• news-banner

    Expert Insights

How Private is Wealth?

A significantly increased emphasis on transparency, publicly available information of ownership and reporting of financial information to government authorities worldwide has seen privacy emerge as a key consideration for wealthy families when deciding where and how to structure their wealth.

Understanding current obligations and also what is on the horizon is key for private wealth advisers in this complex and fast-changing global tax and regulatory environment.

Our experts discussed the international initiatives relevant to this dynamic environment - including the EU tax blacklist project, DAC6 and UBO and other registers – and how these initiatives are likely to further develop in the future.

This webinar is provided by the Charles Russell Speechlys’ Latin America team with speakers from key European jurisdictions. 

This event took place as part of the IBA Global Influencer Forum.

Watch here

 

Introduction

The last decade has seen significant changes to the availability of information, public or otherwise, relating to both individuals and private wealth structures. 

Clients regularly ask questions about the privacy of their information – ranging from the application of “UBO registers” to private wealth structures, right through to how to manage risk once information is in the public sphere.

During the webinar, we asked: Has the introduction of UBO registers seen your clients avoiding investment into particular jurisdictions?

40% said yes, 60% said no.

Have privacy concerns shifted wealth from one jurisdiction to another?

Although clients understand the implications of a UBO register (a register of the ultimate beneficial owner of a company or legal entity) most of them would not avoid a jurisdiction purely because of it. 

The introduction of FATCA and CRS has had an impact globally, however these regimes have not reduced the demand for structures in certain jurisdictions.  A case in point is Luxembourg, which has a public UBO register, but continues to be used to structure wealth due to the country’s economic and legal framework, as well as the advantages of being a regulated jurisdiction for funds and corporate vehicles within the EU.  These advantages, for both clients and service providers, outweigh increased administrative requirements and costs.

The direction of travel for wealth in Latin America was usually to structure through the US, whether that be due to genuine US tax reasons, family connections in the US or simply to sidestep FATCA and CRS. 

A big difference in the past five to six years is that client objectives are changing, and clients are realising that information on structures held outside of their home country is now really going to flow back to their home country and that their home countries are, in many cases starting to establish the means to assimilate and use that information.

For clients from Latin America for instance, we now see structures that are largely tax transparent and that pay tax annually rather than achieving deferral.  However, they still aim to achieve other objectives with regards to desired jurisdictions to hold wealth outside of the client’s home country: a good legal and political system as well as privacy other than that linked to tax information exchange.

With the various tax blacklists having been introduced by the FATF, OECD and the EU, clients typically don’t ask the same questions anymore with regards to arbitraging jurisdictions: the number of jurisdictions that can offer ‘off the grid structures’ is dwindling and those that exist are not typically palatable in terms of reputational and economic risks.

This has led to a process of educating clients on the new world of private wealth holding structures.  Planning around trying to choose the right jurisdiction to reduce information flows is more difficult to do now: one should focus more on information flows that are accurate and that identify a single or few UBOs rather than draw in a wide range of family members who have no real and current beneficial interest in the wealth in question.

What information is publicly available, and how and when can third parties access information about wealth?

We have seen the introduction of policies and registers that will potentially make information on private wealth holding structures publicly available. Regimes such as MDRs and DAC6 funnel information to tax authorities on cross border transactions that provide a tax advantage, or which mask reporting under CRS.  It is therefore much easier now to see what a family owns in terms of assets, even if held through a structure.

In the US, the Corporate Transparency Act is a big change. The act is very broad in scope, as it provides for UBO registers for US companies (including US territories such as Puerto Rico and the US Virgin Islands). Although the UBO registers are private at the moment – i.e. not publicly available to other countries, FinCEN can share the UBO register information with other competent authorities for tax reporting reasons. US congress are examining where other types of vehicles should have UBO registers too, including non-US companies resident in the US.  The timeline on a decision is said to be around two years.

Economic substance legislation also comes in to play here.  In the cases of non-compliance in the Caribbean countries which have introduced economic substance reporting, the local Caribbean authorities can report the non-compliance information to the country of the UBO’s tax residence.

And we shouldn’t forget Country-by-Country reporting (a political agreement targeted at increasing transparency on multinational corporations and how much tax they pay worldwide). Although this information is currently only available domestically, the model in the EU proposes to make the information publicly available.

We asked the attendees: Which of these jurisdictions do your clients view as the most private?

  • Bahamas: 15.00%
  • Singapore: 15.00%
  • Switzerland: 15.00%
  • USA: 55.00%
  • Luxembourg: 0%

What mobility patterns are we seeing from our clients?

We have seen significant changes in Luxembourg with regards to family offices and corporate operations shifting into the jurisdiction.  We have recent experience with families from Latin America sending family members to Luxembourg to lead the family office, in order to fulfil the requirements of significant economic substance.

The spectre of the introduction (or re-introduction) of wealth taxes, such the recent introduction of a significant wealth tax in Argentina (for which the cut-off date had already passed), is sharpening client sensitivities in relation to privacy.  Planning is becoming difficult for families who are not comfortable with their home governments having so much data on their net worth, as they take the view that this may well lead to pursuit of wealth with wealth taxes.  

Relocation to most seems extreme.  We have seen in practice that there has to be a cultural fit with the relocation jurisdiction.  For business owners, if their crown jewel assets are in the home country, changing tax residence and setting up a well-organised structure with good governance is not going to achieve the required objectives if they are frequently going back ‘home’. 

Changing tax residency by relocating also does not guarantee protection under investment protection treaties regarding local business and assets.  Even if families can move, some of the fundamental business assets from which they derive their wealth are fixed in the home country.  As such, a re-examination of asset protection and use of bilateral investment treaties is a trend.

Data leaks: what should you do to try to limit damage?

Privacy planning should now be part of the conversation with clients. It is important for clients to understand exactly who holds their data and where that data is held. Clients also need to expect the worst, and have a crisis management plan in place if that eventuates.

The external communication must be very strong following a data leak, in essence diluting any bad press with positive press.  Families have to learn how to manage this from a technology standpoint.  The next generation may be digital natives, but they still need to be coached about how digital privacy should be managed.

Jurisdictions also have their own cultures of privacy. As a service provider it is useful to understand expectations of clients with regards to their specific culture of privacy.  For instance, in Switzerland privacy is hard-wired into the professional culture, whereas other jurisdictions such as the UK may be perceived as being more relaxed regarding this topic.  

We have seen that data leak scandals in the past have been incredibly damaging to the institution. For law firms, trustees, and other intermediaries, this risk and crisis management of that risk is a challenge for us all.

Our thinking

  • IBA Annual Conference 2023

    Charlotte Ford

    Events

  • Dangers of trusts

    Mark Summers

    Events

  • Heritage property and conditional exemption

    Sarah Wray

    Insights

  • Vanessa Duff writes for Wealth Briefing on how the Bank of Mum and Dad can help young people get on the property ladder

    Vanessa Duff

    In the Press

  • Sarah Higgins and David Wells-Cole write for Wealth Briefing on the pitfalls of using unregulated legal services

    Sarah Higgins

    In the Press

  • 5 top tips to make estate administration easier for your executor

    Jessica Dawkins

    Quick Reads

  • Financial Reporter quotes Rhys Novak on a new FCA review into the treatment of PEPs

    Rhys Novak

    In the Press

  • South China Morning Post quotes Lisa Wong on Hong Kong's surrogacy rules

    Lisa Wong

    In the Press

  • First time buyers relief and trusts

    Sarah Wray

    Insights

  • The Financial Times quotes Julia Cox on tax planning under a potential Labour government

    Julia Cox

    In the Press

  • The Times quotes Suzanne Marriott on the legal ramifications of stolen artefacts

    Suzanne Marriott

    In the Press

  • The Family Fund: Bank of Mum & Dad 2.0

    Vanessa Duff

    Quick Reads

  • The Financial Times quotes James Riby on London’s reputation as ‘divorce capital’ of the world

    James Riby

    In the Press

  • Inside Britney and Sam’s $10m prenup

    Shivi Rajput

    Quick Reads

  • The i quotes Katie Talbot on the merits of putting a life insurance policy into a trust

    Katie Talbot

    In the Press

  • Oops!....I did it again - Britney's third divorce

    Charlotte Posnansky

    Quick Reads

  • NSPCC urges Government to protect children from domestic abuse during holidays

    Shivi Rajput

    Quick Reads

  • A brief look at HMRC v A Taxpayer [2023] UKUT 00182 (TCC)

    Dominic Lawrance

    Quick Reads

  • An exceptionally harsh judgment? Exceptional circumstances revisited

    Dominic Lawrance

    Insights

  • Record success for Charles Russell Speechlys in Chambers High Net Worth 2023 directory

    Piers Master

    News

  • ATED and the farmhouse

    Sarah Wray

    Quick Reads

  • Recognising financial abuse in a relationship

    Vanessa Duff

    Quick Reads

  • Million Dollar Footballer With No Assets?

    David Carver

    Quick Reads

  • eprivateclient quotes Sarah Higgins and David Wells-Cole on the CMA’s investigation into will-writing and quickie divorce legal services

    Sarah Higgins

    In the Press

  • Domestic abuse orders: worth the paper they’re written on?

    Lydia Hutchinson

    Insights

  • Parental responsibility as a form of coercive control

    Lydia Hutchinson

    Insights

  • Sally Ashford and Oliver Auld write for International Adviser on the role of a trustee in a family trust

    Sally Ashford

    In the Press

  • Are Parental Rights Equal for All Families?

    Vanessa Duff

    Quick Reads

  • eprivateclient quotes Marcus Yorke-Long on on social media and family office

    Marcus Yorke-Long

    In the Press

  • Money Talk interviews Lisa Wong on wealth protection and preservation in marriage and divorce

    Lisa Wong

    In the Press

  • Atonement and post separation endeavour: wife keeps £1m gift from husband after his affair and will receive a share of his business’ future profits

    Sophia Leeder

    Quick Reads

  • Pensions: change is in the air once again

    Sarah Wray

    Quick Reads

  • Pre-Settled Status to be automatically extended by two years

    Paul McCarthy

    Quick Reads

  • Don’t push it… Quincecare duty clarified

    Caroline Greenwell

    Quick Reads

  • Pandora Papers: HMRC nudge taxpayers to come out of their box

    Hugh Gunson

    Quick Reads

  • Making BitCoin a BitClearer

    Charlotte Posnansky

    Quick Reads

  • Can a financial claim in divorce proceed after the death of either party?

    Sarah Higgins

    Quick Reads

  • Second Time Weddings - Family Law (I) dos and don’ts

    Miranda Fisher

    Quick Reads

  • Tina Turner: an inspiration praised for turning the tables on domestic violence

    Matt Foster

    Quick Reads

  • Delay could bar your probate claim

    Katelyn Silver

    Quick Reads

Back to top