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Panama Papers – the veil of secrecy removed


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The fallout from the release of the Panama papers is continuing, as investigative journalists sift through the huge amount of information released in what The Guardian called ‘history’s biggest data leak’.  With 11.5m files from offshore law firm, Mossack Fonseca, now shared internationally, the ‘veil of secrecy’ has been released with quite a flourish.

While a number of individuals have been identified as being ‘up to no good’, there is also evidence many have set-up structures through the firm concerned to hide their own involvement in certain transactions. This of course may well be in addition to securing tax savings – which may or may not have been available had they had conducted their affairs in a more traditional, morally-acceptable way.

Transparency has been an issue in the UK for some time.  In fact, moves have recently been made to address this with the introduction of rules for the disclosure of controlling interests in UK companies and limited liability partnerships.

What does this additional layer of reporting achieve?  The measures are designed to create transparency and force disclosure of detail with regard to individuals who are able to control companies. Quite simply, this will help various agencies to ensure all is in order. In particular, HMRC will be better able to track down the individuals behind corporate entities to ensure necessary tax rules are being followed at both a personal and corporate level.

How does this affect today’s business owners?  From April this year, most UK companies and LLPs have been required to keep a ‘persons with significant control’ (PSC) register.  This will detail the individuals who are the ultimate beneficial owners of the business.  The register will be a matter of public record and will become part of the annual filing routine for corporate entities in the UK.

Who is classed as a ‘person with significant control’? The rules define control as being present where an individual meets one of the following five conditions with regard to a corporate entity:-

  • Directly or indirectly holds more than 25% of the shares

  • Directly or indirectly controls more than 25% of the votes

  • Directly or indirectly is able to control the appointment or the removal of the board of directors

  • Is actually able to exercise significant influence or control over the company

  • Is actually able to exercise control over any trust or firm which itself has significant control as defined above over the company

The PSC register will need to contain the following detail for an individual who meets one of the above conditions:

  • Name

  • Service address

  • Country of residence

  • Nationality

  • Residential address

  • Date of birth

Are there any exceptions?  The public register will not include the residential address, unless it is also a service address.  It will also omit the day element of the date of birth – unless the company has opted to keep its registers centrally at Companies House rather than at its own registered office – an option that will be available to private companies and LLPs.

For certain companies it may be appropriate, for the safety of the individuals concerned, not to have residential addresses in the public domain. This may be necessary where a company is involved in activities which a group of society may find objectionable.

Today’s business owners must be aware of these recent changes and all companies should make sure they have created the necessary PSC register.  I would also urge those responsible for reporting to have a procedure in place to make sure the information is regularly updated.

It is important to note this is not a matter which can necessarily be deferred, especially if an entity is undergoing any form of due diligence exercise – an onward sale or negotiating a new bank facility for instance. A copy of the PSC register may be requested as part of the due diligence exercise.

As the ripple effect from the Panama leak continues to be seen, we are moving towards a new era in transparency and accountability, and it seems there will finally be fewer places to hide for those who are looking to shroud their tax affairs in secrecy.

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