Statutory guidance

Trust and Company Service Provider (TCSP) returns - information sheet

Published 17 February 2017

The notice requires information relating to ultimate beneficial ownership of offshore entities and ultimate beneficial interest in offshore partnerships, trusts and other like entities. You’re required to make a return where you, acting as a Trust and Company Services Provider (or an agent acting on your behalf), are required to keep records under Money Laundering Regulations (MLRs).

1. Background to HMRC issuing notices to Trust and Company Service Providers (TCSPs)

We’re using data gathering powers to seek information regarding the ultimate beneficial ownership of offshore companies and beneficial interest in offshore partnerships, trusts and other like entities from UK based TCSPs or their overseas subsidiaries.

Notices are being issued in line with our No Safe Havens strategy. Since 2007, around 59,000 taxpayers have come forward through all our offshore disclosure facilities and have paid over £1.9 billion in tax, penalties and interest.

As part of a global shift, tax administrations are working to understand the risks presented by the creation of offshore structures (for example, tax evasion or wider criminality).

2. The power HMRC has to compel this information

Paragraph 1, schedule 23 of the Finance Act 2011 provides that an officer of HMRC may issue a data holder notice to a relevant data holder, subject to appeal. The powers enable us to collect third party data from a range of data holders to ensure everyone pays the right amount of tax.

Paragraph 17 defines a category of data holder as a person who’s required to keep records by law. This includes relevant data relating to any record or list a TCSP is required to maintain by law under the Money Laundering Regulations 2007 (MLRs).

3. Definition of the term ‘register’

The term register is defined in paragraph 17, schedule 23 of the Finance Act 2011 as any record or list maintained by law and, therefore, doesn’t need to already be in a list or register format. We’re seeking the information which TCSPs must keep in respect of customer due diligence under the MLRs.

4. Further questions regarding the Money Laundering Regulations (MLRs)

If you’ve further questions about the MLRs and their application, you may wish to check the guidance issued by your supervisory body and approach your supervisor with any remaining questions.

5. Tribunal approval to issue the notices

HMRC policy is not to seek tribunal approval prior to the issue of a data gathering notice under schedule 23 of the Finance Act 2011, except in exceptional circumstances. Prior tribunal approval cancels any possibility of a later appeal even if problems are found after a notice has been issued. The possible grounds for appeal are that:

  • it would be unduly onerous to comply with the notice or a requirement in it
  • the recipient isn’t a relevant data holder
  • the data required in the notice isn’t relevant data

6. Scope of notices

We’re seeking the information which TCSPs obtain when undertaking due diligence under the MLRs regarding ultimate beneficial ownership of offshore companies and beneficial interest in offshore partnerships, trusts and other like entities formed by way of business in the UK.

We want to identify ultimate beneficial owners of offshore companies and those who have beneficial interests in offshore partnerships, trusts and other like entities, so that we may consider what risks they might present to us.

8. Definition of beneficial owners of trusts as it relates to MLRs

Regulation 6 of the MLRs sets out in detail which persons should be treated as though they are beneficial owners for the purpose of anti-money laundering. Those categories are:

  • any individual who’s entitled to a specified interest in at least 25% of the capital of the trust property
  • any trust, other than one which is set up or operates entirely for the benefit of individuals, falling within sub-paragraph (a), the class of persons in whose main interest the trust is set up or operates
  • any individual who has control over the trust

9. Information about maintenance of a trust

Paragraph 17 of schedule 23, Finance Act 2011 defines a category of data holder as a person who’s required to keep records by law. This includes the due diligence information which TCSPs must retain under MLRs and can include ongoing monitoring depending on the circumstances, including in relation to a trust.

10. Information held by subsidiaries of UK based TCSPs or third parties

Paragraph 17 of schedule 23, Finance Act 2011 defines a category of data holder as a person who’s required to keep records by law.

This information may be kept by others on behalf of the TCSP. The TCSP should make available the required due diligence information to us regardless of who keeps it, where held or in what format.

If the TCSP has an agreement with another party under which that other party will carry out the TCSP’s due diligence or record-keeping obligations, the TCSP should obtain the information gathered by that other party in order to supply it to us.

11. Information required

The notice will seek the information on beneficial ownership required as part of your customer due diligence as a supplier of trust or company service activity under the MLRs.

Though there may be some instances where it hasn’t been necessary to establish the beneficial owners, we’re seeking the information that has been obtained in cases where it’s necessary.

If you use the services of a third party as part of your due diligence activities, and they store the information, you’ll need to approach them and request these records to meet the needs of the schedule 23 requirement.

12. Informing clients or beneficial owners that TCSPs are providing their information to HMRC

This will be a matter for you, the TCSP, and will be dictated by your customer service arrangements and their own policies. We’ve no objection to the TCSP notifying their clients. This will be a formal notice not an informal request and therefore the TCSP doesn’t need their client’s permission.

13. UK TCSPs who don’t physically form offshore companies or trusts

This is usually done by a person in the relevant jurisdiction. The data gathering notice requires TCSPs to provide information regarding ultimate beneficial owners of offshore companies or persons with beneficial interest in offshore partnerships, trusts and other like entities. Under the MLRs you or agents acting on your behalf are required to keep records of customer due diligence and the notice will require you to provide that information.

14. Information required not restricted to UK residents

UK tax liability isn’t restricted to UK residents nor does UK residence necessarily equate to a UK tax liability. We may receive information which doesn’t relate to a tax charge in the UK. We may share information with other fiscal authorities where there’s a legal basis to do so.

15. Client confidentiality

We understand that professional advisers have obligations with regards to client confidentiality. The information we require must be maintained under law and the requirement to provide data to us will be under the data gathering law. We’re bound by confidentiality laws and may only disclose information if there’s a lawful basis to do so.

We’re requiring data that have been, or must be, maintained under law. Notwithstanding the terms of the notice, nothing within it should be taken as requiring any data protected by legal professional privilege.

17. Interaction of the tax position of the TCSPs

The power under schedule 23 of the Finance Act 2011 may not be used by us to obtain data for the purpose of checking the data holder’s own tax position.

18. Why this business is included in the project

HMRC believes you are a relevant data holder because you advertise offshore formation services.

19. How data will be used by HMRC

We’ll use the data to establish the extent to which there’s a loss of tax due to evasion, avoidance or wider criminality. Section 17 of the Commissioners for Revenue and Customs Act 2005 (CRCA) provides information acquired by us in connection with a function may be used in connection with any other function. One of our functions is the supervision of certain TCSPs under the MLRs. We may share information with our Anti-Money Laundering Supervision teams or other relevant teams. We may share information externally where there’s a lawful basis to do so.

20. Information disclosure to professional bodies or other supervisors regarding their members

Money Laundering Regulation 24A provides a legal gateway to permit information sharing between supervisors but only for purposes connected with the effective exercise of the functions of either supervisory authority under the MLRs. In certain circumstances we may consider public interest disclosure.

21. HMRC’s consultation on new civil and criminal penalties for those who ‘enable’ tax evasion

We’re seeking information on beneficial ownership and interest as part of our No Safe Havens strategy in order to identify the extent to which individuals continue to evade tax.

Many individuals who evade tax don’t act alone. They require assistance from those who play a key role in giving advice and facilitating the setting up and use of offshore structures to store and move money illegally.

Our consultations set out our thinking on enablers - some will be unaware that their services are being used by people to evade tax. Others may be careless and don’t do what is required of them to ensure their clients are legitimate. Some, however, will deliberately enable offshore tax evasion, usually for profit or to retain business.

We’ve no preconceived ideas about the role of TCSPs or the nature of the data we’re likely to receive. However, any data which points to evasion will be dealt with appropriately.

22. Information received through Common Reporting Standards (CRS)

The CRS will involve tax authorities exchanging information about financial accounts with first exchanges in 2017 relating to accounts identified in 2016. This will include details of controlling interests in certain entities, but HMRC will only receive that information for people or entities meeting the CRS definition of a ‘reportable person’ who is linked to a ‘reportable account’. These are complex terms to explain, but broadly speaking the exemptions for certain types and values of accounts mean we will not get information in the case of every trust.

Not all jurisdictions will be reporting. So the coverage of the CRS doesn’t give the same, or the full, data set that this power provides. While CRS will include accounts open at 31 December 2015, the power we propose using requires information for 4 years back from the date of the notice.

If you’re interested in the precise meaning there’s more information on CRS in the guidance Automatic Exchange of Information: introduction.

It’s not possible to outline here every circumstance in which information we seek under our data gathering powers may not be provided under CRS. However, for illustrative purposes we outline 2 examples below:

Mr A is resident in the UK and is a shareholder of Company B. Company B is located offshore in X, a CRS participating jurisdiction. At 31 December 2015 Company B holds bank accounts in Bank C, which is also located in X. The aggregate balance of Company B’s accounts in Bank C at 31 December 2015 is $2,000,000. Company B isn’t a financial institution, therefore it’s a Non-Financial Entity (NFE). Its income is not more than 50% derived from investment activities so it’s an active NFE. Because Company B is an active NFE, Bank C isn’t required to report information on its controlling persons. Mr A’s interest in Company B won’t be reported to the UK.

Mr F is resident in the UK and is a beneficiary of Trust G. Trust G is located offshore in Y, a CRS participating jurisdiction. At 31 December 2015 Trust G holds bank accounts in Bank H, which is also located in Y. The aggregate balance of Trust G’s accounts in Bank H is $150,000. Trust G isn’t a financial institution, therefore it’s a Non-Financial Entity (NFE). Its income is more than 50% derived from investment activities, so Trust G is a passive NFE. However, since the aggregate balance of its accounts in Bank H is less than $250,000 at 31 December 2015, Bank H isn’t required to review the accounts of Trust G until the balance exceeds $250,000. As Bank H isn’t required to report information concerning Trust G’s accounts, Mr F’s interest in Trust G won’t be reported to the UK.

Circumstances in which the information we seek won’t be provided under CRS aren’t limited to the scenarios outlined above.

23. Requirements under the register of People with Significant Control (PSC)

The register of People with Significant Control (PSC) is an important UK transparency initiative which will help tackle fraud by identifying beneficial owners of UK incorporated companies.

There are risks that tax frauds and other crimes, including money laundering, are carried out through structures involving companies, trusts and other entities based outside the UK and we are seeking information relating to these arrangements. Whilst these might be handled by UK TCSPs, where they’ve no relationship to a UK incorporated company, they wouldn’t be captured by the PSC register.

The Business Innovation Skills (BIS) initiative to ensure transparency on UK property ownership only applies to UK properties and doesn’t include many of the arrangements that we wish to understand through this initiative.

You can find out more by reading the guidance PSC requirements for companies and limited liability partnerships.

24. Notification of offshore structures consultation and this project

We plan to seek data regarding offshore trusts and companies using existing powers which permit us to ensure that everyone pays the right amount of tax. The new consultation will go wider than this and introduce a new requirement to cover any organisation setting up offshore structures for UK taxpayers whether in the UK or outside.

As proposed in the consultation, we require details of the structures, the intended use as well as the beneficial ownership information. The consultation is at an early stage and cast openly and we welcome views on the principle and idea. If it goes ahead following this consultation, we would expect to consult again on the specific details of the policy and the characteristics of structures which would require notification.

25. What HMRC expects to receive

We expect to receive the:

  • name and address of client or customer
  • full name of entity formed
  • registered office of company, trust, foundation or other entity
  • jurisdiction where entity formed
  • date registered
  • name and address of beneficial owners or persons with beneficial interest
  • type of document held to verify the identity of the beneficial owner
  • identifying document number, if held, for example passport, driving licence
  • beneficial owner date of birth, if held

Where it’s available, we request the following additional information from your due diligence:

  • Unique Taxpayer Reference (UTR) number, Tax Identification (TI) number, National Insurance (NI) number
  • the value of property settled (if trust or foundation)

We’re not seeking information in respect of UK company formation or creation of UK trusts. We’ll only seek information you or agents acting on your behalf are required to keep under the MLRs.

26. Reasons for the project

Evidence from our compliance activities and from our disclosure facilities has shown that there are risks arising from those with complex international affairs, particularly involving the use of trusts and companies.

Our research has also shown that these issues don’t always arise from deliberate evasion behaviours, but may instead come from a lack of understanding of the tax implications of such structures and investments.

Therefore, there’s good reason to look in more detail at those using these structures and those providing the services to create them, in order to better understand the risk and how best to address it.

27. What HMRC will do with the data received

HMRC intend to analyse the data you provide and assess the level of risk to HMRC in respect of tax evasion and/or wider criminality. We’ll have a strategy in place to deal with the information we seek, from receipt of the data to a range of customer interactions where appropriate.

28. Penalties if TCSPs don’t comply with the notice

In situations where the data holder doesn’t comply HMRC is able to impose financial penalties.

There’s a £300 penalty for initial non-compliance, followed by daily penalties if the non-compliance continues. The daily penalty can be up to £60 per day, after which time we may apply to the First-Tier Tribunal to increase that figure to up to £1,000 per day.

29. Methods for a TCSP to provide the information

There are a number of ways in which TCSPs may provide the information to HMRC including:

  • by email
  • on computer disk
  • using ‘Secure Electronic Transfer’ (SET)

30. If information is difficult to extract

HMRC will engage with TCSPs to whom notices will be issued to advise what is required, explain the process and seek to address concerns.

31. Timescale for providing the information

This is 90 days from the date of the notice. We outline the deadline in the notice.

32. The spreadsheet asks for National Insurance number, Tax Identification number, Unique Taxpayer Reference but I you don’t have this information

These columns only need to be completed if you have the information.

33. Definition of a nil return.

As a Trust or Company Service Provider, within the meaning of Regulation 3 of the Money Laundering Regulations 2007 (MLRs), submitting a nil return to HMRC confirms that you, or an agent acting on your behalf, weren’t required to keep any of the data required in the notice for the period indicated in the notice.

34. Inaccurate information or documents

A penalty of up to £3,000 may apply if you make an inaccurate return or, in certain circumstances, HMRC may consider criminal investigation with a view to prosecution.

35. Appeal criteria

You may appeal against a data holder notice, or any requirement in it, on any of the following grounds:

  • it is unduly onerous to comply with the notice or requirement
  • you’re not a relevant data holder - you’re a relevant data holder if you used to be a data holder but stopped being one in the 4 years before the notice was issued
  • data specified in the notice aren’t relevant data