Most EU Member States currently recognise a necessary degree of privacy and discretion regarding the ownership of family businesses or family trusts. In Belgium, shareholdings in a company only need to be registered in a company-held register, which is not accessible to third-parties. Moreover, for tax purposes, a withholding tax on dividends distributed applies that relieves shareholders from having to declare this income to the Belgian tax authorities.
However, from 26 June, 2017, all EU Member States, including Belgium, will be obliged to initiate a central data register containing certain basic information on the beneficial owners of Belgium-based corporate structures, trusts, foundations and similar entities. This obligation is a result of the provisions of the fourth Anti-Money Laundering Directive (AMLD), adopted by the European Parliament on 20 May, 2015. Given the impact on privacy and discretion of (major) shareholders of company structures and family-held businesses, the call for the establishment of a central register is the subject of an ongoing debate. The Belgian government has not so far announced any specific action or legal measures in this regard.
The European call for accurate information about beneficial owners
The AMLD emphasises the need for accurate up-to-date information on the identity of beneficial owners of corporate structures, trusts and foundations as a key factor in “the tracing of criminals who might hide their identity behind corporate structures”. To create full transparency to challenge the possible misuse of legal entities, Member States are to adopt a central register containing information on the beneficial ownership of entities incorporated/established within their territory, the so-called ‘UBO’ register. ‘UBO’ stands for the ‘ultimate beneficial owner’ and is defined by the AMLD as any natural person who has direct or indirect control over a legal entity. According to the AMLD, a controlling interest or ownership interest “over 25%” of the shares or voting rights in a corporate entity, must be considered as direct control (that is 25% + 1 share). This level is without prejudice to the right of Member States to lower this general participation threshold. If no UBO can be identified, or if there is any doubt that the persons identified are the effective beneficial owner(s), then the natural person(s) holding the position of senior managing official will be registered as the UBO.
As well as corporate entities, the AMLD also concerns all parties, including the settlor, the trustee, the protector, the ultimate beneficiaries or any other natural person involved in a trust or similar legal entity (such as foundations and certain legal arrangements exercising ultimate control over these entities).
The interference between the UBO-register and (international) reporting duties
The establishment of the UBO-register is part of a wider development of the worldwide exchange of information (such as FATCA and the OESO Common Reporting Standards (CRS)).
Referring to international data-exchange, the Belgian Minister of Finance recently confirmed that “in accordance with CRS, the other Member States will be obliged to provide the information held in the UBO-register to all other participating tax authorities, who then will also have the ability to exchange this information to other states. As a consequence, the Minister considers this information to be useful in relation to the enforcement of Belgian tax legislation, including the newly established look-through taxation (the so-called Cayman tax).” This statement implies that the UBO-register would be fully accessible to the Belgian tax authorities and thus become an important instrument for verification and control. This is especially relevant for the enhanced compliance by Belgian tax resident founders or beneficiaries of legal constructions that are now within the scope for “Cayman tax” purposes. An increase in the administrative penalties for non-reporting to 6.250,00 EUR (per annum and per entity) has recently been announced.
The delicate balance between transparency and privacy
According to the AMLD, the UBO-register is to be accessible, without any restriction, to all competent authorities and financial intelligence units, as well as to certain entities such as banks, notaries and lawyers, within the scope of their KYC due diligence measures. In addition, a right of access is granted to persons who are able to demonstrate a “legitimate interest” and who would have a degree of access limited to the extent of their beneficial interest. The AMLD does not define the scope of such ‘legitimate interest’. It is sufficient that the legitimate interest concerns money laundering, terrorist financing or related basic offences, such as tax fraud and corruption. It is argued that journalists, under the condition of having a ‘legitimate interest’, would be allowed access too.
Furthermore, there has been the suggestion to make the register publicly accessible, subject to specific conditions, such as the payment of a (small) fee and a form of user-registration.
The fact, however, that the identity of the beneficial owners of family-held structures would be open to the public and to journalists, raises concerns. The main objection here is that if such information is made public, this access may lead to abuse, blackmail and/or kidnapping. Hence, the UBO-register may create more problems for some then it can possibly solve.
While, under the AMLD, Member States are allowed to widen the access to the UBO-register, it is clearly stated that the access must be in accordance with data protection rules. In this regard, the European Commission has emphasised in its reflections to the European Parliament and the Council on this matter, that the provisions related to the access to this information, the notion of ‘legitimate interest’ must be construed and understood in the light of Articles 7 and 8 of the Charter of Fundamental Rights. In view of these provisions, Member States must ensure that the access by third parties pursues an objective of general interest, and so restrictions on the protection of personal data and the right to privacy must be subject to the principles of “necessity” and “proportionality”.
Reflections regarding the implementation of the UBO register in Belgium
The Belgian government has communicated that specific measures concerning the UBO-register’s transposition into national legislation will not be taken before October 2016. Hence, the debate regarding the accessibility of the Belgian version of the UBO-register is only beginning. In this respect, it must be emphasised that the envisaged ‘tax fraud’ or ‘money laundering’ activities in reality only respond to a very small percentage of structures and entities. The large majority of shareholders and corporations are not acting fraudulently at all. Therefore, the question to ask is whether the organised infringement of the right to privacy of all Belgian residents regarding their respective private estates is justifiable? It seems reasonable to state that, as a result of CRS, FATCA, UBO-register and the like, a huge amount of information is being created on often completely legal structures. It is indeed hard to imagine that a genuine criminal would make use of a disclosed structure.
Moreover, in reaction to the Dutch government’s decision to make the UBO-register publicly available, shareholders are already searching for ways to circumvent the registration obligation due to the need to ensure their rights of privacy prevail against excessive and misplaced public curiosity.
From that perspective, the question can be raised whether the UBO-register is the right instrument to achieve its goal. Therefore, we believe that a strict and limited interpretation of the AMLD is required.
