about the tax affairs of other persons’, as specified by the directive. The consultation document seeks views on what additional activities should be caught within this extended definition.
Where regulated businesses have a duty to review their customers’ beneficial ownership information during the course of a calendar year, the directive requires them to apply customer due diligence procedures. The government intends to require customer due diligence where a business has:
any legal duty in a calendar year to contact customers for the purposes of reviewing their beneficial ownership information; or
a duty under the International Tax Compliance Regulations, SI 2015/878, to identify new and pre-existing reportable offshore financial accounts for annual reporting, along with the details of the account holder (including jurisdiction of tax residence).
Rather than specify, the government envisages leaving it to the regulated business to determine what is ‘relevant information’ in relation to the beneficial owner.
The directive also requires enhanced due diligence with respect to business relationships and transactions involving high-risk third countries. However, the government intends to narrow the definition of ‘involving’ to make clear that enhanced due diligence should not apply to UK citizens simply by virtue of their being at the same time nationals of high-risk countries. The consultation seeks evidence on the potential impacts of applying a broad definition of ‘involving’ for the purposes of enhanced due diligence to reduce the risk of money laundering.
The current requirement to register trusts covers express trusts with UK tax consequences. The directive extends this requirement to:
all UK-resident express trusts;
non-EU resident express trusts that acquire UK land or property on or after 10 March 2020;
non-EU resident express trusts entering into a new business relationship with a regulated business on or after 10 March 2020.
While the government does not expect to specify a full list of types of express trust, those likely to fall within the definition are:
discretionary trusts;
interest in possession trusts;
many types of bare trusts;
charitable trusts; and
employee ownership trusts.
HMRC will still require all trusts with UK tax consequences to register on its trust registration service (TRS), even if they are not express trusts or are non-EU resident express trusts without UK trustees. However, the government confirms that non-express trusts with UK tax consequences will not be liable to the wider data-sharing provisions detailed in the directive.
The registration deadlines will change, as the government no longer considers the current TRS deadline of 31 January based on submitting a tax return to be appropriate in the money laundering context. The proposed new TRS registration deadlines are:
31 March 2021 for unregistered trusts already in existence on 10 March 2020; and
for trusts created on or after 1 April 2020, within 30 days of their creation.
Penalties for late registration on TRS are currently based on the self-assessment penalty regime. As the directive extends registration to non-taxpaying trusts, this government no longer considers self-assessment a suitable basis for any future TRS penalty framework. HMRC expects to publish a technical consultation on trusts later this year, covering proposals for data collection, data sharing and penalties, which will take account of responses to the current money laundering directive consultation.
The government intends to include the three main types of cryptoassets within the money laundering regulations:
exchange tokens or ‘cryptocurrencies’, such as Bitcoin;
security tokens, representing specified investments; and
utility tokens, for redemption against specific products or services.
The government is to consult in more detail during 2019 on options for regulation of security and utility tokens.
The consultation also considers additional provisions beyond the minimum requirements of the directive, to cover crypto exchange service providers, peer-to-peer exchange service providers, cryptoasset automated teller machines, issuance of new cryptoassets, and publication of open-source cryptoasset-related software.
The closing date for comments on the consultation, ‘Transposition of the fifth money laundering directive’, is 10 June 2019. See bit.ly/2v5CFmD.
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