After Brexit, EU proposes tougher tax rules on trusts

BRUSSELS (Reuters) - The European Commission will propose on Tuesday stricter rules on trusts to prevent tax evasion, according to draft legislation seen by Reuters, in a move that Britain has long opposed and which was deferred until after the Brexit referendum.

A balloon is tied to the Winston Churchill statue in Parliament Square during a 'March for Europe' demonstration against Britain's decision to leave the European Union, in central London, Britain July 2, 2016. REUTERS/Neil Hall

The EU push to identify owners of trusts has been in the making for years but British Prime Minister David Cameron had succeeded in blocking past attempts by EU authorities, citing a need for privacy for British trusts used to manage inheritances.

It appears to be the first move by the Commission to move ahead with legislation Britain will eventually have no say over following its decision to quit the European Union.

Other EU states believe that lack of transparency about ownership can turn trusts into vehicles for evading taxes.

The Commission draft proposal said trust beneficial owners will have to be recorded in registers that in many cases will be accessible to the public. Britain still has a vote in EU council discussions on new laws, but the vote to leave the Union on June 23 has left its influence very much weakened.

The new EU initiative follows the publication in April of the Panama Papers which revealed widespread tax avoidance practices by wealthy individuals transferring funds offshore through shell companies and other anonymous entities.

Over the past weeks, the British government lobbied the Commission again to avoid a crackdown on trusts. The EU executive postponed the decision until after the June 23 referendum on EU membership.

Britain may ignore these new rules after completing its exit from the EU, a process that would take two years but has not formally started yet.

But EU leaders have repeatedly said after the Brexit vote that if Britain wants to maintain access to the EU internal market after completing its exit from the union, it has to fully apply European Union legislation.

“Remain” campaigners in Britain warned before the vote that the country may end up is a position like Norway, which has to accept EU rules but has no say in formulating them.

The United Kingdom has so far exploited elements of EU legislation to avoid full enforcement of transparency rules.

“Requirements for the registration of beneficial owners of trusts have been clarified, to remove gaps in the legislation and national mismatches,” the draft Commission proposal said.

Existing registers of trust ownership are not easily accessible and are loosely controlled. To close this loophole, the Commission is proposing “to give public access to a set of information on companies and business-type trusts”.

Other types of trusts will have to reveal their beneficial ownership to people with “a legitimate interest,” the document said.

The Commission will formally adopt the legislative proposals at its weekly meeting on Tuesday. The EU Parliament and EU states will have to approve the measures, before they become law.

Editing by Jeremy Gaunt