What yacht owners need to know about tax transparency and privacy

Tax Transparency and Public Beneficial Ownership Registries

TAX TRANSPARENCY
 You would have to be living isolated on a desert island not to have heard about the international moves towards tax transparency and the automatic exchange of information on tax matters. There have been many government announcements and much press commentary on this subject. Huge resources are being allocated by financial institutions to collect information which will soon start to be transmitted between tax offices worldwide.

At the same time under the impetus the G8, the G20 and David Cameron (in turn under public pressure from the NGOs) there is also a move towards registering and even making public the details of the beneficial ownership of companies.

Rosemont International has discussed these topics in more detail in articles here on tax transparency   or beneficial ownership registries - but how will this affect the yacht owner?

Most large yachts are owned by corporate entities, for many good reasons, such as separation of liabilities, practicality, flagging, and particularly for privacy. So you need to consider the effect of these new rules on the companies.

Under the new Common Reporting Standard rules (“CRS” - the exchange of tax information rules) the main points to consider are:

• What will be the Entity Classification for the Yacht Owning Company? Will it be considered as a Financial Institution (FI) itself, or will it be a Non-Financial Foreign Entity (NFE)?
   
• If the company is considered to be an NFE will it be considered to be Active or Passive? See further comments on this below.
   
• Is there a crew employment company? If so, how will this be classified?
   
• Which country/ies are the bank account/s held in?
   
• Are there any reportable loans to the company from the Owner?
   
• What is the residence of the Ultimate Beneficial Owner (Controlling Party or Account holder) under CRS?
   
• What is the jurisdiction of yacht holding company, and or the ultimate owning entity/trust or foundation?
   
• What will be the timing of adoption of the new rules by the relevant jurisdiction? Is it an early or late "adopter"?
   
• What will be the manner of adoption and interpretation of the new CRS rules in each of the participating countries, and what will be the relevant reporting jurisdictions?
   
• What is the classification of the entity that manages the yacht owning company, or trust, and in what jurisdiction is it based? If this entity (like some Corporate Services Providers, or Asset Managers) is an FI then this may make the yacht owning company an FI entity itself.

The answers to these questions will completely change the reporting obligations.

An NFE is essentially any Entity that is not a Financial Institution. NFEs are then split into Passive NFEs or Active NFEs.

It is not clear today how each country will consider that a Yacht Owning Company, or a Crew Employment Company? It would be logical that a commercially run vessel should be considered to be an Active company. What about a vessel held for Private Use that does not generate any income? Is that also considered to be Active? The OECD guidelines and the few specific country guidelines that have been issued so far do not address this matter. The closest that we have seen so far is the BVI interpretation for Real Estate owning companies. It is hoped that jurisdictions with a history of involvement with the Maritime Industry will provide clarification soon.    

In the full of the article which you will find on our website here we:  

? discuss the Risks resulting from CRS for the Yacht Owners

? try to answer the question "What should Yacht Owners do?"

? consider the position of Russian yacht Owners 

? review changes to disclosure of information about beneficial owners of yachts, including: -  ? UK public disclosure of ownership -  ? EU disclosure of ownership  

Rosemont can assist yacht owners understand how the new rules will affect them. Read the full article here