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European legislators have been trying to require public disclosure of trust beneficiaries for the past year
WHAT THE EU’S TRUST RULES
MEAN FOR CANADIANS
by JAMES DOLAN,
a Vancouver-based financial writer
IN CANADA, TRUSTS HAVE LONG
been considered a mainstay of sound estate planning. In Europe, that might change. Over the past year, European legislators have debated proposals that would require public disclosure of all beneficiaries of all trusts domiciled within EU member states. Some say disclosure is an important weapon in the fight against tax evasion. Others believe it’s an unnecessary intrusion of the state into private financial affairs.
While a compromise has settled the issue for now—member states have to collect information on the beneficial owners of trusts, but those details will not be made public—the debate raises questions about whether such disclosure may one day be required in Canada.
The framework
Margaret O’Sullivan, principal, O’Sul- livan Estate Lawyers, says the push to make trusts public is “part of this greater
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move toward more transparency—to try to [stem] leakage from the tax system, ensure better tax compliance, [and]
stop tax evasion [and] criminal terrorist financing.”
But what was originally a laudable notion has quickly turned political. “Originally, the idea was that they were combatting money laundering and terrorism—who can object to that?” she says. “Then taxes got added on. Now [it’s about] tax evasion, and tax evasion morphed into tax avoidance.”
As O’Sullivan explains, the zeal about going after tax cheats ignored the many legitimate reasons for citizens to keep trusts private. “Trusts are used by all sorts of people [to protect] minors, the disabled [and] vulnerable beneficiaries,” she explains. “[But EU legislators] see these as tools that aid the rich and help them avoid, and sometimes evade, tax.”
By ignoring privacy needs, the original EU legislation left the door
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open to harassment and financial abuse of trust owners. “It might [have] led to the ability to identify people of poten- tial high net worth,” O’Sullivan says. “[That] could lead to a lot of issues. Per- haps even those who are most vulnerable being potentially taken advantage of. A scam artist [might be] able to identify trust beneficiaries and then target them because he or she knows that person may be in receipt of substantial funds.”
Different systems; different laws
Albert Oosterhoff, professor emeritus at Western University’s Faculty of Law, sees the EU’s debate over trust disclo- sure as an example of the friction that can arise between different legal sys- tems. “There is a significant difference between the common law trust and the quote-trust-unquote that exists in civil law jurisdictions,” Oosterhoff notes.
Since the legal concept of a trust is not native to the civil law jurisdic-
April 2014 December 2014
The EU adopts the First Anti-Money Laundering Directive (AMLD) to ensure EU financial institutions are not used to launder the proceeds of criminal activities.
Adoption of the second AMLD, which introduces a broader definition of money laundering and expands the predicate offences to include corruption.
Adoption of the third AMLD, which includes prohibitions on terrorist financing, and includes the conduct of lawyers, notaries, accountants and other financial professionals.
The European Parliament votes 643 to 30 to require all 28 member states to create public beneficial ownership registers for trusts and similar structures.
The U.K. government announces it will oppose clauses in the AMLD that require identification of all beneficiaries of trusts in publicly accessible registers.
EU governments reach a compromise: there will be centralized registers of company owners, but they’ll only be accessible to those who can prove a “legitimate interest.”
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