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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Combined: Phase 1 + Phase 2


UNITED KINGDOM

Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011
PHASE 1 + PHASE 2

August 2011 (reflecting the legal and regulatory framework as at June 2011)

This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011: Combined: Phase 1 + Phase 2: Legal and Regulatory Framework Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews, OECD Publishing. http://dx.doi.org/10.1787/9789264118164-en

ISBN 978-92-64-11814-0 (print) ISBN 978-92-64-11816-4 (PDF)

Series: Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. Revised version, September 2011. Detail of revisions available at: http://www.oecd.org/dataoecd/37/2/48645493.pdf OECD 2011

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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 45 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange-of-information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange-of-information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 71 73 84 85 87 88

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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

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ABOUT THE GLOBAL FORUM 5

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 jurisdictions, 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 foreseeably 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 jurisdictions 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 monitoring 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.

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EXECUTIVE SUMMARY 7

Executive summary
1. This report summarises the legal and regulatory framework for transparency 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 competent 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 centres in the world (City of London), the UK has a long history in negotiating double taxation conventions (DTCs) leading to a network of agreements covering 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 jurisdictions 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.

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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 information 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, receiving 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 information for international tax matters with a large network of jurisdictions across the globe.

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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 materials 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 enumerated 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 implementation 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

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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 jurisdiction. However this rating will only be published at such time as a representative 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 determination 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 northwestern coast of continental Europe. It is an island nation, spanning an archipelago 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 trillion (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. 2. 3.

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). Source: IMF World Economic Outlook Database, accessed 20 October 2010. www.uktradeinfo.com/index.cfm?task=summaryTrade, accessed 31 March 2011.

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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 administrations 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 Dependencies4 and Overseas Territories5 that are not constitutionally part of the UK. They have their own directly elected legislative assemblies, administrative, fiscal and legal systems. They are not represented 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 clergy6). 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, unicameral 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 administered directly by the UK government and parliament on all issues. All parts of the UK also have elected local authorities.

4. 5. 6.

The Crown Dependencies Jersey, Guernsey and Isle of Man are all members of the Global Forum. Some of the Overseas Territories, namely Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat and Turks and Caicos are Global Forum members. 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/

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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 international 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 agreement shall have effect notwithstanding any other enactment. Secondary legislation 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 considered 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 implementation 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, regulation and paragraph are used respectively. The same convention is applied in this report.

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INTRODUCTION 13

(HMRC), a government department accountable to the Chancellor of the Exchequer. The Commissioners for HMRC are the UK competent authority 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 companies 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 individuals, 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 company 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 companies. 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 guidance such as the UK Corporate Governance Code, and case law of the UK courts.

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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 professions8


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 example, 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 billion) 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 industry9, show the significant 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. 9. 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-figuresabout-uk-financial-services.aspx. The City UK www.ifsl.org.uk/what-we-do/the-research-centre/key-facts-andfigures-about-uk-financial-services.aspx.

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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 turnover, 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 accounting 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 rulemaking, investigative, enforcement and disciplinary powers (rules and guidance 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

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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 appropriate 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 Regulations 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 practitioners, 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 service businesses, trust and company service providers, auditors, accountants and tax advisers not supervised by another body (including FSA). 32. The FSA takes enforcement actions against firms and individuals 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 Department responsible for the support and supervision of charities. Similar commissions have been established in Northern Ireland and Scotland.

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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 macroprudential 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 legislation 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 statutory 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 voluntarily). 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.

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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 reliable 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 information 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.

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41. The legal and regulatory framework for the maintenance of ownership and identity information is in place in the UK. However, UK companies 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 significant 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 requirements to keep relevant information. 44. UK company, partnership and trust law together with tax law, provide 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 proportionate 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.

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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 (ToR11 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.

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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 companies13 must contain [t]he name (as it appears in the companys register 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 generally 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 companies 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 documents. 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. 13. The memorandum of association is a statement made by each subscriber confirming their intention to form a company and become a member of that company (and for companies with share capital to take at least one share). 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).

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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 electronic 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 carrying out contracts of insurance as principal, dealing in investments (as principal 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 relating to a member of the company who has ceased to hold uncertificated shares

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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 company 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 information gathered as a result of issuing a section 793 notice for at least six

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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 company14 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 negligible, any unrelieved management expenses and charges arising prior to the change in ownership may not be carried forward to an accounting period after the change in ownership (ss. 677 and 692); and where there is more than a 50% change in the ownership of a company 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.

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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 Regulations 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 practitioners, 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 regular occupation or business is the provision investment services or the performance 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.

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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, correspondence 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 measures 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 information 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).

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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 managed 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 information 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 managed and controlled from within the UK. Nevertheless, as there are no direct mechanisms that assure that ownership information is available for such companies, 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.

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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 companys Articles of Association16 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 authorities 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 shareholding notifications to both the company and the UK Listing Authority when their interests reach, exceed or fall below 3% and at 1% thresholds 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 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 (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 company (s. 18 Companies Act).

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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, Partnership 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 general 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 (Northern Ireland) 2002. LLPs have a flexibility similar to other forms of partnerships, but are bodies corporate with legal personality and limited
17. 18. Gowers Principles of Modern Company Law, 6th edition, as quoted in the 2007 FATF-report on the UK. See e.g. www.jordans.co.uk/corporatelegalservices/bearersharesorderform.pdf, www.coddan-uk-company-formation.co.uk/bearer-shares-companies.html.

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liability of its members for debts of the LLP. The LLP is therefore subject to certain requirements under company law, such as in relation to accounts and audit. 82. Scottish partnerships have legal personality separate from the partners (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 operate 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 partners 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.

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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 partnership 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 partnership 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.

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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 (regulation 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 partners (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 information 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.

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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 special 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 taxation dependent on their residency status and the nature of the trust (ss. 474476, 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 resident or domiciled in the UK.

20.

www.hcch.net/index_en.php?act=conventions.text&cid=59, accessed 10 March 2011.

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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 practice 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.

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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 beneficiaries; 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 ordinarily 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 information 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 beneficiaries (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,

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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 limitation 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 previously in section A.1.1, apply equally to trust and company service providers. 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 operates; 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 subject 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

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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 investment 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 societys main purpose is to assist members financially during sickness, unemployment 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

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same basis as companies. Financial mutuals are regulated under the MLR, although certain mutual financial undertakings (i.e. those with small investment 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 unauthorised. 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 unauthorised 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). Schedule 2 para. 13 Building Societies Act 1986; Schedule 3 para. 14 Friendly Societies Act 1992; s. 1 Credit Unions Act 1979, s. 44 Industrial and Provident Societies Act 1965. www.duslaw.eu/files/Alternative%20Investments.pdf, www.hmrc.gov.uk/collective/what-is.htm.

23. 24.

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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 previously 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 reasonable 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.

Charities25
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.

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(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 provide 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 charities 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 sanctions 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 million) and 1 075 public limited companies with GBP 2.5 million (EUR 2.95 million) for late filing of accounts. 139. Companies House makes sure that registered entities provide the necessary information. It examines information to ensure appropriate standards 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 companies 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

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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 company. 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 summary 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 prescribed 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 partnerships 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).

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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 continued 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 partnership 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

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GBP 3 000 (EUR 3 542) multiplied by the number of members of the grouping 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 notification 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 punishable 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%-notification 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 penalty appears low. However, the UK has strong regulatory authorities (including Companies House) with active inspection or monitoring programs. This

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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 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. Recommendations 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

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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 liabilities 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 summary 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 companies with GBP 110 million (EUR 130 million) and 1 075 public limited companies 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 insurance company) or if its owners or their owners were all limited companies. 160. Entities subject to corporation tax28 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. www.companieshouse.gov.uk/about/pdf/companiesRegActivities2009_2010.pdf. This includes inter alia limited companies incorporated in the UK; foreignbased 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

27. 28.

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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 accounting 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 [partners 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 accounting 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 company 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 produced 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 companies that are subsidiaries of or wholly owned by a charity.

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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 partnership 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 accounting 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.

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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 documents 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 trustees 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 purposes 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 authorised CIS and unauthorised UTs according to their legal form.

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Charities
170. All charities in England and Wales are required to maintain accounting 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, without 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 business 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 supporting 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

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(s. 12B(3)(a) and (b), TMA). Supporting documents include, but are not limited to, deeds, contracts, vouchers and receipts (s. 12B(6)). 174. While UK trust law does not specifically state the underlying documents 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 business 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 indictment, 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 retention 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 provisions 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 retention period is the same as for private companies, i.e. three years (part 2, Partnership (Accounts) Regulations 2008). Under tax law, all partnerships are

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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 accounting 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 requirements 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 register 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, provide 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

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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 recordkeeping 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).
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is 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 laundering 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 appropriate and risk-sensitive policies and procedures relating to customer due diligence and ongoing monitoring; reporting and record-keeping, and must

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establish and maintain systems which enable them to respond fully and rapidly 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 controls 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 Arrangements, 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 various 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, relevant 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.

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Conclusion
190. There are sufficient legal obligations in place for financial institutions to keep transaction and CDD information available. Though, in connection with a specific request, one peer mentioned poor record retention by a bank. However, this seems to have be an isolated incident.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.

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B. Access to information

Overview
191. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines 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 online) 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-consuming 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

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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 provision to extend these powers to EOI cases, thus removing the restriction on providing 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 relation to tax regardless when it became due, whether before, on or after that date.

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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 certain 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 possession 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 signatories, 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

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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 specifically 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 situation. 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 requesting 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 commented on the fact that the UK requires the name of the taxpayer to be established 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 assessment 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 million (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.

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limits for EOI32, 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 (including 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 agreement with the British Banking Association (BBA) HMRC will never issue a taxpayer-approved notice in a case involving bank information. As Tribunalapproved 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 investigation; any irregularities established; details of the information required; why it is relevant; why the UK resident could be expected to have that information; 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.

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means of obtaining the information. Where appropriate, the application will be supported by exhibits of relevant documents. HMRC has to put considerable work into preparing matters for the Tribunals consideration. This preparation 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 information 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 relevant 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

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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 information 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 combinations of involved third party, relevant documents and relevant tax in which third party premises can be inspected. Only four of these 12 combinations include income tax33 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 registered 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.

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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 operating 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 individuals 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 purposes. 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 identification requirement as a concern and also referred to cases where information 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 information 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

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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 Tribunalapproved notice under Schedule 36) or the customer agrees to the information being disclosed.

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Professional privilege
220. The common law concept of legal professional privilege,34 which attaches to certain confidential communications between a barrister or solicitor 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 essentially 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 created 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. 35. 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). 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.

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this provision will protect all information/documents produced when acting as an auditor or tax adviser but cannot protect the professional from disclosing 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 communication between an attorney or another person who is acting as a legal representative and their client related to legal proceedings or legal advice, but also documents produced by an auditor or a tax adviser for his clients concerning 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 exceptions 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.
Determination and factors underlying recommendations
Phase 1 determination The element is not in place. Factors underlying recommendations 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. Recommendations 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.

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Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed. Factors underlying recommendations The formal process to obtain information (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 jurisdiction. This process unduly delays effective exchange of information. Recommendations 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 information or documents that are required and give that person a reasonable 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 seriously prejudice the assessment or collection of tax; or

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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 procedure 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).
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed.

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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 framework. This section of the report assesses the UKs network of EOI agreements 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 information 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 agreements 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 remaining 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.

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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 jurisdictions. 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 identified 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.

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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-operation by the EU Member States in the field of value added tax; Regulation (EC) No 2073/2004 concerning administrative co-operation 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 themselves (see in particular Article 27 of the Council of Europe Convention and Article 11 of the 1977 EC Directive Applicability of wider-ranging provisions 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.

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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 Agreement. 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 renegotiated 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 automatic 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 overseas 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.

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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 envisages 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 investigation. 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 information 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 requesting 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 agreement 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 information 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.

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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 residence or nationality of the person in possession or control of the information requested. For this reason the international standard for exchange of information 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/EEC40, eight are covered by a TIEA41 and three other jurisdictions are covered by the COE/OECD Convention42. 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 representing 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. Antigua and Barbuda, Belize, British Virgin Islands, Grenada, Guernsey, Isle of Man, Jersey, and Saint Kitts and Nevis,. Azerbaijan, Iceland and the Ukraine.

41. 42.

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248. The DTCs with four out of the 52 above mentioned jurisdictions specifically 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 established 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 information, 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 paragraph 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 specifically provide for exchange of bank information and is therefore not to the standard when it comes to exchange of bank information;

43. 44. 45.

Global Forum Peer Review Phase 1 Report Jamaica, section 29. 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. Antigua and Barbuda, Belize, British Virgin Islands, Grenada, Guernsey, Isle of Man, Jersey and Saint Kitts and Nevis.

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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 jurisdictions 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. 47. Barbados, Egypt, Fiji, Gambia, Israel, Jamaica, Kenya, Namibia, Nigeria, Papua New Guinea, Sri Lanka, Swaziland, Tunisia, Zambia and Zimbabwe. 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. Australia, Canada, Denmark, Estonia, Ghana, Hungary, India, Ireland, Italy, Norway, Philippines and the United States. Brunei, Kiribati, Tuvalu, Montserrat, Sierra Leone and Solomon Island.

48. 49.

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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-one50 of the UKs 122 DTCs specifically include, in accordance 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 twelve51 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 provision specifically requiring a domestic tax interest. 254. With the exception of a previously (see third bullet point in paragraph 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. Denmark, Finland, Georgia, Iceland, Ireland, Italy, Korea (South), Norway, Portugal, Spain, Sweden and Ukraine.

51.

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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) jurisdictions 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 criminality 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 information 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 information 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 disclosure facility by the United Kingdom. Article 6(e) of the TIEA states that a requested State may decline a request if:

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the request is made on or before 31 March 2015 and does not relate to a criminal tax matter in respect of which the requesting 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 information 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 authorities 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 administrative 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.

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Ratification is at various stages within these jurisdictions.52 In addition, three of the 122 DTCs53 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 jurisdictions 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 council 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 usually 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 procedures 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. Bahrain, Belarus and Ethiopia. Belgium, Mauritius, Montserrat and South Africa. DTC with Belarus of 7 March 1995.

53. 54. 55.

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In effect (ToR C.1.9)


268. For information exchange to be effective, the parties to an EOI arrangement 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 arrangements 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 legislation 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 programmes 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.
Determination and factors underlying recommendations
Phase 1 determination The element is in place, but certain aspects of the legal implementation of this element require improvement. Factors underlying recommendations 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. Recommendations 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.

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Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is 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 multilateral 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 revising 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 jurisdictions 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 factors such as thresholds applied in other jurisdictions or nature of economic relationship and nature of requests that influence the number of requests.

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Determination and factors underlying recommendations


Phase 1 determination The element is in place. Factors underlying recommendations Recommendations The UK should continue to develop its EOI network to the standard with all relevant partners. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is 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 confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used. In addition to the protections afforded by the confidentiality provisions of information 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 confidentiality 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 domestic 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:

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disclosure is necessary for the functions of HMRC; disclosure is permitted by another enactment including EOI arrangements; 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 typically more restrictive and HMRC applies these more restrictive provisions. HMRC staff, or persons acting on their behalf, breaching the disclosure provisions 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.

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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.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is 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 recommended that the UK works with the British Virgin Islands to resolve this issue.

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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 communication between an auditor or tax adviser concerning advice given to his/ her client about the clients tax affairs. This 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 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.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is 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 timeframe 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.

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287. None of the UKs DTCs require the provision of request confirmations, 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 information 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 information 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 requesting 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 therefore 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 outright. 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.

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in cases where a notice has to be approved by the Tribunal and insufficient 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 introduction 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.

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Organisational process and resources (ToR C.5.2) Competent authority for exchange of information
293. The competent authority57 for the United Kingdom are the Commissioners 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 officers 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 information 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. 58. The term competent authority means the person or government authority designated by a jurisdiction as being competent to exchange information pursuant to a double tax convention or tax information exchange. Exchange of information with EU Member States under the EC Regulation 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.

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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 authorities 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 available 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 information. 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 additional restrictive conditions on exchange of information.
Determination and factors underlying recommendations
Phase 1 determination 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.

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Phase 2 rating To be finalised as soon as a representative subset of Phase 2 reviews is completed. Factors underlying recommendations 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. Recommendations The UK should ensure that it has the necessary processes in place to be able to provide status updates within 90 days.

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SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 95

Summary of Determinations and Factors Underlying Recommendations 59


Factors underlying recommendations

Determination

Recommendations

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) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.

59.

The ratings will be finalised as soon as a representative subset of Phase 2 reviews is completed.

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96 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS


Factors underlying recommendations

Determination Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.

Recommendations

Banking information should be available for all account-holders. (ToR A.3)

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) Phase 1 determination: 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 formal process to obtain information (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 jurisdiction. This process unduly delays effective exchange of information. 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 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.

Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.

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SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 97

Determination

Factors underlying recommendations

Recommendations

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) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1) Phase 1 determination: 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. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.

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98 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS


Factors underlying recommendations

Determination

Recommendations

The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) Phase 1 determination: In place. The UK should continue to develop its EOI network to the standard with all relevant partners.

Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4) Phase 1 determination: In place. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is completed.

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SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 99

Determination

Factors underlying recommendations

Recommendations

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. Phase 2 rating: To be finalised as soon as a representative subset of Phase 2 reviews is 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.

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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 transparency 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.

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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 document 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.

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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 current EU members, covered by this Council Directive, are: Austria, Belgium, Bulgaria, Cyprus61, 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 savings 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 relates to the southern part of the Island. There is no single authority representing 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.

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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
Type of EoI arrangement TIEA DTC Protocol TIEA DTC TIEA DTC DTC Protocol Protocol Protocol DTC TIEA DTC DTC DTC Protocol DTC DTC DTC Protocol DTC Protocol Protocol TIEA TIEA

Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 Anguilla Antigua and Barbuda Argentina Aruba Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium

14 15

Belize Bermuda

Date signed 20-07-09 19-12-47 05-03-68 18-01-10 03-01-96 05-11-10 21-08-03 30-04-69 17-11-77 18-05-93 11-09-09 23-02-94 29-10-09 10-03-10 08-08-79 26-03-70 18-09-73 31-07-85 07-03-95 01-08-87 24-06-09 19-12-47 08-04-68 12-12-73 25-03-10 04-12-07

Date in force 17-02-11 19-12-47 19-09-68 19-05-11 01-08-97 17-12-03 N/K N/K N/K 19-11-10 03-10-95 07-01-11 08-07-90 26-11-70 12-12-73 30-01-86 04-10-89 19-12-47 08-03-69 12-12-73 10-11-08

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ANNEXES 105

sqdf62qsmklf63
Jurisdiction 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Bolivia Bosnia and Herzegovina Botswana British Virgin Islands Brunei Darussalam Bulgaria Canada Cayman Islands Chile China Cte DIvoire Croatia Chinese Taipei Curaao62 Cyprus 63 Czech Republic Denmark

Type of EoI arrangement DTC DTC DTC DTC TIEA DTC Protocol Protocol DTC DTC Protocol DTC DTC DTC DTC DTC DTC TIEA DTC Protocol DTC DTC Protocol Protocol

Date signed 03-11-94 06-11-81 09-09-05 29-10-09 29-10-09 08-12-50 04-03-68 12-12-73 16-09-87 08-09-78 07-05-03 15-06-09 12-07-03 26-07-84 26-06-85 06-11-81 08-04-02 10-09-10 20-06-74 02-04-80 05-11-90 11-11-80 01-07-91 15-10-98

Date in force 23-10-95 18-09-82 04-09-06 12-04-10 12-04-10 08-12-50 N/K N/K 28-12-87 18-12-80 04-05-04 20-12-10 21-12-04 23-12-84 24-01-87 16-09-82 23-12-02 18-03-75 15-12-80 20-12-91 17-12-80 N/K N/K

62. 63.

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 footnote 35. 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 representing 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.

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106 ANNEXES
Type of EoI arrangement TIEA DTC DTC DTC DTC DTC DTC DTC Protocol Protocol Protocol Protocol Protocol DTC DTC DTC DTC Protocol DTC DTC TIEA DTC DTC Protocol TIEA DTC Protocol Protocol TIEA DTC DTC DTC DTC DTC DTC

33 34 35 36 37 38 39

Jurisdiction Dominica Egypt Ethiopia Estonia Falkland Islands (Malvinas) Faroe Islands Fiji

40

Finland

41 42 43 44 45 46 47 48 49

France FYROM Gambia Georgia Germany Ghana Gibraltar Greece Grenada

50 51 52 53 54 55 56

Guernsey Guyana Hong Kong, China Hungary Iceland India Indonesia

Date signed 31-03-10 25-04-77 10-06-11 12-05-94 17-12-97 20-06-07 21-11-75 17-07-69 17-05-73 16-11-79 01-10-85 26-09-91 31-07-96 19-08-08 08-11-06 20-05-80 13-07-04 04-02-10 30-03-10 20-01-93 24-08-09 25-06-53 04-03-49 25-07-88 31-03-10 24-06-52 14-12-94 20-01-09 20-01-09 31-08-92 21-06-10 28-11-77 30-09-91 25-01-93 05-04-93

Date in force 23-08-80 N/K 18-12-97 03-06-08 27-08-78 05-02-70 07-07-74 25-04-81 N/K N/K N/K 18-12-09 02-08-07 05-07-82 11-10-05 17-12-10 30-12-10 10-08-94 15-12-10 15-01-54 04-03-49 14-12-88 24-06-52 03-01-95 27-11-09 27-11-09 18-12-92 20-12-10 27-12-78 19-12-91 25-10-93 14-04-94

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ANNEXES 107

Jurisdiction 57 Ireland

58

Isle of Man

59 60 61 62 63 64 65 66

Israel Italy Jamaica Japan Jersey Jordan Kazakhstan Kenya

67 68 69 70 71 72 73 74 75

Kiribati Korea (South) Kuwait Latvia Lesotho Liberia Libya Liechtenstein Lithuania

Type of EoI arrangement DTC Protocol Protocol DTC Protocol Protocol Protocol TIEA DTC Protocol DTC DTC DTC DTC Protocol Protocol TIEA DTC DTC Protocol DTC Protocol/ EoN Protocol Protocol DTC DTC DTC DTC DTC TIEA DTC TIEA DTC Protocol

Date signed 02-06-76 07-11-94 04-11-98 29-07-55 19-12-91 14-12-94 29-09-08 29-09-08 28-09-62 20-04-70 21-10-88 16-06-73 02-02-06 24-06-52 14-12-94 10-03-09 10-03-09 22-07-01 21-03-94 18-09-97 31-07-73 20-01-76 10-05-50 04-03-68 25-07-74 25-10-96 21-07-99 08-05-98 17-12-97 01-11-10 17-11-08 11-08-09 19-03-01 21-05-02

Date in force 23-12-76 21-09-95 23-12-98 29-07-55 19-12-91 N/K 02-04-09 02-04-09 N/K 25-03-71 31-12-90 31-12-73 12-10-06 24-06-52 N/K 27-11-09 27-11-09 24-03-02 15-12-96 02-11-98 N/K 30-09-77 10-05-50 23-10-68 25-07-74 30-12-96 01-07-00 30-12-98 23-12-97 08-03-10 02-12-10 28-11-02 28-11-02

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108 ANNEXES
sqdf Type of EoI arrangement DTC Protocol Protocol Protocol DTC Protocol Protocol DTC Protocol DTC DTC Protocol Protocol Protocol DTC Protocol DTC DTC DTC DTC Protocol Protocol DTC Protocol DTC DTC Protocol DTC TIEA 64 DTC Protocol Protocol DTC DTC
64

Jurisdiction 76 Luxembourg

77 78 79 80

Malawi Malaysia Malta Mauritius

81 82 83 84 85 86 87 88 89 90 91 92

Mexico Moldova Mongolia Montenegro Montserrat Myanmar Morocco Namibia Netherlands New Zealand Nigeria Norway

Date signed 24-05-67 18-07-78 28-01-83 02-07-09 25-11-55 12-07-68 10-02-78 17-12-97 22-09-09 12-05-94 11-02-81 23-10-86 27-03-03 10-01-11 02-06-94 23-04-09 08-11-07 23-04-96 06-11-81 19-12-47 06-04-68 09-12-09 13-03-50 04-04-51 08-09-81 28-05-62 14-06-67 26-09-08 10-09-10 04-08-83 04-11-03 07-11-07 09-06-87 12-10-00

Date in force 12-07-68 N/K N/K 28-04-10 25-11-55 13-09-68 14-03-79 08-07-98 28-12-10 27-03-95 19-10-81 N/K 22-10-03 15-12-94 18-01-11 30-10-08 04-12-96 16-09-82 19-12-47 04-12-68 13-03-50 04-04-51 29-11-90 19-12-62 27-11-67 25-12-10 16-03-84 23-07-04 28-08-08 27-12-87 21-12-00

64.

See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the Netherlands.

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ANNEXES 109

Jurisdiction 93 94 95 96 97 98 99 Oman Pakistan Papua New Guinea Philippines Poland Portugal Qatar

100 Romania 101 Russian Federation 102 Saint Kitts and Nevis 103 104 105 106 Saint Lucia Saint Vincent and the Grenadines San Marino Saudi Arabia

107 Serbia 108 Sint Maarten 65 109 Sierra Leone 110 Singapore 111 112 113 114 115 Slovak Republic Slovenia Solomon Islands South Africa Spain

116 Sri Lanka

qsdf Type of EoI arrangement DTC Protocol DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC TIEA TIEA TIEA TIEA DTC and Protocol DTC TIEA DTC Protocol DTC Protocol DTC DTC DTC Protocol Protocol DTC Protocol DTC DTC DTC
65

Date signed 23-02-98 26-11-09 24-11-86 17-09-91 10-06-76 20-07-06 27-03-68 25-06-09 20-10-10 18-09-75 15-02-94 19-12-47 18-01-10 18-01-10 18-01-10 16-02-10 31-10-07 06-11-61 10-09-10 19-12-47 18-03-68 12-02-97 24-08-09 05-11-90 13-11-07 10-05-50 08-04-68 25-07-74 04-07-02 08-11-10 21-10-75 15-03-95 21-06-79

Date in force 09-11-98 09-01-11 08-12-87 20-12-91 22-01-78 27-12-06 17-01-69 15-10-10 21-11-76 18-04-97 19-12-47 19-05-11 19-05-11 19-05-11 01-01-09 16-09-82 19-12-47 16-01-69 19-12-97 08-01-10 20-12-91 11-09-08 10-05-50 24-01-69 25-07-74 17-12-02 N/K N/K 21-05-80

65.

See footnote 36 regarding Curaao, Sint Maarten and the Caribbean part of the Netherlands.

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110 ANNEXES
Type of EoI arrangement DTC DTC DTC DTC Protocol Protocol Protocol Protocol DTC DTC DTC DTC DTC DTC TIEA DTC Protocol Protocol DTC DTC DTC Protocol DTC DTC DTC DTC Protocol DTC

Jurisdiction 117 Sudan 118 Swaziland 119 Sweden

120 Switzerland

121 122 123 124 125 126 127

Tajikistan Thailand Trinidad and Tobago Tunisia Turkey Turkmenistan Turks and Caicos Islands

128 Tuvalu 129 Uganda 130 Ukraine 131 United States 132 Uzbekistan 133 Venezuela 134 Vietnam 135 Zambia 136 Zimbabwe

Date signed 08-03-75 26-11-68 30-08-83 08-12-77 05-03-81 17-12-93 26-06-07 07-09-09 31-07-85 18-02-81 31-12-82 15-12-82 19-02-86 31-07-85 22-07-09 10-05-50 04-03-68 25-07-74 23-12-92 10-02-93 24-07-01 19-07-02 15-10-93 11-03-96 09-04-94 22-03-72 30-04-81 19-10-82

Date in force 08-10-77 18-03-69 26-03-84 N/K 10-05-82 19-12-94 22-12-08 15-12-10 18-04-97 20-11-81 22-12-83 20-01-84 26-10-88 30-01-86 25-01-11 10-05-50 23-10-68 25-07-74 21-12-93 11-08-93 19-07-02 31-03-03 10-06-94 31-12-96 15-12-94 29-03-73 14-01-83 11-02-83

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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

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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

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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 paragraph 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)

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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

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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

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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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ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT


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PEER REVIEWS, COMBINED: PHASE 1 + PHASE 2

UNITED KINGDOM
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 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected 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, which has been incorporated in 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 foreseeably relevant information must be provided, including bank information and information held by duciaries, 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 identied 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 jurisdictions 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 plus Phase 2 reviews. 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 approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the Global Forum for Transparency and Exchange of Information for Tax Purposes and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org.
Please cite this publication as: OECD (2011), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Kingdom 2011: Combined: Phase 1 + Phase 2, Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews, OECD Publishing. http://dx.doi.org/10.1787/9789264118164-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.

ISBN 978-92-64-11814-0 23 2011 46 1 P

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