Legal updates CORPORATE CORPORATE

Ben Sewell is the resident account information with How do the offshore havens compare to Australia? A PEEK INTO THE WORKINGS Principal at Sewell & participating CRS nations is coming Kettle Lawyers. into effect on 1 July 2017 (see: axT Offshore haven OF OFFSHORE TAX HAVENS Laws Amendment (Implementation Comparison with Australia Takeaway for solicitors characteristics of Common Reporting Standard) Act 2016). • FATCA compliance: means complying It may be tempting for some By Ben Sewell with a Federal United States No income tax or other Corporate tax on profits and clients to send assets to be statute, the Foreign Account Tax direct taxes capital gains tax held by international to avoid tax Compliance Act (‘FATCA’). To avoid ffshore havens have recently The temptation to leave assets in prohibitive withholdings (30 per cent of payments to foreign payees) Annual income tax returns, Use of offshore vehicles may be captured our imagination offshore havens with tax free status is No requirements to file all foreign financial institutions are Superannuation returns, BAS undertaken without any ongoing through the Papers a significant risk for the Australian Tax tax returns leak. A trove of client data • Incorporating through Office and also onshore creditors. required to report to the United returns professional advice in Australia O States Internal Revenue Service (2.6 terabytes of data containing 11.5 an offshore haven is What is an offshore haven? information about their bank accounts million records) from a Panamanian straightforward and held by or linked to United States Information on share ownership A court application in the law firm was leaked to the International relatively inexpensive. There is no single accepted definition Secrecy of share of proprietary companies and offshore haven’s jurisdiction to of ‘offshore haven’ but any general citizens or corporations. Australia Consortium of Investigative Journalists • There is a strong incentive ownership substantial holders of public obtain this information may be definition would include the following and the United States entered into a companies is publicly available required (‘ICIJ’). The ICIJ’s website provides for Australian residents elements: bilateral agreement regarding FATCA a search engine with offshore haven to generate income in compliance in 2014. 1. Foreign jurisdiction: grant of offshore havens and evade In Australia, companies cannot be Frustration in asset tracing is ownership information • Intermediaries: the lawyers, Nominee directorships incorporation under local law without directors of other companies and a risk with layered corporate from the leaked documents as well Australian income tax accountants and ‘fixers’ who set up and corporate any requirement to hold assets within shadow directors have fiduciary structures and nominee and through secrecy. This is directorships as educational videos and articles the jurisdiction or have a locally resident offshore corporate structures with responsibilities company directorships likely to be an increasingly (offshoreleaks.icij.org). The journalists director; layering, nominee directorships and risky venture because of bearer shares to ensure secrecy whilst are still analysing the 2. Secrecy protections: no publicly the tax information sharing A shadow director of an materials themselves and writing articles keeping their client in control of the Where there is a nominee available register of shareholders No shadow International Business Company agreements between assets held. The intermediaries may directorship their controller may about the use of offshore havens by the or directors and the right to use directorship law is not liable under the local law Australia and offshore not necessarily be the registered be liable for director’s duties wealthy and powerful around the world. bearer shares, layering and nominee for breach of director’s duties agents in the offshore haven. havens. directorships to maintain secrecy of The ICIJ reports the two most popular • International Business ultimate ownership; and • International Business Company: offshore havens are the British Virgin an offshore company formed under Companies can be sued 3. Tax free status: tax free status for any have an address within the jurisdiction • identity of shareholders and Islands and Panama. Those jurisdictions the laws of a jurisdiction where the under Australian corporate business that is conducted out of the through a certified professional agent directors not publicly available unless prefer the title ‘offshore financial centre’ company’s activities are limited to law if these companies trade jurisdiction and no requirement to file (usually a lawyer or accountant). The volunteered or subject to Court order; to offshore haven or . The international business. Also known as in Australia. This is important tax returns. registered agent holds the register an international business corporation. • bearer shares permitted; (Norman Island) to know when acting for a of shareholders and directors. When Terminology of offshore havens • no requirements to lodge annual was reputedly the inspiration behind creditor of an International • KYC: ‘Know Your Customer’ is the the International Business Company corporate returns or tax returns; Robert Louis Stevenson’s pirate novel Business Company because The terminology of offshore havens is process of verifying the identity of a is incorporated the registered agent ‘Treasure Island’. Today, according to the Australian in stark contrast to Australian corporate customer by a banker or registered attends to KYC on behalf of the • the country is a British overseas ICIJ, there is still treasure hidden in the provides significantly more law. Some of the key terms are: agent. Pursuant to CRS, from 1 July offshore haven’s regulators. territory and its highest Court is 2017 Australian financial institutions same islands, metaphorically at least. protections for creditors • Bearer shares: a share in a company the Judicial Committee of the Privy will be required to disclose the foreign Example, what can you get in the than the corporate law of that is owned by the person who Council in London; and taxpayer identification number or an British Virgin Islands that you can’t Setting up an offshore offshore havens. holds the physical certificate. This • no law of ultra vires so there is no limit haven company maintains the secrecy of the true equivalent when opening accounts get in Australia? on usage of the company. owner of the share as there is no for foreign residents in Australia. Setting up an International Business The material benefits for incorporating Tax information sharing The objective of the service share register held by the registered • Layering: ultimate ownership is made an International Business Company in Company in an offshore tax haven provider is to assist with low cost agent. more opaque by adding multiple the British Virgin Islands (as an example) agreements is straightforward and relatively layers of corporate ownership and incorporation whilst meeting the • Corporate directorship: unlike compared to leaving assets in an Australia, like the United States, taxes inexpensive. If you use the search terms, corporate directorships. In an asset its residents on their ‘worldwide secrecy requirements of their clients. Australia, where all directors are Australian domiciled company are: ‘set up bvi ibc’ in Google you will find a tracing exercise, multiple court income’ and we are required to declare The alternative to online incorporation required to be natural persons, • incorporation within two business large number of online incorporation companies can hold directorships in applications in different jurisdictions ‘foreign income’ in income tax returns. is to contact intermediaries who days provided KYC is completed; services with direct links to registered offshore haven companies. may be required to identify the Therefore, there is a strong incentive for engage the registered agents in the ultimate owner of an offshore • no tax generally, including income Australian residents to generate income agents in the British Virgin Islands. • CRS: means Common Reporting corporate structure. tax, corporate tax, capital gains tax, in offshore havens and evade Australian local jurisdictions and set up the Standard, a new single global Registered agents offer to incorporate inheritance tax, gift tax, wealth tax or income tax through secrecy. This is arrangements for incorporation standard for collection, reporting and • Nominee directorship: where a person an International Business Company other form of direct taxation; likely to be an increasingly risky venture including nominee directorships. exchange of financial information on who is the validly appointed director for a flat fee (around $1,000 USD plus • corporate directors permitted; because of the tax information sharing foreign tax residents. CRS was agreed is acting on behalf of another person disbursements) and they also offer The writer predicts this will lead to agreements between Australia and by G20 leaders in 2013 to create a and following their instructions. This • no nationality or residency restriction the ‘democratisation’ of the use of offshore havens. related services such as nominee mechanism for automatic exchange is further complicated by corporate on directors or shareholders; directors, bearer shares, powers of offshore havens by Australians who of tax information between multiple directorships in offshore havens. • appointment of nominee directors attorney and assistance to set up are becoming wealthier and more countries. An Australian law that • Registered agent: international permitted and no law of shadow  accounts. internationally mobile. provides for the exchange of foreign business companies are required to directorship;

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The United States leads the charge A company, including an International obtain information about the directors against offshore havens and its most Business Company, irrespective of and shareholders of the company. This important action was passing the where it is incorporated is subject to is likely to be expensive and potentially Foreign Account Tax Compliance Act Australian corporate law if it carries on a slow task if there are corporate in 2010. It basically forces all banks that business in Australia. The source of the directorships, layering and bearer want to receive money from the United law is somewhat convoluted but if you shares. States financial system to disclose read the definitions of ‘company’, ‘Part information about accounts held by 5.7 body’ and ‘foreign company’ under Takeaways for solicitors United States citizens or corporations to section 9 of the Corporations Act 2001 • It is likely that the use of International the Internal Revenue Service. (Cth) you will find that even though an Business Companies will grow The CRS is a multilateral exchange International Business Company is not as these vehicles become more registered in Australia it will be subject system and both Australia and a number accessible and cheaper for to the Corporations Act if it ‘carries on of offshore havens (including the Australians. British Virgin Islands) are parties to it. business in Australia’. • The differences between the The British Virgin Islands has agreed This is important when acting for a corporate law of offshore havens to begin complying with the CRS creditor of an International Business and Australia are irreconcilable. If from September 2017 and therefore Company because Australian corporate Australians who expect secrecy in that law provides significantly more acting for Australian creditors of offshore haven may need to reconsider protections for creditors than the International Business Companies you the risk they face. corporate law of offshore havens. will face a difficult task in any asset recovery action. Suing international business While CRS may be useful for the Australian Taxation Office, it doesn’t • Australian professional advisors companies under the offer any benefits to Australians who should be aware of CRS and that Australian Corporations Act are creditors of international business their clients may have information The corporate veil around an companies. To pierce the shroud of about their offshore bank accounts International Business Company can be secrecy, a court application in the disclosed to the Australian Taxation pierced by Australian law. offshore haven may be required to Office without their knowledge.

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