PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT UNITED KINGDOM OECD 2011

PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT UNITED KINGDOM OECD 2011
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
C.1. Exchange-of-information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
C.2. Exchange-of-information mechanisms with all relevant partners . . . . . . . . 84
C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . 87
C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 88
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
About the Global Forum
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 jurisdic-
tions, which participate in the Global Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of
the implementation of the international standards of transparency and exchange
of information for tax purposes. These standards are primarily reflected 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. The standards
have also been incorporated into 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 fore-
seeably relevant information must be provided, including bank information
and information held by fiduciaries, 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 identified 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 jurisdic-
tions 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 and Phase 2
reviews. The Global Forum has also put in place a process for supplementary
reports to follow-up on recommendations, as well as for the ongoing monitor-
ing of jurisdictions following the conclusion of a review. 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 adopted by the Global Forum.
For more information on the work of the Global Forum on Transparency
and Exchange of Information for Tax Purposes, and for copies of the published
review reports, please refer to www.oecd.org/tax/transparency.
ABOUT THE GLOBAL FORUM 5
EXECUTIVE SUMMARY 7
Executive summary
1. This report summarises the legal and regulatory framework for trans-
parency 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 compe-
tent 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 cen-
tres in the world (City of London), the UK has a long history in negotiating
double taxation conventions (DTCs) leading to a network of agreements cover-
ing 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 jurisdic-
tions 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.
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 infor-
mation 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, receiv-
ing 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 informa-
tion for international tax matters with a large network of jurisdictions across
the globe.
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 materi-
als 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 enumer-
ated 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 implemen-
tation 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
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 jurisdic-
tion. However this rating will only be published at such time as a representa-
tive 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 determina-
tion 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.
Overview of the United Kingdom
12. The United Kingdom of Great Britain and Northern Ireland
(commonly known as the United Kingdom, the UK) is located off the north-
western coast of continental Europe. It is an island nation, spanning an archi-
pelago including Great Britain, the north-eastern part of the island of Ireland,
and many smaller islands.
13. The UK is the worlds sixth largest economy. In 2009 its
nominal gross domestic product (GDP) amounted to GBP 1.296 tril-
lion (EUR 1.53 trillion)
1
, its population to 61.798 million and its GDP per
capita to approximately GBP 21 000 (EUR 24 757).
2
It is a member of the
European Union (EU), though not the Economic and Monetary Union, a
permanent member of the United Nations Security Council, a member of the
Commonwealth of Nations, the G8 and G20, the Organisation for Economic
Co-operation and Development (OECD) and the World Trade Organisation
(WTO). Its ten primary trading partners are (in order) the USA, Germany, the
Netherlands, China, France, Ireland, Belgium, Italy, Spain and Switzerland.
3
1. 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).
2. Source: IMF World Economic Outlook Database, accessed 20 October 2010.
3. www.uktradeinfo.com/index.cfm?task=summaryTrade, accessed 31 March 2011.
INTRODUCTION 11
General information on legal system and the taxation system
14. The UK consists of four countries: England, Northern Ireland,
Scotland and Wales. It is governed by a parliamentary system with its seat of
government in the capital city of London. There are three devolved adminis-
trations with varying powers, in Belfast, Cardiff and Edinburgh, the capitals
of Northern Ireland, Wales and Scotland respectively. Very few areas relevant
to transparency and international exchange of information for tax purposes
are devolved to these bodies. Where there are relevant differences between
the four countries, they are noted and analysed in this report. The UK also
has a number of Crown Dependencies
4
and Overseas Territories
5
that are not
constitutionally part of the UK. They have their own directly elected legisla-
tive assemblies, administrative, fiscal and legal systems. They are not repre-
sented in the UK parliament and UK legislation does not normally extend to
them. They are therefore outside the scope of this review.
15. The UK has a bicameral Parliament that consists of the House of
Commons (650 seats; members elected by popular vote to serve five-year
terms unless the House is dissolved earlier) and the House of Lords (792
members; consisting of 678 life peers, 89 hereditary peers, and 25 clergy
6
).
The House of Lords (the upper house) has no legislative power in relation to
tax or other money bills. Any Bill passed by the parliament requires Royal
Assent (signature of the monarch) to become law. The UK parliament is the
ultimate legislative authority in the United Kingdom. The devolved, unicam-
eral parliament in Scotland and devolved assemblies in Northern Ireland, and
Wales are not sovereign bodies and could be abolished by the UK parliament.
16. The Prime Minister and Cabinet are formally appointed by the
Monarch to form Her Majestys Government, though the Prime Minister
chooses the Cabinet. Northern Ireland, Scotland and Wales each have their
own government or Executive, led by a First Minister. England, the largest
country of the United Kingdom, has no devolved executive and is adminis-
tered directly by the UK government and parliament on all issues. All parts
of the UK also have elected local authorities.
4. The Crown Dependencies Jersey, Guernsey and Isle of Man are all members of
the Global Forum.
5. Some of the Overseas Territories, namely Anguilla, Bermuda, British Virgin
Islands, Cayman Islands, Gibraltar, Montserrat and Turks and Caicos are Global
Forum members.
6. 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/
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 inter-
national 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 agree-
ment shall have effect notwithstanding any other enactment. Secondary leg-
islation 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 consid-
ered 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 imple-
mentation 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, regu-
lation and paragraph are used respectively. The same convention is applied in
this report.
INTRODUCTION 13
(HMRC), a government department accountable to the Chancellor of the
Exchequer. The Commissioners for HMRC are the UK competent author-
ity 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 compa-
nies 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 indi-
viduals, 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 com-
pany 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 com-
panies. 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 guid-
ance such as the UK Corporate Governance Code, and case law of the UK
courts.
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.
Overview of the financial sector and relevant professions
8
26. The financial industry is of great importance to the UK economy.
Financial services account for 10.0% of UK GDP, higher than that, for exam-
ple, in France, Germany, Japan or the United States. Professional services
closely connected with the financial sector (accounting, legal, management
consultancy and maritime services) contributed a further 3.9% to UK GDP.
In total, financial and related professional services account for around 14%
of the UKs GDP. This for example compares to 12% contributed by the
manufacturing sector. Financial services employ more than 1 million people
(out of 31 million employed in the UK) in all parts of the UK. UK financial
services in 2009 generated a trade surplus of GBP 40 billion (EUR 47.22 bil-
lion) and professional service firms a surplus of GBP 6 billion (EUR 7.08)
offsetting a large deficit in goods of GBP 82 billion (EUR 96.8 billion). Taxes
paid by the financial services sector in 2008/9 amounted to GBP 61 billion
(EUR 72.01 billion).
27. The following facts, produced by the industry
9
, show the signifi-
cant role the UK in general and London in particular play in the international
financial market:
banking: UK banking sector deposits are the third largest in the
world. There were 249 branches and subsidiaries of foreign banks
in London in March 2009, more than in any other centre worldwide,
managing over one half of the UK banking sector assets, totalling
over GBP 7.6 trillion (EUR 8.97 trillion) at the end of 2009, mainly
on behalf of foreign customers. Approximately one half of European
investment banking activity is conducted in London;
insurance: The UK insurance industry is the largest in Europe and
third largest in the world with net premium income of GBP 215 billion
(EUR 253.8 billion) in 2008. London is the worlds largest international
8. Unless otherwise stated, statistics under this section refer to 2009 and are taken
from www.thecityuk.com/what-we-do/the-research-centre/key-facts-and-figures-
about-uk-financial-services.aspx.
9. The City UK www.ifsl.org.uk/what-we-do/the-research-centre/key-facts-and-
figures-about-uk-financial-services.aspx.
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 turno-
ver, 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 account-
ing 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.
Overview of relevant registration and regulatory authorities
28. The Financial Services Authority (FSA) is the single statutory
regulator responsible for the authorisation and supervision of deposit taking,
insurance and the investment business. It is an independent non-government
body given statutory powers by the Financial Services and Markets Act 2000
(FSMA). The FSA is accountable to Treasury Ministers but operationally
independent of Government, funded entirely by the firms it regulates. The
FSA is the main statutory regulator (as well as AML/CFT regulator) for the
financial services industry in the UK and regulates nearly 29 000 firms and
approximately 165 000 individuals within these firms. It has a range of rule-
making, investigative, enforcement and disciplinary powers (rules and guid-
ance can be found in the FSA Handbook).
29. All UK companies have to be registered with Companies House,
an Executive Agency of the Department for Business, Innovation and Skills
(BIS). The main functions of Companies House are to incorporate and
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 appro-
priate 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 Regula-
tions 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 prac-
titioners, 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 ser-
vice businesses, trust and company service providers, auditors, account-
ants and tax advisers not supervised by another body (including FSA).
32. The FSA takes enforcement actions against firms and individu-
als 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 Depart-
ment responsible for the support and supervision of charities. Similar commis-
sions have been established in Northern Ireland and Scotland.
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 macro-
prudential 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 legisla-
tion 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 statu-
tory 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 vol-
untarily). 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.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19
Compliance with the Standards
A. Availability of information
Overview
39. Effective exchange of information requires the availability of relia-
ble 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 infor-
mation 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.
20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
41. The legal and regulatory framework for the maintenance of own-
ership and identity information is in place in the UK. However, UK compa-
nies can issue bearer shares. They are said to be rare but no statistics exist.
Nevertheless, no instances of bearer shares were found in the course of the
review and some mechanisms are in place where the identities of persons
holding bearer shares would have to be established.
42. UK law allows for the creation of trusts under common law and
statute and the UK is a party to the Hague Convention on the Law Applicable
to Trusts and on their Recognition.
10
The mechanisms in place in the UK
ensure the availability of identity information regarding the trustees, settlors
and beneficiaries of trusts, whether UK or foreign law trusts, where signifi-
cant elements of the trust such as a resident professional trustee or a settlor,
have a sufficient nexus with the UK.
43. Mutual societies and collective investment schemes (CIS) can also
be formed under UK law. The legislation governing these entities ensures that
ownership and accounting information is required to be maintained. Some
mutual societies and CISs may be subject to additional regulatory require-
ments to keep relevant information.
44. UK company, partnership and trust law together with tax law, pro-
vide in most cases necessary requirements to maintain sufficient accounting
records that correctly explain all transactions, enable the financial position
of the entity or arrangement to be determined with reasonable accuracy and
allow financial statements to be prepared. Such records must be accompanied
by underlying documentation and must be kept for at least five years.
45. Bank information must be maintained in accordance with the laws
relating to financial institutions and anti-money laundering laws.
46. There are strong regulatory mechanisms in place whereby all
significant industries are subject to close oversight for compliance with the
variety of laws in place in the UK. Significant efforts are made to liaise closely
with record-keepers to ensure systems are maintained in a way that meets the
requirements of UK legislation. The UK authorities have a risk-based approach
assuring a high level of compliance by all sectors relevant to this review.
47. There is a range of sanctions available under each of the relevant
laws to ensure that ownership and accounting 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 propor-
tionate to the nature and level of a breach of these laws. These penalties are
dissuasive enough to ensure compliance, even by legal persons. With the
exception of one case where poor retention practice of a bank was mentioned,
10. www.hcch.net/index_en.
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.
A.1. Ownership and identity information
Jurisdictions should ensure that ownership and identity information for all relevant
entities and arrangements is available to their competent authorities.
Companies (ToR
11
A.1.1)
48. The main types of UK companies are:
public limited company (PLC): A PLC has share capital and limits
the liability of each member to the amount unpaid on their shares.
It may offer its shares for sale to the general public and may also be
quoted on a regulated market. It must have at least two shareholders;
private company limited by shares: This type of company has
share capital and the liability of each member is limited to the
amount, if any, unpaid on their shares. It cannot offer its shares for
sale to the general public. It can have one or more shareholders;
private unlimited companies may or may not have share capital but
there is no limit to the members liability. They have to disclose less
information than other types of companies;
private company limited by guarantee: This type of company does
not have share capital and its members are guarantors rather than
shareholders. The members liability is limited to such amount as the
members undertake to contribute to the assets of the company; and
European company (Societas Europaea, SE): SEs are regulated
by EU Council Regulation (EEC) No. 2157/2001 on Statute for a
European Company and transposed in the UK through the European
Communities Act 1972. Pursuant to Article 9(1)(c)(ii) of the Council
Regulation, the rules regarding UK PLCs apply equally to SEs.
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.
Ownership information held by government authorities
Information held by Companies House
50. All UK companies have to be registered with Companies House
(Part 2, Companies Act). On application for registration, UK companies must
provide a Memorandum of Association,
12
a Statement of Capital and Initial
Shareholdings or a Statement of Guarantee including information necessary
to identify the subscribers (name and authentication through a signature or
for electronic incorporations a code). Thus, a full list of subscriber details
has to be provided on incorporation for all companies. Further, companies
have to deliver a Statement of Proposed Officers including name and address
of the officers of the company.
51. All UK companies are required to submit an annual return to
Companies House (Part 24, Companies Act). The return of UK non-traded
companies
13
must contain [t]he name (as it appears in the companys regis-
ter of members) of every person who was a member of the company at any
time during the return period S.856A(2). Further, the return has to state the
number of shares held by each owner (s. 856A(3)). UK-traded companies must
send an annual return providing the names and addresses of persons holding
more than 5% of the shares (s. 856B).
52. Compliance with requirements to file annual returns in the UK is gen-
erally high. The latest statistics (November 2010) show that compliance with
requirements to file annual returns stood at 97.48%. This is closely monitored.
For the first seven months of the year 2010/2011, Companies House imposed
in total 127 998 penalties for non-filing of accounts and annual returns.
53. Under the Overseas Companies Regulations 2009 overseas compa-
nies have to register if they have some degree of physical presence in the UK
(such as a place of business or branch) through which they carry out business.
They have to supply a certified copy of the companys constitutional docu-
ments. Further, they have to supply details of inter alia directors or persons
authorised to represent the company. However, no ownership information has
to be provided.
54. Companies House is required by law to maintain information held in
the register indefinitely. Where a company has been dissolved or a registered
overseas company has ceased to have any connection with the UK, records
12. The memorandum of association is a statement made by each subscriber con-
firming their intention to form a company and become a member of that com-
pany (and for companies with share capital to take at least one share).
13. A non-traded company means a company none of whose shares are shares
admitted to trading on a regulated market. (s. 855(4) Companies Act).
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 elec-
tronic information indefinitely.
Businesses regulated by the Financial Services Authority (FSA)
55. Any person who carries on a regulated activity in the UK must be
either authorised by the FSA or exempted from authorisation (s. 19 FSMA).
Regulated activities are defined in Part II of the Regulated Activities Order
2001 (RAO) and include activities such as: accepting deposits, effecting or car-
rying out contracts of insurance as principal, dealing in investments (as princi-
pal or agent), arranging deals in investments, managing investments; assisting
in the administration and performance of a contract of insurance; establishing,
etc.collective investment schemes or stakeholder pension schemes.
56. Close links by way of owning or controlling 20% or more of capital or
voting rights of regulated firms have to be disclosed at time of authorisation
(Schedule 6 to FSMA and FSA Handbook, Supervision 16.5). Information
required includes inter alia the name and address of the close link. Acquiring
significant control and otherwise crossing certain thresholds of ownership of
a regulated business must be disclosed to the FSA, which can either approve
or deny the acquisition (ss. 178-187 FSMA). Significant control is defined as
control arising as a result of holding 10% or more of the shares in a regulated
business or its parent undertaking; control arising as a result of the entitlement
to exercise, or control the exercise of, voting power in a regulated business or
its parent undertaking. A person must also notify the FSA of any subsequent
changes in control, either increase or reduction, where a persons ownership
or control in shares of a regulated business or its parent undertaking crosses
certain thresholds (10%, 20%, 33% and 50%).
Information held by CREST
57. The register of legal title to shares of UK companies which are issued
in uncertificated (dematerialised) form is constituted by the entries in the
CREST system, the UKs clearing and settlement system (regulation 20 of
the Uncertificated Securities Regulations 2001, USRs), which is operated
by Euroclear UK and Ireland Limited (EUI). CREST allows uncertificated
(dematerialized) shares to be held and transferred electronically. Records
of the owners of the shares held in the system, as well as details of all share
transfers for stamp duty purposes are required to be held. EUI is obliged
to enter on the register the names and addresses of the members who own
uncertificated shares in the company and a statement of the uncertificated
shares held by each member (paragraph 4 Schedule 4 USR). Any entry relat-
ing to a member of the company who has ceased to hold uncertificated shares
in it may be removed by EUI from the register after the expiration of a period
of 10 years beginning with the day on which he ceased to hold shares.
Information held by HMRC
58. A company is required to give notice to HMRC when it begins any
business activity, such as starting to trade, receiving income, or acquiring or
disposing of assets, and when it re-commences activities which are subject to
taxation (s. 55 Finance Act 2004). When giving this notice, the company is
required to provide specific information, including the full name and address
of each of the directors of the company.
59. A company is required to deliver a company tax return if it is served
with a notice to do so (para. 3, Schedule 18 to the Finance Act 1998). A com-
pany which does not receive a notice but which is chargeable to tax for a period
is required to give notice of chargeability to HMRC (para. 2, Schedule 18).
Foreign companies operating in the UK through a permanent establishment and
within the charge to UK corporation tax are required to file tax returns in the
same manner as domestic companies. However, company tax returns do not
require mention of ownership information.
60. The current practice is for HMRC to retain company tax returns for
a minimum of 20 years.
61. Companies may also need to register with, and submit returns to,
HMRC for VAT purposes.
Ownership information held by companies
Companies in general
62. Every UK company is required to maintain a register of members
(chapter 2 of Part 8 Companies Act). The register must inter alia contain the
names and addresses of the members as well as dates on which they became
or ceased to be members. However, this will not include owners of bearer
shares or the beneficial owners of shares held by nominees (see further
below). The companys register of members must contain information about
members for a period of 10 years after the date at which they have ceased to
be a member (s. 121, Companies Act).
63. Section 793 of the Companies Act gives UK public companies the
power to require anyone believed to have an interest in its shares to confirm
their interest and disclose the identity of any other persons interested in the
shares in question. Public companies must keep a register containing infor-
mation gathered as a result of issuing a section 793 notice for at least six
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
company
14
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 negli-
gible, any unrelieved management expenses and charges arising prior
to the change in ownership may not be carried forward to an account-
ing period after the change in ownership (ss. 677 and 692); and
where there is more than a 50% change in the ownership of a com-
pany 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.
newspaper articles or notes to the companys accounts indicate that a change
of ownership has taken place). Compliance with these provisions will also be
monitored routinely during enquiries into a companys tax return if relevant.
For larger groups, enquiries will likely occur every year. Tax managers and
accountants are aware of these obligations.
Publicly traded companies
67. In addition to requirements under company law, the FSAs Disclosure
and Transparency Rules (DTR) require shareholders of UK public companies
to notify the company, and the UK Listing Authority (if the shares are traded
on a regulated market), when their interests reach, exceed or fall below 3%
and at 1% thresholds thereafter. For this purpose, the FSA Handbook Glossary
defines shareholder much wider than the Companies Act and would include
not only the registered holder of the shares but also their beneficial owner. A
notification has to include the resulting situation in terms of voting rights; the
chain of controlled undertakings through which voting rights are effectively
held; the date on which the threshold was reached or crossed; and the identity
of the shareholder and of the person entitled to exercise voting rights on behalf
of that shareholder.
Service providers
68. HM Treasury is responsible for the UK Money Laundering Regula-
tions 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 prac-
titioners, 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 regu-
lar occupation or business is the provision investment services or the perfor-
mance 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.
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, corre-
spondence 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 meas-
ures 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 infor-
mation 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).
73. Carrying on a business as a nominee shareholder or nominee director
is a regulated activity (regulation 3(10)(d)(ii) and (b)(i), MLR). Any nominee
acting by way of business will be subject to AML customer due diligence
obligations requiring the nominee to verify the beneficial owner of the shares
held (regulation 5 of MLR refers).
74. Nominees not acting by way of business are not covered by UK AML
obligations and are thus not obliged to hold information on the persons for
whom they act. As UK authorities advise that most nominees act by way of
business, and indeed where shareholdings are substantial this is even more
the case, the lack of obligations on non-professional nominees to identify
beneficial owners is not considered to represent a material gap. None of the
peers have reported problems requesting ownership information related to
companies with nominees. Nevertheless, the impact of this on international
exchange of information in practice should be monitored by the UK on an
ongoing basis.
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 man-
aged 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 informa-
tion 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 man-
aged and controlled from within the UK. Nevertheless, as there are no direct
mechanisms that assure that ownership information is available for such com-
panies, 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.
Bearer shares (ToR A.1.2)
77. The Companies Act (s. 122) allows all types of companies to issue
share warrants to bearer or stock warrants to bearer, provided the com-
panys Articles of Association
16
allow it. Despite their name, share warrants
to bearer have the essential properties of bearer shares. The name of the
owners of such bearer securities are not recorded in the register of the company.
They can be sold without any necessity to notify the company. The UK authori-
ties advise that, generally, companies will require that the holder of a security
be identified in order to be able to vote, receive notices, and receive interest
dividends or other payments. However, this is not an absolute requirement.
78. There are some limitations in the issuance of bearer shares and some
mechanisms under which owners of bearer shares have to be identified:
bearer shares may not be admitted to the CREST system and shares
traded on the London Stock Exchange are required to be eligible for
electronic settlement (s. 1.7 London Stock Exchanges Admission and
Disclosure Standards) and thus cannot be in bearer form;
owners of shares, including bearer shares, in companies admitted
to market in the UK, are subject to notification requirements which
inter alia require periodic financial reporting and major sharehold-
ing notifications to both the company and the UK Listing Authority
when their interests reach, exceed or fall below 3% and at 1% thresh-
olds thereafter. A notification has to include the resulting situation in
terms of voting rights; the chain of controlled undertakings through
which voting rights are effectively held; the date on which the thresh-
old was reached or crossed; and the identity of the shareholder and of
the person entitled to exercise voting rights on behalf of that share-
holder (DTR 5.8, FSA Handbook);
for public companies the owners of bearer shares may to some degree
be ascertained using section 793 of the Companies Act, though it is
unclear in the case of bearer shares how the company would know
whom to send the section 793 notice to; and
service providers subject to AML are required to identify the owners
of bearer shares in the course of conducting customer due diligence.
79. No statistics are available on the number of bearer shares issued in
the UK. According to the UK authorities, it is believed to be on a very small
scale. Academic commentary on the subject in the UK also states that bearer
securities have never been popular with English investors or companies and
16. A company must have articles of association prescribing regulations for the com-
pany (s. 18 Companies Act).
are rarely used.
17
The FATFs 2007 Mutual Evaluation Report on the UK
states that private sector feedback confirmed that use of share-warrants to
bearer was rare in the UK. Further, no instances of bearer shares were found
during the course of this review. However, bearer shares company formation
services are advertised.
18
Therefore, there may be circumstances where such
shares exist and in those cases information concerning their owners may not
be available. The UKs competent authority for international exchange of
information in tax matters does not recall ever having received a request for
information regarding bearer shares.
Conclusion
80. Even though share warrants to bearer are reportedly rare, where such
warrants exist information concerning their owners may not be available.
Partnerships (ToR A.1.3)
81. The legislative framework in the UK provides for three types of
partnerships:
general partnerships: the Partnership Act 1890 provides that all
partners in a general partnership have unlimited liability for the firms
debts and obligations and can participate in the running of the firm. A
partnership is defined as the relation which subsists between persons
carrying on a business in common with a view of profit (s. 1, Partner-
ship Act);
limited partnerships: This type of partnership can be formed under
the Limited Partnerships Act 1907. Such partnerships are formed by
registration with Companies House and must include at least one gen-
eral partner with unlimited liability and at least one limited partner
whose liability is limited to their initial contribution and who does
not have management authority. The Act also applies the Partnership
Act to limited partnerships; and
limited liability partnerships (LLPs): These partnerships can be
formed under the Limited Liability Partnerships Act 2000 (England,
Wales and Scotland) or the Limited Liability Partnerships Act (North-
ern Ireland) 2002. LLPs have a flexibility similar to other forms of
partnerships, but are bodies corporate with legal personality and limited
17. Gowers Principles of Modern Company Law, 6th edition, as quoted in the 2007
FATF-report on the UK.
18. See e.g. www.jordans.co.uk/corporatelegalservices/bearersharesorderform.pdf,
www.coddan-uk-company-formation.co.uk/bearer-shares-companies.html.
liability of its members for debts of the LLP. The LLP is therefore sub-
ject to certain requirements under company law, such as in relation to
accounts and audit.
82. Scottish partnerships have legal personality separate from the part-
ners (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 oper-
ate 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
Ownership information held by government authorities
Registration with Companies House
85. General partnerships (i.e. those formed under the Partnership Act) are
not registered with Companies House. The same applies to Scottish general
partnerships even though they have legal personality.
86. Limited partnerships are required to register with Companies House.
They have to provide the full name of each general and limited partner when
first registered with Companies House and to notify the registrar of any part-
ners who subsequently leave or join (ss. 8-9, Limited Partnership Act).
87. Limited liability partnerships are required to register with Companies
House. They have to provide the full name and address of each partner when
first registered with Companies House, and to notify Companies House of
any changes to membership (s. 2 and s. 9, Limited Liability Partnerships Act).
They are required to submit annual returns to Companies House (Part 8, 2009
LLP Regulations) including particulars of their partners.
88. European economic interest groupings are required to register in the
Member States of the EU where their official address is situated. In the UK,
19. The Department for Business estimates that there are approximately 2.8 million
sole traders in the UK.
an EEIG has to register with Companies House. It must submit information
through the registration form and a copy of its contract of formation which
has to include inter alia the names, business names and legal form of each
member (Art. 5(d), Council Regulation (EEC) No. 2137/85).
89. Foreign limited partnerships cannot register with Companies House
unless their principal place of business is situated or proposed to be situated
in the UK (s. 8 Limited Partnership Act).
90. The Limited Partnerships Act 1907 does not provide for information
relating to limited partnerships to be removed from the register. Information
regarding LLPs has to be retained until the LLP is dissolved. In practice,
information registered with Companies House is kept indefinitely.
Information provided to the tax administration
91. UK resident partners are taxable on profits and gains whether
UK-source income or not. Non-resident partners will be liable to tax on trade
or professional profits and gains arising from activities carried on in the
UK. The Taxes Management Act 1970 (TMA) requires anyone chargeable
to UK income or capital gains tax for a particular tax year to give notice of
chargeability, i.e. inform HMRC that they are liable to income and/or capital
gains tax, if they have not received an HMRC notice to file a return for that
year (s. 7, TMA). Under s. 12AA and s. 12AB, all types of partnerships are
required to file a Partnership Tax Return with HMRC, including a partner-
ship statement, if HMRC has issued the partnership with a notice to do so.
The partnership has to nominate one of the partners to do this. The partner-
ship tax return includes inter alia details of all the present partners, and for
those that have left or joined during the period covered by the return, the
period for which they were partners (s. 12AA(6)).
92. As with partnerships, EEIGs are tax transparent. Under s. 12A of the
TMA, HMRC may require an EEIG to submit an ordinary partnership tax
return, including details on partners, together with its accounts.
93. A partnership or an EEIG may have to register for value-added tax
(VAT) purposes. Details of all the partners must be provided to HMRC on
form VAT 2 (partnership details).
94. The above rules regarding notification of chargeability and filing of
partnership returns apply equally to foreign partners and partnerships with a
liability to UK income and capital gains tax.
95. HMRCs current practice is to retain partnership tax returns for a
minimum of six years.
Ownership information held by service providers
96. AML and FSMA rules on CDD and record retention obligations
described above for companies apply equally in the case of partnerships. In the
case of a partnership (other than an LLP), beneficial owner is defined as any
individual who (a) ultimately is entitled to or controls (whether the entitlement
or control is direct or indirect) more than a 25% share of the capital or profits
of the partnership or more than 25% of the voting rights in the partnership; or
(b) otherwise exercises control over the management of the partnership (regula-
tion 6 (2), MLR).
Ownership information held by partners
97. There are no specific obligations for a general or limited partnership
to keep a register of its partners. However, UK partnerships would commonly
draw up a partnership agreement or deed, setting out the conditions of the
partnerships and the terms of conduct, which would be signed by all the part-
ners (although this is not a requirement). The partners in a limited partnership
will also have to hold necessary information in order to inter alia comply
with the obligation to provide names of partners to Companies House.
98. Limited liability partnerships are specifically required to keep a
register of partners (part 5, Limited Liability Partnerships (Application of
Companies Act) Regulations 2009). The register must include the name and
address of each partner.
99. In order for the partnership tax return to be completed, the partner
nominated as having the responsibility to create and file this return must hold
information on the partners (s. 12AA, TMA). Further, if a general or limited
partnership or a firm or entity of a similar character carries on business under
a name that is not comprised of the names of all partners then it must provide
the name and address of each partner in its business correspondence and in
signs at premises accessible to its customers or suppliers (part 41, s. 1200 and
s. 1201, Companies Act).
100. Due to its obligation under tax law, partnerships must maintain infor-
mation about partners for a minimum of five years (s. 12B, TMA).
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.
Trusts (ToR A.1.4)
102. UK law allows for the creation of trusts. Further, the UK is a party
to the Convention on the Law Applicable to Trusts and on Their Recognition
1985 (Hague Convention).
20
The extent to which information in respect of
trusts has to be held within the UK does not depend on the law governing the
trust but on whether there are UK trustees, settlors and beneficiaries.
103. There are no specific provisions governing the formation of trusts for
non-residents or where the assets settled in the trust are located outside the
UK. There are no prohibitions on residents acting as a trustee in relation to a
trust formed under foreign law.
104. There is no registry or depository for lodging trust deeds. However,
according to HMRC statistics for 2008-09, approximately 190 000 trusts and
estates filed a tax return. Of these, 107 500 were trusts paying tax at the spe-
cial trust rate, 73 500 were interest in possession trusts and 9 000 were other
types of trusts. Approximately 20 000 trusts have a corporate trustee.
Information submitted to authorities under tax laws
105. Both the TMA and the Inheritance Tax (IHT) Act 1984 require
information concerning the trustees, settlors and beneficiaries of trusts to be
submitted to HMRC.
Income tax
106. For tax purposes, trustees are deemed to be a single person, with tax-
ation dependent on their residency status and the nature of the trust (ss. 474-
476, 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 resi-
dent or domiciled in the UK.
20. www.hcch.net/index_en.php?act=conventions.text&cid=59, accessed 10 March
2011.
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 prac-
tice 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.
112. The Trust and Estate Tax Return SA900 contains inter alia the
following information:
identity of the settlor where assets or funds have been put into the
trust during the tax year;
discretionary income payments to beneficiaries and names of ben-
eficiaries;
details of capital transactions between trustees and the settlors;
details of capital payments and benefits provided to beneficiaries
whilst being non-resident for UK tax purposes; and
details of any changes to the trustees details.
113. Trust and Estate Tax Returns are retained by HMRC for six years and
41G (Trust) forms are kept indefinitely.
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 ordinar-
ily 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 informa-
tion 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.
Information held by trustees
116. Under common law, for a non-charitable trust to be valid, the trust
needs to meet the three certainties: the certainty of intention, the certainty
of subject matter and the certainty of object. This means that a trust is only
valid if evidenced by a clear intention on behalf of the settlor to create a trust,
clarity as to the assets that constitute the trust property and identifiable ben-
eficiaries (Knight v. Knight (1849) 3 Beav 148). A written declaration of trust
may not exist or not identify the settlor on the face of the document. However,
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 limita-
tion 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 previ-
ously in section A.1.1, apply equally to trust and company service provid-
ers. 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 oper-
ates; and
any individual who has control over the trust.
Information held based on charity legislation
120. Many charities take the form of a trust. The trust then exists for
charitable purposes rather than for the benefit of named persons. It is sub-
ject to both trust and charity law. Specific legislation for charities and the
availability of ownership and identity information is dealt with under Other
relevant entities and arrangements.
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
not be available in the UK. However, in these cases there is a requirement for
UK trustees to hold necessary information under: (i) trust law if the trust is
governed by UK trust law; or (ii) UK AML law if the trustee(s) acts by way
of business. The UK reports that it is rare for the UK to receive a request for
information concerning the ownership of a trust and none of its peers have
reported any difficulties in obtaining information on UK trusts.
122. It is conceivable that a trust could be created which has no connection
with the UK other than that the settlor chooses the trust to be governed by
UK law. In that event, there may be no information about the trust available
in the UK and there would be no UK tax liability. In these situations trust
information would have to be available in the jurisdiction where the trustee is
located as the relevant records would be situated there.
Foundations (ToR A.1.5)
123. UK law does not recognise foundations.
Other relevant entities and arrangements
124. Under UK law, several types of mutual entities and collective invest-
ment schemes, as well as charities, can be formed. Some of these entities will
take the form of companies or trusts and are then subject to the rules that
apply to such entities regarding registration, record keeping and sanctions.
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 socie-
tys main purpose is to assist members financially during sickness, unemploy-
ment 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
same basis as companies. Financial mutuals are regulated under the MLR,
although certain mutual financial undertakings (i.e. those with small invest-
ment businesses) are exempt (regulation 4(1), MLR). Thus, they are required
to undertake CDD on their members. Members have to be registered.
23
Investment trusts and collective investment schemes (CISs)
127. Collective investment schemes (CIS) may be authorised or unauthor-
ised. Authorised collective investment schemes can either be authorised unit
trusts (AUTs) or open-ended investment companies (OEICs). The authorising
body is the FSA. Unauthorised CIS are generally unit trusts.
24
A foreign CIS
that meets certain specified criteria may be recognised by the FSA for the
purpose of marketing to the public in the UK.
128. Authorised CISs (AUTs and OEICs) are regulated as Undertakings
for Collective Investment in Transferable Securities (UCITS), non-UCITS
retail schemes (NURS) or Qualified Investor Schemes (QIS). While unau-
thorised CISs are not constrained by these regulations, their managers are
required to be authorised under Part IV of FSMA 2000.
129. OEICs are companies whereas AUTs are not, but both are treated
as companies for income tax purposes. Both types are required to submit
Corporate Tax returns on the same basis as companies. Unauthorised UTs are
required to submit Trustee Tax Returns to HMRC on the same basis as trusts.
130. For AUTs, the manager and trustee must file a copy of the trust deed
with the FSA. UK OEICs must file a copy of the companys instrument of
incorporation (s. 12, OEIC Regulations and s. 242, FSA 2000). An application
for authorisation must include details of the directors for authorised OEICs
and must include details of managers and trustees for AUTs.
131. The FSA maintains a register of all firms and individuals that fall
under its regulatory jurisdiction including those permitted to act as operators
or trustee/depositary for CIS. It also maintains a register of all authorised CIS.
For an AUT, the FSA maintains, at a minimum, the type of scheme, its name
and unique reference number, the name and address of the manager and the
trustee of the scheme. For an authorised OEIC; the name and address of the
company, the type of scheme, its unique reference number, its directors and
196; s. 2 IPS Act 1965. IPSs and Credit Unions in Northern Ireland register with
the Department of Enterprise, Trade and Investment (DETI).
23. Schedule 2 para. 13 Building Societies Act 1986; Schedule 3 para. 14 Friendly Soci-
eties Act 1992; s. 1 Credit Unions Act 1979, s. 44 Industrial and Provident Societies
Act 1965.
24. www.duslaw.eu/files/Alternative%20Investments.pdf, www.hmrc.gov.uk/collec-
tive/what-is.htm.
its depositary are kept. Finally, for a recognised scheme; details are kept of the
operator of the scheme and any representative of the operator in the UK.
132. The director of an authorised OEIC or manager or the trustee of an
AUT must establish and maintain a register of unitholders, including names
and address for all units other than those represented by bearer shares and
the number of units of each class currently in issue, including bearer shares
and the number of units of those bearer certificates (Schedule 3(5) to the
Open-Ended Investment Companies Regulations 2001 and rule 6.6.4 of
the Collective Investment Schemes Sourcebook in the FSA Handbook).
Unauthorised unit trusts and their trustees are subject to the same rules previ-
ously presented in section A.1.4 of this report for trusts.
133. All types of CIS are subject to AML law (regulation 3(3)(d), MLR).
When marketing or offering its units or shares, a CIS is required to undertake
CDD on investors and beneficial owners holding at least a 25% interest in the
CIS. The director, manager or trustee must exercise CDD and take all reason-
able steps to ensure that information on unitholders is at all times complete
and up to date (Schedule 3 to the OEIC Regulations and FSA Handbook
Collective Investment Schemes 6.6.4).
134. If a CIS is set up as a company and issues bearer shares, ownership
information may not be available for owners who have not exercised their
owner rights in a way that requires the manager to perform CDD. However,
according to FSA officials the assessment team spoke with, no cases seem to
be known where bearer certificates have been issued.
Charities
25
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.
(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 pro-
vide 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 chari-
ties 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.
Enforcement provisions to ensure availability of information
(ToR A.1.6)
137. The existence of appropriate sanctions for non-compliance with key
obligations is an important tool for jurisdictions to effectively enforce the
obligations to retain identity and ownership information. Appropriate sanc-
tions are in place in UK legislation to enforce identity and ownership record
keeping and filing obligations:
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 mil-
lion) and 1 075 public limited companies with GBP 2.5 million (EUR 2.95 mil-
lion) for late filing of accounts.
139. Companies House makes sure that registered entities provide the
necessary information. It examines information to ensure appropriate stand-
ards 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 com-
panies 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
where the companys management refuses to co-operate or there is a risk that
documents may be destroyed.
140. Where a UK company fails to maintain a register of its members,
this constitutes an offence for both the company and officers of the com-
pany. The penalty for such an offence on summary conviction is GBP 1 000
(EUR 1 190) and for continued contravention, there will be a daily default
fine not exceeding GBP 100 (EUR 118) (s. 113(7) and (8), Companies Act).
141. A person who fails to comply with a section 793 notice or makes a false
statement either knowingly or recklessly is liable on conviction on indictment to
imprisonment for a term not exceeding two years or a fine or both and on sum-
mary conviction to imprisonment or a fine not exceeding the statutory maximum
(Part 22 Companies Act). The statutory maximum is defined as follows: in
England and Wales the prescribed sum for the statutory maximum is GBP 5 000
(EUR 5 900) (s. 32(9) of the Magistrates Courts Act 1980); in Scotland the pre-
scribed sum is GBP 10 000 (EUR 11 800) (s. 225(8) of the Criminal Procedure
(Scotland) Act 1995); and in Northern Ireland the prescribed sum is GBP 5 000
(EUR 5 900) (s. 4(8) of Fines and Penalties (Northern Ireland) Order 1984).
Uncertificated securities legislation (CREST)
142. Euroclear UK and Ireland Limited is, according to the Uncertificated
Securities Regulations 2001, obliged to enter on the register of uncertificated
shares the names and addresses of members holding uncertificated shares in
the CREST system. Default in complying with this obligation is sanctioned
under section 113 of the Companies Act. A person guilty of an offence
under this section 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) (s. 113(8), Companies Act).
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 part-
nerships 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).
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 con-
tinued 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 part-
nership 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
GBP 3 000 (EUR 3 542) multiplied by the number of members of the group-
ing at the time of the delivery (s. 98B, TMA, as amended by paragraph 2,
Schedule 11 to Finance Act 1990)
151. A professional who acts to set up a non-resident trust for a UK settlor
and fails to inform HMRC of the settlement may be liable to a fine of GBP 300
(EUR 354) and a further penalty of GBP 60 (EUR 71) per day until the notifi-
cation is made (s. 245A, Inheritance Tax Act 1984).
Financial Services and Markets Act 2000 (FSMA)
136. Any person who carries on a regulated activity in the UK without
being authorised by the FSA or being exempted (s. 19 FSMA) may be pun-
ishable on indictment by a maximum term of two years imprisonment and/
or a fine. Further, a person who fails to disclose close links (Schedule 6 to
FSMA) is guilty of an offence and is liable on summary conviction to a fine
not exceeding GBP 5 000 (EUR 5 900) (s. 191).
136. If shareholders in a public company do not comply with the 3%-noti-
fication requirement, the FSA may impose a penalty of such amount as the
FSA considers appropriate on, or publicly censure any person or its directors
knowingly violating these provisions (s. 91).
Money Laundering Regulations 2007
152. The MLR provide for a range of civil and criminal penalties for
breaches of the regulatory requirements (regulations 42 and 45). On criminal
conviction in the higher courts on indictment penalties can include unlimited
fines and up to two years imprisonment. Records required to be kept under
MLR have to be retained for five years after the transaction took place or the
business relationship ended (regulation 19 MLR).
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 pen-
alty appears low. However, the UK has strong regulatory authorities (includ-
ing Companies House) with active inspection or monitoring programs. This
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 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 infor-
mation 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.
A.2. Accounting records
Jurisdictions should ensure that reliable accounting records are kept for all
relevant entities and arrangements.
General requirements (ToR A.2.1)
Accounting information
Companies
156. Every UK-incorporated company is obliged to keep accounting records
under company law (s. 386, Companies Act). The record keeping requirements
do not differ between company types. Accounting records must be sufficient
to show and explain the companys transactions; to disclose with reasonable
accuracy, at any time, the financial position of the company at that time; and
to enable directors to ensure that any accounts required to be prepared comply
with the requirements of the Companies Act. Accounts have to give a true and
fair view of the assets, liabilities, financial position and profit or loss (s. 393).
Accounting records must in particular contain entries from day to day of all
sums of money received and expended and the matters in respect of which
the receipt and expenditure takes place; and a record of the assets and liabili-
ties of the company. (s. 386). Accounts must be prepared in accordance with
international accounting standards or in accordance with the requirements set
out in s. 396 of the Companies Act for individual accounts or s. 404 for group
accounts (s. 395).
157. A person who fails to maintain adequate records is guilty of an
offence (ss. 387 and 389, Companies Act). This person can be liable on
indictment to imprisonment of up to two years or a fine or both or on sum-
mary conviction to imprisonment (twelve months England and Wales, six
months Scotland and Northern Ireland) or a fine or both.
158. Limited companies are required, for each financial year, to file
accounts with Companies House (Chapter 10 of Part 15 of Companies Act).
The filing requirements vary depending on the size of company. Companies
subject to the small companies regime must deliver a copy of a balance
sheet.
26
They must also file a copy of the auditors report on the accounts
(and any directors report) that it delivers. Statistics for the accounting period
2009-10, show that Companies House fined 230 000 private limited compa-
nies with GBP 110 million (EUR 130 million) and 1 075 public limited com-
panies with GBP 2.5 million (EUR 2.95 million) for late filing of accounts.
27
159. An unlimited company needs only deliver accounts to Companies
House if, at any time during the period covered by the accounts, it was a
banking or insurance company (or the parent company of a banking or insur-
ance company) or if its owners or their owners were all limited companies.
160. Entities subject to corporation tax
28
need to submit their statutory
accounts to HMRC as part of their Company Tax Return (CT600). Moreover,
26. Under s. 382 Companies Act, a company qualifies as small if for a year in
which it satisfies at least two of the following requirements: turnover not more
than GBP 6.5 million (EUR 7.7 million), balance sheet total not more than
GBP 3.26 million (EUR 3.85 million) or number of employees not more than 50.
27. www.companieshouse.gov.uk/about/pdf/companiesRegActivities2009_2010.pdf.
28. This includes inter alia limited companies incorporated in the UK; foreign-
based companies with a permanent place of business in the UK; members clubs,
such as social clubs, sports clubs and holiday clubs; societies, such as friendly
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 account-
ing 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 [part-
ners 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 account-
ing 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 com-
pany 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 pro-
duced 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 compa-
nies that are subsidiaries of or wholly owned by a charity.
163. Limited liability partnerships have to maintain and file accounts with
Companies House in accordance with Company Law (Part 3 of the Limited
Liability Partnership (Accounts and Audit) (Application of Companies Act)
Regulations). Companies House statistics show that for the accounting year
2008-09, Companies House fined approximately 4 500 limited liability
partnerships with a total of over GBP 2.5 million (EUR 2.95 million) for late
filing of accounts.
29
164. Partnerships as well as foreign entities which are regarded as a part-
nership for the purposes of UK tax, have to file a partnership tax return where
there are UK partners or UK source income. All partnerships and EEIGs are
required to maintain accounting records for tax purposes under s. 12A and
s. 12B of the TMA. They must maintain such records as may be required to
deliver a correct and complete tax return. Partnerships must keep records of
all receipts and expenses in the course of the trade, profession or business 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. A partnership must also preserve all supporting
documents. The penalty for failing to comply with these requirements is a fine
of GBP 3 000 (EUR 3 540) (s. 12B TMA). Partnerships and EEIGs may also
be required to maintain accounting records for VAT purposes.
165. One instance was reported by a peer where accounting information
was not available regarding a Scottish limited partnership registered with
Companies House. As a UK partnership it was subject to the above account-
ing obligations, however, since the entity had no UK tax-resident partners
and no UK-taxable business, no accounting records were available within the
UK jurisdiction. UK partnership law implies that in order to be registered in
the UK, a limited partnership needs to have its principal place of business in
the UK (s. 8, Limited Partnerships Act 1907). Subsequent to registration, the
circumstances may change and the partnerships principle place of business
may move outside of the UK. Cases such as the one reported are considered
to be rare. However, the UK should monitor whether there is any effect of this
on EOI in practice and seek to demonstrate that the issue is not material. This
issue will be followed up in the UKs detailed written report to be provided
to the PRG within one year.
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.
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 docu-
ments 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 trus-
tees 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.
Collective investment schemes
168. In addition to accounting requirements under company and trust law,
open-ended investment companies (OEICs) must keep accounting records
under ss. 66 and 67 of the OEIC Regulations and authorised unit trusts must
keep accounting records under the FSA Handbook Collective Investment
Schemes 4.5.3. An authorised fund must maintain adequate accounting records
to enable the authorised fund manager to make annual and half-yearly accounts
in accordance with the Investment Management Associations Statement of
Recommended Practice (IMA SORP) and must ensure that the accounts give
a true and fair view of the net revenue and the net capital gains and losses
of the scheme property of the authorised fund (FSA Handbook Collective
Investment Schemes 4.5).
169. OEICs and AUTs are are treated as companies for income tax pur-
poses and required to submit Corporate Tax returns. Unauthorised UTs are
taxed as trusts and required to submit Trustee Tax Returns to HMRC on the
same basis as trusts. UK (tax) law does not provide for UK unauthorised
OEICs. Accounting records for all types of CIS are therefore required to be
kept and must enable a complete and correct tax return to be made for author-
ised CIS and unauthorised UTs according to their legal form.
Charities
170. All charities in England and Wales are required to maintain account-
ing 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, with-
out 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).
Accounting requirements under AML law
171. Regulation 19 of the MLR requires regulated persons to keep a copy
of, or the references to, the evidence of the customers identity obtained
according to the regulations as well as supporting records in respect of busi-
ness relationships or occasional transactions which are the subject of CDD
measures or ongoing monitoring. Records have to be kept for five years.
Underlying documentation (ToR A.2.2)
172. Every company must keep records that are sufficient to show and
explain the companys transactions, Accounting records must, in particular,
contain the matters in respect of which receipt and expenditure have taken
place (s. 386, Companies Act). In addition, UK tax law requires companies
to preserve all supporting documents relating to all receipts and expenses in
the course of the companys activities, and the matters in respect of which
the receipts and expenses arise, and in the case of a trade involving dealing
in goods, all sales and purchases made in the course of the trade. Supporting
records include, but are not limited to, accounts, books, deeds, contracts,
vouchers and receipts (s. 21, Schedule 18 to Finance Act 1998).
173. UK partnership laws only contain specific requirements regarding
underlying accounting documentation for qualifying partnerships, which are
subject to similar requirements as for companies. Nevertheless, 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.) Further, for tax purposes, all kinds of partnerships have to keep sup-
porting documents relating to all receipts and expenses in the course of the
trade, profession or business activities, 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 lim-
ited to, deeds, contracts, vouchers and receipts (s. 12B(6)).
174. While UK trust law does not specifically state the underlying docu-
ments 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 busi-
ness 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)).
Five year retention standard (ToR A.2.3)
175. UK tax law requires companies to retain accounting records for a
minimum of six years from the end of the tax year or until any later date
on which an enquiry into the return is completed (para. 21(2), Schedule 18
to Finance Act 1998). This requirement takes precedence over company
law which requires UK companies to retain records for three years (private
company) and six years (public company) (s. 388, Companies Act). Where
officers of the company fail to maintain accounting records for the prescribed
time limit, they are guilty of an offence and liable on conviction on indict-
ment, to imprisonment for a term of up to two years or/and a fine of up to
GBP 5 000 (EUR 5 900) summary conviction (s. 389, Companies Act).
176. In case of a voluntary liquidation of a company or a partnership, the
liquidator may one year after the company has been dissolved, dispose of
the companys accounting books and records. In a winding up by the court,
on the authorisation of the official receiver, the liquidator can dispose of
accounting books and records at any time (s. 16, Insolvency Regulations 1994
and s. 18, Insolvent Partnerships Order 1994). However, here too, the reten-
tion period in Paragraph 21 of Schedule 18 to the Finance Act 1998 will take
precedence over other legislation.
177. Neither the 1890 or the 1907 Partnerships Act have specific provi-
sions regarding retention of accounting records for partnerships. Under
partnership law, LLPs are required to maintain accounting records for three
years (s. 6, Limited Liability Partnership (Accounts and Audit) (Application
of Companies Act) Regulations). For qualifying partnerships the reten-
tion period is the same as for private companies, i.e. three years (part 2,
Partnership (Accounts) Regulations 2008). Under tax law, all partnerships are
required to maintain records for a minimum of five years. Partnerships are
required to maintain records until HMRC has completed any enquiries into
their tax returns (s. 12B, TMA).
178. There is a six year limitation period for breach of trust (s. 21(3),
Limitation Act 1980). Thus, trustees generally retain all relevant trusts
documents for a period of six years. The retention period for accounting
information of a trust provided for by tax law varies depending on the type of
income. Trusts with non-business income and capital gains have to preserve
records for at least 21 months following the end of the tax year (s. 12B(2)(b)
TMA). Trusts with business income have to keep accounts for at least five
years (s. 12B(2)(a)).
179. Trustees of a charity have to preserve accounting records for at least
six years from the end of the financial year of the charity in which they are
made (s. 41, Charities Act 1993). As company law overrules charity law when
they are in conflict, charities that are companies must keep their account-
ing records for a period of three years (s. 388, Companies Act). Where a
charitable trust ceases to exist within the six year period, the last remaining
trustee must maintain those records unless the Charity Commission agrees
to the records being disposed of. (s. 41(3-4), Charities Act 1993). The Charity
Commission holds accounts and annual returns for seven years.
180. Collective investment schemes are subject to retention require-
ments for trusts and companies. In addition the FSA Handbook Collective
Investment Schemes 6.6.6 states that all relevant records must be kept for six
years.
181. Companies House is required to maintain information held in the reg-
ister indefinitely. In the case of original documents, originals must be retained
for three years after which they may be destroyed so long as the information
contained therein has been entered in the register (s. 1083, Companies Act).
Where a company has been dissolved, records held by Companies House may
be destroyed any time after two years from when the company was dissolved
(s. 1084, Companies Act).
182. For Corporate Tax returns and partnership tax returns, the current
practice is for HMRC to retain company tax returns for a minimum of 20 and
6 years respectively.
Conclusion
183. UK company, partnership and trust law together with tax law, pro-
vide 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
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 record-
keeping 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).
The element is in place.
Phase 2 rating
completed.
A.3. Banking information
Banking information should be available for all account-holders.
Record-keeping requirements (ToR A.3.1)
186. Banks and other financial institutions are required to maintain records
and conduct ongoing monitoring of transactions for anti-money launder-
ing purposes. Banks and financial institutions must maintain copies of the
evidence gathered in carrying out customer due diligence and all supporting
records in respect of a business relationship or occasional transaction which is
subject to customer due diligence or ongoing monitoring (regulation 19, MLR).
187. Banks and financial institutions must establish and maintain appro-
priate and risk-sensitive policies and procedures relating to customer due
diligence and ongoing monitoring; reporting and record-keeping, and must
establish and maintain systems which enable them to respond fully and rap-
idly to enquiries from financial investigators (regulations 8 and 20, MLR).
188. Several record-keeping requirements for banks are set out in the FSA
Handbook:
a financial institution has to establish and maintain systems and con-
trols to ensure that the firm maintains adequate records and arranges
for orderly records to be kept of its business, including all services
and transactions undertaken by it (Senior Management Arrange-
ments, Systems and Controls (SYSC) 3 and 9.1);
the Threshold Conditions (Schedule 6 to FSMA) state that for a firm
to be authorised it must have adequate control systems. For a bank
to meet this condition, it would have to have adequate records of its
business and adequate systems of control of its business and records;
a bank is required to capture and record on a timely basis and in an
orderly fashion every transaction the bank enters into and show vari-
ous details such as the parties involved (s. 3.2.2, Interim Prudential
Sourcebook for Banks);
a firm must keep at the disposal of the FSA, for at least five years, rel-
evant data relating to all transactions in financial instruments which
it has carried out, whether on its own account or on behalf of a client.
Where a transaction was carried out on behalf of clients, the records
shall contain all the information and details of the client and the
information required under the Money Laundering Regulations 2007
(s. 17.4.3, Supervision Guidance); and
a bank must provide customers with regular statements of account
(s. 4.2, Banking Code of Business Sourcebook BCOBS). In order
to do so, banks would have to maintain all financial and transactional
information pertaining to the accounts.
189. In addition, banks are also required to maintain adequate records in
order to fulfil tax requirements under ss. 17 and 18, TMA and the EU Savings
Directive to report automatically the name, address and date of birth or tax
identification number of account holders, including certain non-resident
account holders, and details of interest and equivalent amounts of interest
paid to these account holders.
Conclusion
190. There are sufficient legal obligations in place for financial institu-
tions to keep transaction and CDD information available. Though, in con-
nection with a specific request, one peer mentioned poor record retention by
a bank. However, this seems to have be an isolated incident.
Phase 2 rating
completed.
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 57
B. Access to information
Overview
191. A variety of information may be needed in a tax enquiry and jurisdic-
tions should have the authority to obtain all such information. This includes
information held by banks and other financial institutions as well as informa-
tion concerning the ownership of companies or the identity of interest holders
in other persons or entities, such as partnerships and trusts, as well as account-
ing information in respect of all such entities. This section of the report exam-
ines 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 on-
line) 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-consum-
ing 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
58 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
provide information if the name of the taxpayer is not known.
30
Even though
the UK Competent Authority will use all information available within HMRC
to help establish the name of the taxpayer(s), there may be cases, albeit rare,
where foreseeably relevant information cannot be accessed due to this strict
requirement. Two of the UKs peers have mentioned cases where this restriction
prevented the UK from accessing information requested by the counterparty.
194. Further, HMRC has limited search and seizure powers and powers to
inspect third party premises for EOI purposes and therefore in practice does
not use them. While this limitation could prevent the UK from providing EOI
partners with information of sufficient quality, non-compliance with HMRC
notices to produce documents is sanctionable and none of the UKs peers
have noted that it has prevented effective exchange of information.
195. Professional privileges in the UK encompass not only communication
between a client and a lawyer related to legal proceedings or legal advice or
other admitted legal representative in the course of litigation, for example in
appeals before Tribunals, but also communication between an auditor or tax
adviser concerning advice given to his/her client about the clients tax affairs.
While in practice these exceptions have not hindered effective international
exchange of information, the UK should monitor this privilege to ensure it
does not limit international information exchange in tax matters.
B.1. Competent Authoritys ability to obtain and provide information
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).
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 provi-
sion to extend these powers to EOI cases, thus removing the restriction on provid-
ing 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 rela-
tion to tax regardless when it became due, whether before, on or after that date.
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 cer-
tain 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 posses-
sion 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 signa-
tories, 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).
Information notice in general
198. An information notice has to be approved by either the taxpayer or an
independent tribunal, the First-tier Tribunal (Tax). In both cases such a notice
requires that the information requested is relevant and reasonably required by
HMRC in relation to the tax position being checked. The holder of information
can appeal a taxpayer-approved notice but not a Tribunal-approved notice.
199. The extent to which a formal information notice can be issued for
EOI purposes depends on whether the information is to be collected from
the taxpayer itself (i.e. the UK information holder and the taxpayer under
examination by the requesting jurisdiction are the same) or from a third party
(i.e. where the information holder and the taxpayer under examination are
not the same). In the former case, paragraph 1 of Schedule 36 provides the
same powers to check the taxpayers tax position (emphasis added) for both
domestic and EOI purposes as the term tax includes foreign tax covered
under an EOI arrangement unless the context otherwise requires (para. 63,
Schedule 36). In the latter case (third party notice), access powers for EOI
purposes depend on whether the taxpayer is named or not.
Third party notice
200. According to Paragraph 2 of Schedule 36, a third-party notice can be
issued in order to check the tax position of another person whose identity is
known (emphasis added). Here, the definition of the term tax includes
foreign tax covered under an EOI arrangement. Therefore, this provision can
be applied for EOI purposes. That paragraph goes on to state that A third party
notice must name the taxpayer to whom it relates, unless the First-tier Tribunal
has approved the giving of the notice and disapplied this requirement under
paragraph 3. The interpretation accorded by the UK authorities to paragraph 2
is that the name of the taxpayer must be known.
201. In cases where the name of a taxpayer is not known (including cases
where there is a class of taxpayers, some of whose individual identities are not
known), a third party information notice cannot be issued under paragraph 2
but instead can be issued under paragraph 5 of Schedule 36. However, this
notice power under paragraph 5 cannot be used for EOI cases as it is spe-
cifically for checking the UK tax position of concerned persons (emphasis
added). Further, this power is limited to cases where a serious prejudice to the
assessment and collection of tax is suspected.
31
202. Based on the above, HMRC does not currently have the power to
access information for EOI purposes in cases where the name of the taxpayer
is not known although the passage of Finance Act 2011 will change this situ-
ation. The UK authorities have advised that the rationale for this limitation
was that the test of foreseeable relevance (or the equivalent test in previous
versions of Article 26 of the OECD Model Tax Convention and in EU law
instruments) could not be met if the taxpayer is not be named by the request-
ing State. This does not allow effective EOI to the standard. Article 5(5)(a)
of the OECD Model TIEA and its Commentary does not absolutely require
the provision of the taxpayers name. A request does not constitute a fishing
expedition because it fails to provide the name or address (or both) of the
taxpayer under examination. Where the requesting State fails to provide the
name or address (or both) of the taxpayer, the requesting State would have
to include other identifying information that is sufficient to demonstrate the
foreseeable relevance of the request. EOI cases where the taxpayers name is
not known are reportedly rare. However, two of the UKs peers have com-
mented on the fact that the UK requires the name of the taxpayer to be estab-
lished in order to be able to access information and some referred to cases
where the UK could not provide bank information due to this requirement.
203. It has to be noted nevertheless that where an international partner is
not able to provide the name of the taxpayer, HMRC will, within the ordinary
31. There is no legal definition of what constitutes a serious prejudice to the assess-
ment and collection of tax. Cases referred to by the UK authorities relate to
avoidance schemes involving groups of taxpayers with a minimum of GBP 20 mil-
lion (EUR 23.6 million) of tax at risk. The UK authorities emphasise that it is a
qualitative, not a quantitative test. The UK authorities have decided to extend their
legislation and consultations are currently underway to explore how HMRC can
obtain access to information where the name of the taxpayer is not known even in
the absence of a serious tax prejudice to the assessment and collection of tax.
limits for EOI
32
, 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).
Practical aspects relating to Schedule 36 information notices
204. For approximately 56% of requests for information, HMRC can fully
answer the request using information directly available to the EOI team (includ-
ing information registered with Companies House). For the remaining 44% of
requests, a third party enquiry is needed. In these cases, the administration will
usually first use an informal approach where the information holder provides
information on a voluntary basis or based on a mandate from or a notice agreed
on by the taxpayer or another person to which the information directly relates.
In the relatively small number of cases where this approach is not successful or
advisable, HMRC seeks notice approval from the Tribunal.
205. Due to the common law contractual duty of confidentiality, a bank
will not be able to provide bank information on a voluntary basis. When
HMRC receives a request for bank information, it will always check to ensure
that the requesting authority has tried to obtain the information directly from
the taxpayer or through a customer mandate to the bank. It will also search
its current information holdings to see if the request can be answered without
the need to approach the bank. If information cannot be accessed in this way,
HMRC will seek to issue a tribunal-approved notice. Based on an agree-
ment with the British Banking Association (BBA) HMRC will never issue a
taxpayer-approved notice in a case involving bank information. As Tribunal-
approved cases are not appealable, the question of appeal by the third party,
a bank, will therefore not arise in such cases.
206. For a Tribunal-approved notice, HMRC has to satisfy the tribunal
that the information is reasonably required to check the tax position it relates
to and that it is reasonable to expect that the person to whom the notice is
addressed holds that information. HMRC therefore has to prepare a detailed
written application for approval. This application sets out the background of
the requesting countrys investigation, including: identification details of the
taxpayer; the nature of the tax risk; the reason for and history of the inves-
tigation; any irregularities established; details of the information required;
why it is relevant; why the UK resident could be expected to have that infor-
mation; and confirmation that the requesting country has exhausted its own
32. Such as the requirement that the applicant jurisdiction has exhausted its domestic
means first, reciprocity, no fishing expedition, etc.
means of obtaining the information. Where appropriate, the application will
be supported by exhibits of relevant documents. HMRC has to put consider-
able work into preparing matters for the Tribunals consideration. This prepa-
ration can take several months depending on the complexity of the matter and
the extent of information provided to HMRC by the requesting jurisdiction.
207. According to the UK, if the use of these formal powers is necessary,
then the shortest possible time it will take to provide a full response to a request
is 3-4 months. According to one of the UKs peers this minimum response time
has not been met in any of the cases where they have requested information.
Peers also reported up to 18 months response time for bank information and in
some cases more than two years. The UK acknowledges that for bank informa-
tion it takes an average of 12 months to respond to a request. The UK advises
that the steps in Tribunal approved cases and the approximate timeline for each
step are as follows:
initial receipt, recording, acknowledgement and review of the request
1 week;
preparation of application to the First-tier Tribunal for consent to
issue a formal notice (including a detailed summary of all the rel-
evant facts and an explanation of why the information is required
along with supporting exhibits) 1 month;
if the requesting country has not provided sufficient information then
additional details will be requested at this stage in order to finalise
the application; this will of course increase the overall time taken to
answer the request;
issue of informal request to the bank/third party giving a reasonable
time for the recipient to make written representations, and at the same
time, issue of a summary of reasons to the taxpayer in the requesting
country, advising that an application for Tribunal-consent to issue a
formal notice is being made at least 1 month for representations to
be made;
on receipt of any representations, respond if necessary to the issues
raised (which may involve seeking further information from the
requesting country), otherwise finalise the application and request a
date for a Tribunal hearing 1 week;
notification by the Tribunal of the date and time of the hearing
1 month;
hearing of the application by the Tribunal and (if consent given) issue
of the formal notice, giving the bank or third party at least 40 days to
provide the information 40 days; and
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 informa-
tion 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.
Inspection of business premises
210. Schedule 36 also regulates HMRCs power in specific cases to access
information through inspection of a taxpayers (para. 10) or a third partys
(para. 10A) business premises. The power to inspect a taxpayers premises is
applicable if the UK premises is a business premises of the taxpayer under
investigation by the requesting jurisdiction, e.g. premises of the branch of a
foreign company under investigation. The power to inspect a third partys
premises is very limited, to; (i) the premises of narrowly defined involved
third parties, (ii) relevant documents on that premises and (iii) in relation
to relevant tax. Paragraph 61A includes a finite list of 12 specific combina-
tions of involved third party, relevant documents and relevant tax in
which third party premises can be inspected. Only four of these 12 combina-
tions include income tax
33
and none seem to be very likely to be relevant in
international EOI cases.
211. Due to the above restrictions, for all practical purposes, HMRC
cannot inspect business premises of a third party for international EOI
purposes. However, according to the UK authorities, there has never been
a case where information could not be provided because of limited scope
33. One example would be the combination of (i) A person who is or has been reg-
istered as a managing agent at Lloyds in relation to a syndicate of underwriting
members of Lloyds, (ii) Information and documents relating to, and to the
activities of, the syndicate and (iii) Income tax, capital gains tax Corporation
tax. Another example would be (i) A plan manager (see section 696, ITTOIA
2005 (managers of individual investment plans), (ii) Information and documents
relating to the plan, including investments which are or have been held under the
plan and (iii) Income tax.
of the inspection power. While one of the UKs peers has commented in
general on limited inspection powers, no indication has been received that it
has interfered with exchange of information. This may be due to use of the
compulsory, and sanctionable, power to require that information is provided
in accordance with a Schedule 36 notice.
Access to bulk bank information
212. In addition to the powers described above, for payments of interest
HMRC has certain powers to request bulk data. Sections 17 and 18 of the
TMA allow HMRC to issue a notice requiring any financial institution oper-
ating in the UK to make a return of interest or equivalent sums paid. Details
required include the amount of interest and the name and address of the
payee. Notices are issued annually on a routine basis. Further, the Reporting
of Savings Income Information Regulations 2003 SI 2003/3297 in relation
to the UKs obligations under the EU Savings Directive, requires financial
institutions to automatically report details of interest and equivalent amounts
paid to a resident in another Member State of the EU. For non-resident indi-
viduals in particular jurisdictions, details of the amounts of interest paid on
UK bank accounts are held by HMRC and are available for exchange with a
State requesting that information on a reciprocal basis.
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 pur-
poses. 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 iden-
tification requirement as a concern and also referred to cases where informa-
tion could not be exchanged due to the lack of the name(s) of the taxpayer(s).
Compulsory powers (ToR B.1.4)
214. Schedule 36 notices are compulsory. Where a Schedule 36 informa-
tion notice is not complied with, HMRC can issue a penalty notice. The initial
penalty for failing to comply is a fixed fine of GBP 300 (EUR 354). After such
a penalty is imposed, there is liability 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 the
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.
Secrecy provisions (ToR B.1.5)
218. There are no secrecy provisions regarding ownership, identity or
accounting information which limit the competent authoritys ability to respond
to an EOI request. Access to the full range of information can be gained for the
purposes of EOI requests, as described above.
219. Under UK law, banks owe their customers a contractual duty of
confidentiality (Tournier v. National Provincial and Union Bank of England).
This duty extends beyond information relating to the actual state of the
customers account and covers all information acquired by the bank in its
role as such. The duty of confidentiality therefore applies to all information
relating to the customer, the customers account and his transactions with the
bank. Certain defined exceptions apply under which the bank is permitted
to divulge information about a customers account. They include situations
where the bank is compelled to do so by law (e.g. in the case of a Tribunal-
approved notice under Schedule 36) or the customer agrees to the information
being disclosed.
Professional privilege
220. The common law concept of legal professional privilege,
34
which
attaches to certain confidential communications between a barrister or solici-
tor 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 essen-
tially 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 cre-
ated 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. 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).
35. 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.
this provision will protect all information/documents produced when acting
as an auditor or tax adviser but cannot protect the professional from disclos-
ing 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 communica-
tion between an attorney or another person who is acting as a legal repre-
sentative and their client related to legal proceedings or legal advice, but also
documents produced by an auditor or a tax adviser for his clients concern-
ing 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 excep-
tions 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.
The element is not in place.
Factors underlying
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 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.
Phase 2 rating
completed.
Factors underlying
The formal process to obtain informa-
tion (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 jurisdic-
tion. This process unduly delays effec-
tive exchange of information.
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.
B.2. Notification requirements and rights and safeguards
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.
Not unduly prevent or delay exchange of information (ToR B.2.1)
224. UK law does not in general require the taxpayer to be notified about
a request or the fact that information exchange takes place. However, in the
case of a Tribunal-approved third party notice, Schedule 36 requires HMRC
to:
name in the notice the taxpayer to whom a third party notice relates;
give a copy of the third party notice to the taxpayer to whom it relates
(the taxpayer has to be given a summary of the reasons why HMRC
requires the information); and
pre-notify the person to whom a notice is addressed about the infor-
mation or documents that are required and give that person a reason-
able opportunity to make representations (the Tribunal must be given
a summary of any representations made by that person).
225. However, on request from HMRC, the Tribunal may dis-apply
the requirement to name the taxpayer in the notice if it is satisfied
that HMRC has reasonable grounds for believing that this might seri-
ously prejudice the assessment or collection of tax; or
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 pro-
cedure 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).
Phase 2 rating
completed.
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 71
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 frame-
work. This section of the report assesses the UKs network of EOI agree-
ments 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 informa-
tion 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 agree-
ments 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 remain-
ing 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.
72 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
230. The UKs EOI agreements cover its major trading partners as well as
many of the major financial centres and more than 80% of the Global Forum
members and all EU as well as OECD member jurisdictions. The UK has not
refused to enter into an exchange of information agreement with any Global
Forum member seeking to do so. The UK policy is to negotiate a TIEA rather
than a DTC if it does not see a need to negotiate taxation rights. The UK has
a full ongoing negotiation program. As agreements meeting the international
standard are in place with its most important partners, most new agreements
result from requests received from other jurisdictions seeking an agreement.
In addition, the UK is currently updating its older agreements by establishing
Protocols to bring the exchange of information articles to the international
standard.
231. The UK is also able to exchange information with other EU member
states under the EU Council Directive 77/799/EEC of 19 December 1977
and will be able to do so under the new EU Council Directive 2011/16/EU of
15 February 2011which has been in force since 11 March 2011 and has to be
transposed into national legislation by 1 January 2013. The articles in this new
Directive are in line with the international standard. The UK automatically
exchanges information with other EU member states under Council Directive
2003/48/EC in respect of savings interest and under EU Regulations on
administrative co-operation in the fields of VAT and excise.
232. Further, in 2008, the UK ratified the Council of Europe and OECD
Convention on Mutual Administrative Assistance in Tax Matters (the COE/
OECD Convention), which is currently in force with respect to 17 jurisdic-
tions. The convention provides for all possible forms of administrative
co-operation between states in the assessment and collection of taxes, in
particular with a view to combating tax avoidance and evasion. The UK has
also ratified the protocol to this convention which brought the Convention into
line with the international standard. The protocol enters into force for the UK
1 October 2011.
233. While the UKs information exchange agreements generally allow for
exchange of information to the international standard, shortcomings identi-
fied in Part B of this report mean that the UK may not be able to comply fully
with the terms of these agreements in only one limited category of cases.
234. The UK has been strongly committed to EOI for many years. Out
of 27 jurisdictions that provided feedback on their experience exchanging
information with the UK, 22 jurisdictions provided detailed input. All of
these jurisdictions expressed that the UK is a very important and over all a
very good EOI partner. The UKs competent authority HMRCs centre for
exchange of intelligence reports that it is making changes to its internal
processes to ensure that it has a process to provide regular status updates.
C.1. Exchange-of-information mechanisms
Exchange of information mechanisms should allow for effective exchange of information.
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-opera-
tion by the EU Member States in the field of value added tax;
Regulation (EC) No 2073/2004 concerning administrative co-opera-
tion 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 them-
selves (see in particular Article 27 of the Council of Europe Convention and
Article 11 of the 1977 EC Directive Applicability of wider-ranging provi-
sions 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.
237. The UK has a very extensive network of 122 DTCs which provide for
EOI in tax matters on request. All of these treaties are in force with the exception
the DTC signed in 2010 with Bahrain and the DTC signed with Ethiopia in 2011.
There are Protocols to existing treaties not yet in force with Belarus, Belgium,
Mauritius, Montserrat, Qatar and South Africa. Further, the UK has signed TIEAs
with 22 jurisdictions (8 of which it also has a DTC with) of which 14 are in force.
238. All but one of the signed TIEAs are in line with the 2002 Model Agree-
ment. Similarly, it is UK policy to include the latest version of Article 26 of the
OECD Model Tax Convention in all its new DTCs and the UK would normally
seek to include this in any Protocol to existing DTCs that are being renegoti-
ated for other reasons. Out of 52 jurisdictions with which the UK has signed
a new agreement (including protocols) since 2005, only 3 jurisdictions are not
covered by an agreement that meets the international standard.
38
Further, most
of its older treaties are subject to reciprocity to the standard as it is the UK
policy to interpret DTCs to allow exchange of all types of information even if
they use language that precedes the language used in Article 26 of the 2005
Model Tax Convention. A narrower view is taken only in cases where the EOI
provision clearly uses restrictive wording such as being information which is
at their disposal in the normal course of administration is used.
239. With respect to C.1, deficiencies have been identified regarding the
agreements with the following 18 jurisdictions: Barbados, Egypt, Fiji, Gambia,
Israel, Jamaica, Kenya, Liechtenstein, Namibia, Nigeria, Oman, Papua New
Guinea, Sri Lanka, Swaziland, Switzerland, Tunisia, Zambia and Zimbabwe.
Other forms of exchange of information and co-operation
240. The UK exchanges information on both a spontaneous and an auto-
matic basis. Spontaneous exchanges are encouraged through written guidance
in HMRCs International Manual and through presentations on exchange of
information delivered by the EOI team to field officers throughout the UK.
Field officers are encouraged to send reports of information relating to over-
seas tax risks to the EOI team. These reports are dealt with in a similar way to
requests; they are reviewed on receipt, allocated to a caseworker and entered
on the EOI database. In the three years up to 31 March 2010, there were a total
of 7 370 spontaneous exchanges sent to some 50 treaty partners.
241. The UK exchanges information with EU Member States and with
some dependent territories of the Member States and third countries under EU
Directive 2003/48 (the Savings Directive) and associated agreements. The UK
also automatically exchanges information on a reciprocal basis under DTCs and
under Council Directive 77/799/EEC with around 40 countries including EU
38. Liechtenstein, Oman and Switzerland.
Member States and non-EU countries. The total numbers of records exchanged
per year exceeds 1 million.
Foreseeably relevant standard (ToR C.1.1)
242. The international standard for exchange of information envis-
ages information exchange upon request to the widest possible extent.
Nevertheless it does not allow fishing expeditions, i.e. speculative requests
for information that have no apparent nexus to an open inquiry or investiga-
tion. The balance between these two competing considerations is captured in
the standard of foreseeable relevance which is included in Article 26(1) of
the OECD Model Taxation Convention.
243. The UK has signed TIEAs with 22 jurisdictions and DTCs with 122
jurisdictions. All but one of the UKs TIEAs provide for the exchange of infor-
mation that is foreseeably relevant to the administration and enforcement
of the domestic laws of the parties. One TIEA, with Bermuda, provides for
the exchange of information that is relevant to those laws. Of the DTCs, 25
provide for the exchange of information when it is foreseeably relevant to
the administration and enforcement of the domestic tax laws of the requesting
jurisdiction. A further 93 DTCs provide for the exchange of information when it
is necessary for the administration and enforcement of the domestic tax laws
of the requesting jurisdiction.
39
Two DTCs (Qatar and Bahrain) provide for EOI
as may be relevant for carrying out the provisions of the agreement or the
administration or enforcement of the domestic laws of the Contracting States.
244. The Switzerland-UK DTC includes provisions requiring the request-
ing party to provide the name and address of the taxpayer and the name and
address of the holder of information when making an EOI request. These
requirements are unduly restrictive and inconsistent with the international
standard (see Article 5(5) of the OECD Model TIEA and its Commentary).
However, Switzerland has announced that it is taking steps to bring the agree-
ment into line with the standard.
245. In cases where a request is unclear or incomplete, HMRC reports
that its competent authority routinely seeks clarifying or additional informa-
tion from the requesting jurisdiction before declining a request. Most partner
jurisdictions with an exchange of information relationship with the UK which
provided peer input confirm this.
39. The term necessary is recognised in the commentary to Article 26 of the
OECD Model Tax Convention to allow for the same scope of exchange as does
the term foreseeably relevant. See Article 1 of the OECD Model TIEA, para. 5.4
of the Revised Commentary (2008) to Article 26 of the UN Model Convention
and para. 9 of the Commentary to Article 26 of the OECD Model Convention.
In respect of all persons (ToR C.1.2)
246. For exchange of information to be effective it is necessary that
the obligation to provide information is not restricted by the residence or
nationality of the person to whom the information relates or by the resi-
dence or nationality of the person in possession or control of the information
requested. For this reason the international standard for exchange of informa-
tion envisages that EOI mechanisms will provide for exchange of information
in respect of all persons.
247. Forty-five of the UKs DTCs specifically provide for exchange of
information with respect to all persons. This includes, with the exception of
the DTC with Oman, all 37 DTCs (re-)negotiated after 1999. None of these
agreements restrict the applicability of the exchange of information provision
to certain persons, for example those considered resident in one of the States.
The 78 remaining DTCs limit the application of the treaty to residents of the
contracting parties. However, 15 out of these 78 jurisdictions are covered
under the Council Directive 77/799/EEC
40
, eight are covered by a TIEA
41

and three other jurisdictions are covered by the COE/OECD Convention
42
.
These three types of arrangements allow for exchange of information with
respect to all persons. Therefore, the wording in these 26 DTCs is clearly not
of concern in practice. Further, the DTCs with the remaining 52 jurisdictions
which limit the application of the treaty to residents of the contracting parties
also note that information is to be exchanged for carrying out the provisions
of domestic laws. As the domestic laws are applicable to non-residents as well
as to residents, under these 52 agreements information can be exchanged in
respect of all persons.
40. Portugal, Finland, Denmark, Spain, Italy, Sweden, Ireland, Malta, Czech Republic,
Slovak Republic, Bulgaria, Cyprus, Hungary, Romania and Greece.
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 represent-
ing 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.
41. Antigua and Barbuda, Belize, British Virgin Islands, Grenada, Guernsey, Isle of
Man, Jersey, and Saint Kitts and Nevis,.
42. Azerbaijan, Iceland and the Ukraine.
248. The DTCs with four out of the 52 above mentioned jurisdictions spe-
cifically 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 estab-
lished 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.
Obligation to exchange all types of information (ToR C.1.3)
250. All of the UKs 22 TIEAs allow the exchange of all types of informa-
tion, including bank information.
251. Of the UKs 122 DTCs (including newly signed protocols), 28 include
the wording of Article 26(5) of the OECD Model Tax Convention.
44
This par-
agraph states that a contracting state may not decline to supply information
solely because the information is held by a bank, other financial institution,
nominee or person acting in an agency or a fiduciary capacity or because it
relates to ownership interests in a person. However, the 94 remaining DTCs
do not contain such a provision. They can be divided into four groups:
eight of these DTCs are backed up by a TIEA to the standard;
45
one DTC (with Oman) was re-negotiated post-2005 but does not spe-
cifically provide for exchange of bank information and is therefore
not to the standard when it comes to exchange of bank information;
43. Global Forum Peer Review Phase 1 Report Jamaica, section 29.
44. 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.
45. Antigua and Barbuda, Belize, British Virgin Islands, Grenada, Guernsey, Isle of
Man, Jersey and Saint Kitts and Nevis.
15 older DTCs include language, noting that EOI is restricted to
information which is at [a partys] disposal in the normal course of
administration or similar. Agreements with this restrictive language
are interpreted by the UK authorities as not allowing HMRC to use
its access powers to obtain any kind of information for EOI purposes.
Thus, the UK does not have agreements in place to the standard with
these 15 jurisdictions;
46
the limiting wording mentioned above is also used in the two DTCs;
with Finland and Greece. As both countries are EU Members, subject
to the Council Directive 77/799/EEC, which allows for exchange of
information in line with the standard, the limited wording in these
two DTCs is not a concern in practice; and
the DTCs with the 68 remaining jurisdictions,
47
12 of which have
already been peer reviewed by the Global Forum,
48
allow the UK,
according to its interpretation, to exchange bank information
even though they use language that precedes the language used in
Article 26 of the 2005 Model Tax Convention, as the UK always
interpreted Article 26 to allow the exchange of bank information, even
before Article 26 of the Model Tax Convention was amended in 2005
to include paragraphs 4 and 5. However, exchange will be subject to
reciprocity and there may be domestic limitations in place in the laws
of some of these partners. This may inter alia be the case with juris-
dictions where the EOI provision limits exchange of information to
information available under their respective taxation laws.
49
252. Based on the above, among the 136 jurisdictions with which the
UK has an EOI agreement, 16 (second and thid bullet point above) of these
46. Barbados, Egypt, Fiji, Gambia, Israel, Jamaica, Kenya, Namibia, Nigeria, Papua
New Guinea, Sri Lanka, Swaziland, Tunisia, Zambia and Zimbabwe.
47. Argentina, Australia, Azerbaijan, Bangladesh, Belarus, Bolivia, Bosnia and
Herzegovina, Brunei Darussalam, Bulgaria, Canada, Chile, China, Chinese
Taipei, Cte DIvoire, Croatia, Cyprus, Czech Republic, Denmark, Estonia,
Falkland Islands (Malvinas), Georgia, Ghana, Guyana, Hungary, Iceland, India,
Indonesia, Ireland, Italy, Jordan, Kazakhstan, Kirabati, Korea (South), Kuwait,
Latvia, Lesotho, Lithuania, Malawi, Malta, Mongolia, Montenegro, Morocco,
Myanmar, Norway, Pakistan, Philippines, Portugal, Romania, Russian Federation,
Serbia, Sierra Leone, Slovak Republic, Solomon Islands, Spain, Sudan, Sweden,
Tajikistan, Thailand, Trinidad and Tobago, Turkey, Turkmenistan, Tuvalu, Uganda,
Ukraine, United States, Uzbekistan, Venezuela and Vietnam.
48. Australia, Canada, Denmark, Estonia, Ghana, Hungary, India, Ireland, Italy,
Norway, Philippines and the United States.
49. Brunei, Kiribati, Tuvalu, Montserrat, Sierra Leone and Solomon Island.
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.
Absence of domestic tax interest (ToR C.1.4)
253. Thirty-one
50
of the UKs 122 DTCs specifically include, in accord-
ance with Article 26(4) of the OECD Model Tax Convention, the obligation
to exchange information regardless of whether the requested jurisdiction
needs the information for its own purposes. The UKs 91 remaining DTCs do
not contain such a provision. However, the UK has signed the protocol to the
COE/OECD Convention which has language corresponding to Article 26(4)
of the OECD Model Tax Convention. This provides a specific provision
for exchange of information in the absence of a domestic tax interest with
twelve
51
of the 91 jurisdictions. Also, with a further 22 jurisdictions, the UK
has entered into a TIEA which has a provision corresponding to Article 5(2)
of the 2002 Model TIEA. Finally, none of the remaining DTCs include a pro-
vision specifically requiring a domestic tax interest.
254. With the exception of a previously (see third bullet point in para-
graph 251 under C.1.3) mentioned group of older agreements with limiting
language with 15 jurisdictions, the UK is able to exchange information,
including in cases where the information is not publicly available or where
it is not already in the possession of government authorities. However, as
mentioned in Part B.1 of this report, if the name of the taxpayer is not known,
HMRC has formal powers to access third party information only for the
purpose to check a taxpayers position regarding UK tax. Two of the UKs
peers have noted that the power to obtain information when the name of the
50. Austria; Bahrain; Belgium; Botswana; Canada; Cayman Islands; Chile; Ethiopia;
Faroe Islands; France; FYROM; Germany; Hong Kong, China; Japan; Libya;
Luxembourg; Malaysia; Mauritius; Mexico; Moldova; Montserrat; Netherlands;
New Zealand; Poland; Qatar; Saudi Arabia; Singapore; Slovenia; South Africa;
Switzerland; United States.
51. Denmark, Finland, Georgia, Iceland, Ireland, Italy, Korea (South), Norway, Portugal,
Spain, Sweden and Ukraine.
taxpayer is not known has been a concern. This limitation has the potential to
impact on exchanges of information even with the 65 (31 + 12 + 22) jurisdic-
tions with which the UK has agreements which do contain wording akin to
Article 26(4) of the OECD Model Tax Convention.
255. A domestic tax interest requirement may exist in some of UKs
partners domestic laws. In such cases, the absence of a provision requiring
exchange of information unlimited by domestic tax interest will serve as a
limitation on the exchange of information which can occur under the relevant
agreement. In practice, the UK has experienced no difficulties arising from
domestic tax interest provisions in its partner jurisdictions. No requests for
information have been declined on this basis.
Absence of dual criminality principles (ToR C.1.5)
256. The principle of dual criminality provides that assistance can only be
provided if the conduct being investigated (and giving rise to an information
request) would constitute a crime under the laws of the requested country if
it had occurred in the requested country. In order to be effective, exchange of
information should not be constrained by the application of the dual criminal-
ity principle.
257. There are no such limiting dual criminality provisions in any of UKs
bilateral or in its multilateral agreements.
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 infor-
mation 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 informa-
tion 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 disclo-
sure facility by the United Kingdom. Article 6(e) of the TIEA states that a
requested State may decline a request if:
the request is made on or before 31 March 2015 and does not
relate to a criminal tax matter in respect of which the request-
ing 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 infor-
mation 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 authori-
ties 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.
Provide information in specific form requested (ToR C.1.7)
261. There are no restrictions in the exchange of information provisions in
the UKs agreements that would prevent the UK from providing information
in a specific form, as long as this is consistent with its own administrative
practices. Indeed, some of the UKs agreements include specific clauses to
reinforce the need to provide information in the form requested. In addition,
Article 20 of the COE/OECD Convention specifically notes in its protocol
that if, with respect to a request for information, the applicant state has
specified the form in which it wishes the information to be supplied and the
requested state is in a position to do so, the requested state shall supply it in
the form requested.
262. The UK competent authority is prepared to provide information in
the specific form requested to the extent permitted under UK law and admin-
istrative practice. In their input, several peers pointed out specifically that the
UK provided information in the form requested.
In force (ToR C.1.8)
263. The UK has an extensive network of 144 bilateral agreements with
136 jurisdictions that provide for exchange of information in tax matters,
comprising 122 DTCs and 22 TIEAs. Of the TIEAs, eight are not yet in force.
Ratification is at various stages within these jurisdictions.
52
In addition, three
of the 122 DTCs
53
are not yet in force as well as protocols including changes
to the EOI provision with four other jurisdictions.
54
The UK has finalised the
necessary steps for ratification of two of the agreements not yet in force. With
one exception,
55
these treaties were all signed in 2009 or later.
264. In addition the UK can exchange information as mentioned with EU
jurisdictions under the Council Directive 77/799/EEC and some other juris-
dictions under the COE/OECD Convention.
265. According to the UK authorities, ratification procedures typically
take up to 12 months: After an agreement is signed a draft order in coun-
cil is prepared (up to four or five months). The draft order is reviewed by
Parliament (up to six months). Subsequently an Order in Council (s. 173,
Finance Act 2006) concludes the ratification procedures (one to two months).
266. For the large majority of agreements, ratification by the UK has
occurred within a year of signing. Indeed, the majority of treaties signed
by the UK have entered into force on average within one year after signing.
The UKs 14 signed agreements (including protocols) not yet in force were,
with one exception, signed in 2009 or later. The UK authorities report that
ratification of these agreements is taking longer as a result of the significant
number of agreements signed over these past two years. While this timeframe
is not currently of concern, it is recommended that the UK continues to bring
agreements into force expeditiously.
267. Information on the UKs programme of tax treaty negotiations is
confidential until such time as the Ministers announce the programme for a
particular financial year. The next announcement is expected to be made by
Ministers in 2011. Progress achieved on individual negotiations is not usu-
ally made public. However, the UK states that a full programme of tax treaty
negotiations is ongoing.
52. None of these TIEAs requires an exchange of instruments of ratification by the
parties before the TIEA can enter into force. But the UK will normally expect a
formal notification by diplomatic note of the completion of its procedures to give
effect to the agreement. Insofar as HMRC is aware, this is the situation as per
31 May 2011: Belize and San Marino have informed the UK that domestic proce-
dures have been completed. Neither Aruba, Dominica, Grenada, Liberia nor Sint
Maarten, Curaao and the Netherlands on behalf of Bonaire, Sint Eustatius and
Saba have so far announced the completion of necessary procedures. On the UK
side, the Order in Council is expected to be made later this year.
53. Bahrain, Belarus and Ethiopia.
54. Belgium, Mauritius, Montserrat and South Africa.
55. DTC with Belarus of 7 March 1995.
In effect (ToR C.1.9)
268. For information exchange to be effective, the parties to an EOI arrange-
ment need to enact any legislation necessary to comply with the terms of the
arrangement.
269. The UKs DTCs and TIEAs are given the force of domestic law by
means of an Order in Council (secondary legislation) to which the arrange-
ments are scheduled.
270. The shortcomings identified in Part B of this report mean that the UK
is not able to fully comply with the terms of its EOI arrangements in a small
number of cases. It is recommended that the UK amends its domestic legisla-
tion so that it can obtain and exchange information in all cases.
Conclusion
271. The UK has one of the worlds largest treaty networks and EOI pro-
grammes 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.
The element is in place, but certain aspects of the legal implementation
of this element require improvement.
Factors underlying
The United Kingdom has a very exten-
sive network of EOI agreements. The
legal framework in the UK does not
however allow the terms of its agree-
ments 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 contin-
ues its program of renegotiating the last
of its older treaties which are not yet to
the standard.
Phase 2 rating
completed.
C.2. Exchange-of-information mechanisms with all relevant partners
The jurisdictions network of information exchange mechanisms should cover
all relevant partners.
272. The UKs network of 144 signed bilateral agreements and two multi-
lateral 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 revis-
ing 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 juris-
dictions 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 fac-
tors such as thresholds applied in other jurisdictions or nature of economic
relationship and nature of requests that influence the number of requests.
Factors underlying
The UK should continue to develop its
EOI network to the standard with all
relevant partners.
Phase 2 rating
completed.
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate
provisions to ensure the confidentiality of information received.
Information received: disclosure, use, and safeguards (ToR C.3.1)
276. Governments would not engage in information exchange without the
assurance that the information provided would only be used for the purposes
permitted under the exchange mechanism and that its confidentiality would
be preserved. Information exchange instruments must therefore contain con-
fidentiality provisions that spell out specifically to whom the information can
be disclosed and the purposes for which the information can be used. In addi-
tion to the protections afforded by the confidentiality provisions of informa-
tion exchange instruments, countries generally impose strict confidentiality
requirements on information collected for tax purposes.
277. All of the EOI articles in the UKs DTCs include provisions ensuring
confidentiality of information received. The UKs TIEAs have confidential-
ity provisions modelled on Article 8 of the OECD Model TIEA. Both the
Council Directive 77/799/EEC and the EU/OECD Convention also contain
safeguards corresponding to those in Article 26(2) of the OECD Model
Tax Convention, restricting the disclosure of information by the competent
authority of the receiving state.
278. Information received is also confidential according to the UK domes-
tic law. The Commissioners for Revenue and Customs Act 2005 provides that
information obtained or held by HM Revenue and Customs (HMRC) may not
be disclosed. However, a number of exceptions apply (s. 18(2)(a) to (h) and
s. 18(3)). The key exceptions are:
disclosure is necessary for the functions of HMRC;
disclosure is permitted by another enactment including EOI arrange-
ments;
disclosure is with the consent of the person whose information is
being disclosed;
disclosure is in the public interest, as set out in certain tightly defined
criteria at section 20; and
disclosure is made for the purposes of HMRC criminal prosecutions
undertaken by the relevant prosecution bodies as set out at section 21
of the Act.
279. These provisions strictly control the disclosure of all information
obtained or held by HMRC, and there is no specific provision therefore for
foreign source information. Where however foreign source information is
provided to the UK under the terms of an EOI agreement, the provisions on
use and disclosure of that information contained in the agreement are typi-
cally more restrictive and HMRC applies these more restrictive provisions.
HMRC staff, or persons acting on their behalf, breaching the disclosure pro-
visions of the Commissioners for Revenue and Customs Act, may be subject
to a penalty of up to two years imprisonment and an unlimited fine (s. 19
Commissioners for Revenue and Customs Act 2005).
280. Additionally, any disclosure must be in accordance with the Data
Protection Act 1998 and Human Rights Act 1998. Broadly, these Acts overlay
a further requirement that disclosures of HMRC information must be both
necessary and proportionate.
281. In practice, all communication with a partner authority is treated as
confidential. This includes, for example, questions and clarifications made
after receipt of the initial request. Information received pursuant to an EOI
arrangement is held by the EOI team in locked cabinets. When a request is
closed, the papers are scanned and the paper shredded. Scanned papers are
held electronically in a secure Controlled Access Folder and most of them
are deleted after six years in accordance with data protection policy. Where
information received pursuant to an EOI arrangement is referred outside
the EOI team, papers are stamped with a treaty stamp and forwarded with a
covering memorandum giving advice on use and disclosure. All information
is exchanged either by post, by encrypted e-mail or by CCN mail (the secure
mail system used by members of the EU). There have been no cases in the
UK where information received by the competent authority from an EOI
partner has been made public other than in accordance with the terms under
which it was provided to the UK.
All other information exchanged (ToR C.3.2)
282. The confidentiality provisions in the agreements and in the UKs
domestic law do not draw a distinction between information received in
response to requests or information forming part of the requests themselves.
As such, these provisions apply equally to all requests for such information.
Phase 2 rating
completed.
C.4. Rights and safeguards of taxpayers and third parties
The exchange of information mechanisms should respect the rights and
safeguards of taxpayers and third parties.
Exceptions to requirement to provide information (ToR C.4.1)
283. All of the UKs EOI agreements ensure that the parties are not obliged
to provide information which would disclose any trade, business, industrial
or commercial secret. Further, most of the treaties ensure that the parties are
not obliged to provide information which would disclose professional secrets.
However, the exception for professional secrets is not explicitly mentioned
in the UKs treaties with Antigua and Barbuda, Bolivia, Brunei, Kiribati,
Montserrat, Sierra Leone and Tuvalu. The UK should continue to ensure that
appropriate safeguards are maintained in exchanges of information with these
jurisdictions.
284. The TIEA with the British Virgin Islands does not only allow for
declining a request for information where the information would be used to
administer or enforce a provision of the tax law which discriminates against a
citizen of the requested party, but also where a provision would discriminate
against a resident of the requested party (Art. 7 para. 6). For international tax
purposes, tax rules that differ only on the basis of residency are universally
accepted (see for example Article 24(1) of the OECD Model Tax Convention
and its Commentary, and the Commentary on Article 7(6) of the OECD Model
TIEA). The rule introduced in the British Virgin Islands TIEA could therefore
impede the effective exchange of information in certain cases and it is recom-
mended that the UK works with the British Virgin Islands to resolve this issue.
285. Attorney-client privilege is covered under the limb of professional
secrets in the UKs DTCs. Considering the provisions of paragraph 2 of
Article 3 of the respective tax treaties, for application of the tax treaties by the
UK, this term will derive its meaning that it has under the domestic laws of
the UK. It is likely therefore that the privileges afforded to information held
by auditors and tax advisors also fall under this banner. As noted previously in
Section B.1 of the report, professional privileges in the UK encompasses com-
munication between an auditor or tax adviser concerning advice given to his/
her client about the clients tax affairs. This is beyond the exemption for attor-
ney-client privilege under the international standards. However, the privilege
does not cover working papers or documents executed in the course of a trans-
action 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. Neither have any peers indicated they have experienced
difficulty getting requested information due to professional privilege. The UK
should monitor this relatively broad scope of professional privilege to ensure it
does not prevent access to information held by auditors and tax advisers when
information is needed to assist the UKs international partners.
Phase 2 rating
completed.
C.5. Timeliness of responses to requests for information
The jurisdiction should provide information under its network of agreements
in a timely manner.
Responses within 90 days (ToR C.5.1)
286. In order for EOI to be effective, it needs to be provided in a time-
frame which allows tax authorities to apply the information to the relevant
cases. If a response is provided but only after a significant lapse of time the
information may no longer be of use to the requesting authorities. This is
particularly important in the context of international cooperation as cases in
this area must be of sufficient importance to warrant making a request.
287. None of the UKs DTCs require the provision of request confirma-
tions, 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 infor-
mation 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 informa-
tion 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 request-
ing 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 there-
fore 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 out-
right. 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.
in cases where a notice has to be approved by the Tribunal and insuf-
ficient background information has been provided;
unclear requests because of translation or legibility problems; or
no obvious nexus or explanation of how the information requested is
foreseeably relevant.
Causes for delay
290. Delays seemed to be caused mainly by the following factors:
particularly complicated facts and circumstances related to the
request;
access to information may require Tribunal approval, see procedure
described previously under B.1 (although, only 70 such applications
were made since 2007);
the need to translate incoming requests; or
miscommunication with other jurisdiction, e.g. language difficulties
or getting contact with requesting jurisdictions competent authorities.
Updates in delayed cases
291. Caseworkers in the EOI team are encouraged as a matter of good
practice to make early interim reports and to provide updates on the status
of a request where a substantive report cannot be made promptly. A new
EOI database, which is about to be implemented, will allow the manager to
monitor performance regarding the provision of status updates. This is not
the case with the present system. Also, for the years under review, the UK
did not have a target of providing information or a status update within 90
days; therefore the UK does not have statistics on the number of cases where
they have provided a 90-day status update. As a consequence of the introduc-
tion of the 90 day standard and the new EU Directive on mutual assistance,
the competent authority has recently changed its target for responses from 6
months in all cases to:
two months where information is readily available in-house;
six months if information needs to be gathered outside HMRC; and
more than six months for complicated cases.
292. The UK should make sure that in all cases updates are provided
within 90 days.
Organisational process and resources (ToR C.5.2)
Competent authority for exchange of information
293. The competent authority
57
for the United Kingdom are the Com mis-
sioners 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 offic-
ers 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 informa-
tion 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. The term competent authority means the person or government authority des-
ignated by a jurisdiction as being competent to exchange information pursuant
to a double tax convention or tax information exchange.
58. Exchange of information with EU Member States under the EC Regula tion 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.
work needed to answer a request is, as far as possible, carried out by the
CEI. However, other offices will be involved in various situations, e.g. if the
UK party is already under investigation by HMRC, the UK party is a large
company handled by the Large Business Service or there is a requirement for
technical expertise in a particular subject.
296. All requests are reviewed by one of the delegated competent authori-
ties on receipt, to check that the request is valid. Where translation is needed,
the request is sent to the translation service, and in most cases a translation is
provided within five working days. A covering stencil is completed before the
request is entered into the EOI database, and where the competent authority
has any concerns about validity these are noted on the stencil. The allocated
caseworker will seek any clarification necessary or explain to the requesting
country why the UK cannot obtain and exchange the information.
297. In most cases where information is already in the hands of HMRC
(including Companies House information accessible on-line), it will be avail-
able on the desktop of the CEI caseworker, e.g. tax return information is
recorded electronically for individuals and companies. The CEI is also able
to search other HMRC databases and some commercial databases for infor-
mation. The EOI team applies a powerful access and search tool which runs
across 23 different HMRC databases. These internal databases are checked
before sources outside HMRC are accessed. The CEI is only rarely requested
to obtain information from another government authority. Just over 50% of
requests can be answered as described in this paragraph.
Absence of restrictive conditions on exchange of information
(ToR C.5.3)
298. There are no laws or regulatory practices in the UK that impose addi-
tional restrictive conditions on exchange of information.
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
completed.
Factors underlying
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.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 95
Summary of Determinations
and Factors Underlying Recommendations
59
Determination
Factors underlying
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)
In place.
completed.
59. The ratings will be finalised as soon as a representative subset of Phase 2 reviews
is completed.
96 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS
Determination
Factors underlying
Banking information should be available for all account-holders. (ToR A.3)
In place.
completed.
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)
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 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 tax-
payer cannot be established.
completed.
The formal process to obtain
information (other than informa-
tion 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 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.
Determination
Factors underlying
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)
In place.
completed.
Exchange of information mechanisms should allow for effective exchange of information.
(ToR C.1)
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.
completed.
98 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS
Determination
Factors underlying
The jurisdictions network of information exchange mechanisms should cover all relevant
partners. (ToR C.2)
In place.
The UK should continue to
develop its EOI network to
the standard with all relevant
partners.
completed.
The jurisdictions mechanisms for exchange of information should have adequate provisions
to ensure the confidentiality of information received. (ToR C.3)
In place.
completed.
The exchange of information mechanisms should respect the rights and safeguards of
taxpayers and third parties. (ToR C.4)
In place.
completed.
Determination
Factors underlying
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.
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.
ANNEXES 101
Annex 1: Jurisdictions Response to the Review Report
60
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 trans-
parency 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.
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 docu-
ment 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.
ANNEXES 103
Annex 2: List of all Exchange-of-Information Mechanisms
in Force
EU regulation and multilateral agreements
299. The UK exchanges information under:
the new EU Council Directive 2011/16/EU of 15 February 2011 on
administrative co-operation in the field of taxation. This Directive
is in force since 11 March 2011. It repeals Council Directive 77/799/
EEC of 19 December 1977 and provides inter alia for exchange
of banking information on request for taxable periods after
31 December 2010 (Article 18). All EU members are required to
transpose it into national legislation by 1 January 2013. The cur-
rent EU members, covered by this Council Directive, are: Austria,
Belgium, Bulgaria, Cyprus
61
, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal,
Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom;
EU Council Directive 2003/48/EC of 3 June 2003 on taxation of sav-
ings income in the form of interest payments. This Directive aims to
ensure that savings income in the form of interest payments generated
in an EU member state in favour of individuals or residual entities
being resident of another EU member state are effectively taxed in
accordance with the fiscal laws of their state of residence. It also aims
to ensure exchange of information between member states; and
61. Note by Turkey: The information in this document with reference to Cyprus
104 ANNEXES
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
Jurisdiction
Type of EoI
arrangement Date signed Date in force
1 Anguilla TIEA 20-07-09 17-02-11
2 Antigua and Barbuda
DTC 19-12-47 19-12-47
Protocol 05-03-68 19-09-68
TIEA 18-01-10 19-05-11
3 Argentina DTC 03-01-96 01-08-97
4 Aruba TIEA 05-11-10
5 Australia DTC 21-08-03 17-12-03
6 Austria
DTC 30-04-69 N/K
Protocol 17-11-77 N/K
Protocol 11-09-09 19-11-10
7 Azerbaijan DTC 23-02-94 03-10-95
8 Bahamas TIEA 29-10-09 07-01-11
9 Bahrain DTC 10-03-10
10 Bangladesh DTC 08-08-79 08-07-90
11 Barbados
DTC 26-03-70 26-11-70
Protocol 18-09-73 12-12-73
12 Belarus
DTC 31-07-85 30-01-86
DTC 07-03-95
13 Belgium
DTC 01-08-87 04-10-89
Protocol 24-06-09
14 Belize
DTC 19-12-47 19-12-47
Protocol 08-04-68 08-03-69
Protocol 12-12-73 12-12-73
TIEA 25-03-10
15 Bermuda TIEA 04-12-07 10-11-08
ANNEXES 105
sqdf
62
qsmklf
63
62. 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 foot-
note 35.
63. Note by Turkey: The information in this document with reference to Cyprus
Jurisdiction
Type of EoI
16 Bolivia DTC 03-11-94 23-10-95
17 Bosnia and Herzegovina DTC 06-11-81 18-09-82
18 Botswana DTC 09-09-05 04-09-06
19 British Virgin Islands
DTC 29-10-09 12-04-10
TIEA 29-10-09 12-04-10
20 Brunei Darussalam
DTC 08-12-50 08-12-50
21 Bulgaria DTC 16-09-87 28-12-87
22 Canada
DTC 08-09-78 18-12-80
Protocol 07-05-03 04-05-04
23 Cayman Islands DTC 15-06-09 20-12-10
24 Chile DTC 12-07-03 21-12-04
25 China DTC 26-07-84 23-12-84
26 Cte DIvoire DTC 26-06-85 24-01-87
27 Croatia DTC 06-11-81 16-09-82
28 Chinese Taipei DTC 08-04-02 23-12-02
29 Curaao
62
TIEA 10-09-10
30 Cyprus
63
DTC 20-06-74 18-03-75
Protocol 02-04-80 15-12-80
31 Czech Republic DTC 05-11-90 20-12-91
32 Denmark
DTC 11-11-80 17-12-80
106 ANNEXES
Jurisdiction
Type of EoI
33 Dominica TIEA 31-03-10
34 Egypt DTC 25-04-77 23-08-80
35 Ethiopia DTC 10-06-11
36 Estonia DTC 12-05-94 N/K
37 Falkland Islands (Malvinas) DTC 17-12-97 18-12-97
38 Faroe Islands DTC 20-06-07 03-06-08
39 Fiji DTC 21-11-75 27-08-78
40 Finland
DTC 17-07-69 05-02-70
Protocol 17-05-73 07-07-74
Protocol 16-11-79 25-04-81
41 France DTC 19-08-08 18-12-09
42 FYROM DTC 08-11-06 02-08-07
43 Gambia DTC 20-05-80 05-07-82
44 Georgia
DTC 13-07-04 11-10-05
Protocol 04-02-10 17-12-10
45 Germany DTC 30-03-10 30-12-10
46 Ghana DTC 20-01-93 10-08-94
47 Gibraltar TIEA 24-08-09 15-12-10
48 Greece DTC 25-06-53 15-01-54
49 Grenada
DTC 04-03-49 04-03-49
Protocol 25-07-88 14-12-88
TIEA 31-03-10
50 Guernsey
DTC 24-06-52 24-06-52
Protocol 14-12-94 03-01-95
Protocol 20-01-09 27-11-09
TIEA 20-01-09 27-11-09
51 Guyana DTC 31-08-92 18-12-92
52 Hong Kong, China DTC 21-06-10 20-12-10
53 Hungary DTC 28-11-77 27-12-78
54 Iceland DTC 30-09-91 19-12-91
55 India DTC 25-01-93 25-10-93
56 Indonesia DTC 05-04-93 14-04-94
ANNEXES 107
Jurisdiction
Type of EoI
57 Ireland
DTC 02-06-76 23-12-76
Protocol 07-11-94 21-09-95
Protocol 04-11-98 23-12-98
58 Isle of Man
DTC 29-07-55 29-07-55
Protocol 19-12-91 19-12-91
Protocol 29-09-08 02-04-09
TIEA 29-09-08 02-04-09
59 Israel
DTC 28-09-62 N/K
Protocol 20-04-70 25-03-71
60 Italy DTC 21-10-88 31-12-90
61 Jamaica DTC 16-06-73 31-12-73
62 Japan DTC 02-02-06 12-10-06
63 Jersey
DTC 24-06-52 24-06-52
Protocol 10-03-09 27-11-09
TIEA 10-03-09 27-11-09
64 Jordan DTC 22-07-01 24-03-02
65 Kazakhstan
DTC 21-03-94 15-12-96
Protocol 18-09-97 02-11-98
66 Kenya
DTC 31-07-73 N/K
Protocol/
EoN
20-01-76 30-09-77
67 Kiribati
Protocol 10-05-50 10-05-50
Protocol 04-03-68 23-10-68
DTC 25-07-74 25-07-74
68 Korea (South) DTC 25-10-96 30-12-96
69 Kuwait DTC 21-07-99 01-07-00
70 Latvia DTC 08-05-98 30-12-98
71 Lesotho DTC 17-12-97 23-12-97
72 Liberia TIEA 01-11-10
73 Libya DTC 17-11-08 08-03-10
74 Liechtenstein TIEA 11-08-09 02-12-10
75 Lithuania
DTC 19-03-01 28-11-02
Protocol 21-05-02 28-11-02
108 ANNEXES
sqdf
64
64. See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the
Netherlands.
Jurisdiction
Type of EoI
76 Luxembourg
DTC 24-05-67 12-07-68
Protocol 02-07-09 28-04-10
77 Malawi
DTC 25-11-55 25-11-55
Protocol 12-07-68 13-09-68
Protocol 10-02-78 14-03-79
78 Malaysia
DTC 17-12-97 08-07-98
Protocol 22-09-09 28-12-10
79 Malta DTC 12-05-94 27-03-95
80 Mauritius
DTC 11-02-81 19-10-81
Protocol 27-03-03 22-10-03
Protocol 10-01-11
81 Mexico
DTC 02-06-94 15-12-94
Protocol 23-04-09 18-01-11
82 Moldova DTC 08-11-07 30-10-08
83 Mongolia DTC 23-04-96 04-12-96
84 Montenegro DTC 06-11-81 16-09-82
85 Montserrat
DTC 19-12-47 19-12-47
Protocol 06-04-68 04-12-68
Protocol 09-12-09
86 Myanmar
DTC 13-03-50 13-03-50
Protocol 04-04-51 04-04-51
87 Morocco DTC 08-09-81 29-11-90
88 Namibia
DTC 28-05-62 19-12-62
Protocol 14-06-67 27-11-67
89 Netherlands
DTC 26-09-08 25-12-10
TIEA
64
10-09-10
90 New Zealand
DTC 04-08-83 16-03-84
Protocol 04-11-03 23-07-04
Protocol 07-11-07 28-08-08
91 Nigeria DTC 09-06-87 27-12-87
92 Norway DTC 12-10-00 21-12-00
ANNEXES 109
qsdf
65
65. See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the
Netherlands.
Jurisdiction
Type of EoI
93 Oman
DTC 23-02-98 09-11-98
Protocol 26-11-09 09-01-11
94 Pakistan DTC 24-11-86 08-12-87
95 Papua New Guinea DTC 17-09-91 20-12-91
96 Philippines DTC 10-06-76 22-01-78
97 Poland DTC 20-07-06 27-12-06
98 Portugal DTC 27-03-68 17-01-69
99 Qatar
DTC 25-06-09 15-10-10
Protocol 20-10-10
100 Romania DTC 18-09-75 21-11-76
101 Russian Federation DTC 15-02-94 18-04-97
102 Saint Kitts and Nevis
DTC 19-12-47 19-12-47
TIEA 18-01-10 19-05-11
103 Saint Lucia TIEA 18-01-10 19-05-11
104 Saint Vincent and the Grenadines TIEA 18-01-10 19-05-11
105 San Marino TIEA 16-02-10
106 Saudi Arabia DTC and
Protocol
31-10-07 01-01-09
107 Serbia DTC 06-11-61 16-09-82
108 Sint Maarten
65
TIEA 10-09-10
109 Sierra Leone
DTC 19-12-47 19-12-47
Protocol 18-03-68 16-01-69
110 Singapore
DTC 12-02-97 19-12-97
Protocol 24-08-09 08-01-10
111 Slovak Republic DTC 05-11-90 20-12-91
112 Slovenia DTC 13-11-07 11-09-08
113 Solomon Islands
DTC 10-05-50 10-05-50
Protocol 08-04-68 24-01-69
Protocol 25-07-74 25-07-74
114 South Africa
DTC 04-07-02 17-12-02
Protocol 08-11-10
115 Spain
DTC 21-10-75 N/K
DTC 15-03-95 N/K
116 Sri Lanka DTC 21-06-79 21-05-80
110 ANNEXES
Jurisdiction
Type of EoI
117 Sudan DTC 08-03-75 08-10-77
118 Swaziland DTC 26-11-68 18-03-69
119 Sweden DTC 30-08-83 26-03-84
120 Switzerland
DTC 08-12-77 N/K
Protocol 05-03-81 10-05-82
Protocol 17-12-93 19-12-94
Protocol 26-06-07 22-12-08
Protocol 07-09-09 15-12-10
121 Tajikistan DTC 31-07-85 18-04-97
122 Thailand DTC 18-02-81 20-11-81
123 Trinidad and Tobago DTC 31-12-82 22-12-83
124 Tunisia DTC 15-12-82 20-01-84
125 Turkey DTC 19-02-86 26-10-88
126 Turkmenistan DTC 31-07-85 30-01-86
127 Turks and Caicos Islands TIEA 22-07-09 25-01-11
128 Tuvalu
DTC 10-05-50 10-05-50
Protocol 04-03-68 23-10-68
Protocol 25-07-74 25-07-74
129 Uganda DTC 23-12-92 21-12-93
130 Ukraine DTC 10-02-93 11-08-93
131 United States
DTC 24-07-01 19-07-02
Protocol 19-07-02 31-03-03
132 Uzbekistan DTC 15-10-93 10-06-94
133 Venezuela DTC 11-03-96 31-12-96
134 Vietnam DTC 09-04-94 15-12-94
135 Zambia
DTC 22-03-72 29-03-73
Protocol 30-04-81 14-01-83
136 Zimbabwe DTC 19-10-82 11-02-83
ANNEXES 111
Annex 3: List of all Laws, Regulations
and Other Relevant Material
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
112 ANNEXES
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
ANNEXES 113
AML and financial regulation law
Money Laundering Regulations 2007
Financial Services Markets Act 2000
FSAs Handbook of Rules and Guidance
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 para-
graph 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)
114 ANNEXES
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
ANNEXES 115
Annex 4: People Interviewed during On-Site Visit
HM Treasury
Deputy Director, International Tax
Senior Policy Advisor, International Tax
Legal Adviser
Head of Anti-Money Laundering Policy, Counter Illicit Finance
HM Revenue and Customs HMRC
Assistant Director, Centre for Exchange of Intelligence
Senior Intelligence Manager, Centre for Exchange of Intelligence
Senior Policy Advisor, Tax Treaty Team
Powers Team
SI Governance and Assurance
CGT Trusts and IHT Policy
Trusts
CT and VAT
PAYE, SA and NICS
CTSA Technical Advisor, CT and VAT Products and Processes
Charities, Assets and Residence
Anti-money laundering team
116 ANNEXES
Financial Services Agency FSA
Associate, Firm Risk Team, Risk Department
Manager, Authorisations and Central Reporting Division
Senior Associate, Enforcement and Financial Crime
Senior Associate, CIS Policy Advisor, AML
Companies House
Director of Corporate Strategy
Department for Business, Innovation and Skills BIS
Assistant Director, Corporate Law and Governance
Office of the Third Sector (Cabinet Office)
Policy Manager
Charity Commission
Senior Advisor
Legal Advisor

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PEER REVIEW REPORT COMBINED PHASE 1 AND PHASE 2 REPORT UNITED KINGDOM OECD 2011

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