Lexpert Magazine

66 LEXPERT MAGAZINE | JUNE 2017 agreement," Doobay says. As it turns out, however, the US is not even a signatory to the CRS. "e US will rely on its FATCA [Foreign Account Tax Compliance Act] legislation to force foreign financial institutions to provide it with the names of US citizens who hold US$50,000 or more at foreign institutions," he says. "But the CRS is broader than FATCA because there is no minimum threshold for reporting, which must take place on an annual basis." Nonetheless, the United States is tak- ing steps to tighten the noose around tax evaders. For example, before December 12, 2016, non-Americans, including Can- adians, were able to shield their assets by using a Delaware limited liability company (LLC), whose beneficial shareholders were not disclosed. "Many Canadians took advantage of the LLC program to invest in financial assets and real estate in the US," says Doobay's colleague Vitaly Timokhov. at arrangement ended in December when the US Internal Revenue Service issued regulations requiring foreign-owned LLCs to disclose their beneficial owners to the IRS by obtaining US tax identification numbers, and in many circumstances filing annual returns. "e IRS move effectively requires a foreign-owned LLC to be treated as a flow-through entity equivalent to a partnership," Timokhov explains. Still, the exchange of information with foreign authorities would not be as seam- less as it would under the CRS. Countries lacking a tax treaty with the US would not have access to the information at all, and those with such treaties would have to resort to treaty provisions to obtain the information. "In other words, because the US has not signed [on to] the CRS, the ex- change of information would not be auto- matic," Doobay says. For its part, the Canadian government has given no indication on its position re- garding the use of limited partnerships (LPs) by non-residents to shield offshore assets from the authorities in their home countries. Until it does, it's not clear wheth- er the CRS will result in home countries learning about assets in a Canadian LP. Currently, there is no domestic report- ing requirement for beneficial owners of LPs. "If a partnership interest is not taxable Canadian property and the partnership does not carry on business in Canada, the non-resident partners are not subject to Canadian tax. If there are no Canadian partners, there is also no Canadian report- ing," Doobay says. Nor would the CRS necessarily force disclosure of the foreign ownership to Mexican authorities. at's because the CRS treats a Canadian LP as resident in the jurisdiction where it was formed, where it has its management or where it is subject to financial supervision. If the Canadian partnership was super- vised by residents of Mexico, for example, it would be deemed to reside in Mexico. But because its partners are not foreigners in Mexico, the CRS would impose no report- ing obligation on them. e beneficial holdings of the Mexican partners in the Canadian LP, then, would not be reportable under Canadian law or Mexican law. "It is likely, therefore, that non-Can- adians will continue to use Canadian LPs to shield their assets from tax authorities in their non-Canadian home jurisdic- tions, unless Canada enacts legislation or the OECD amends its current guidelines," Doobay says. ALTHOUGH THE ORGANISATION for Economic Co-operation and Develop- ment's Common Reporting Standard will come into force on July 1, 2017, Canada re- mains a jurisdiction where foreign owner- ship of assets can still be quite opaque. "e CRS allows for an automatic ex- change between tax authorities of infor- mation about financial accounts held in a signatory jurisdictions by the resident of another signatory jurisdiction," said Sunita Doobay of TaxChambers LLP in Toronto. e CRS has been signed onto by 101 countries, including the Cayman Islands, Switzerland, India, Portugal, Brazil and South Korea. But individuals seeking to circumvent the CRS can still do so in Can- ada, which does not require the disclosure of beneficial ownership when a company is incorporated. "It is the director information that is required, and a Canadian lawyer can be retained to take on the role of a director," Doobay says. Canada also lacks an equivalent to the US requirement for disclosure of owner- ship information for corporations with at least 25-per-cent foreign ownership. "Without this equivalent it will be dif- ficult to argue that Canada is not a tax ha- ven, despite being a signatory to the CRS Canada still does not require the disclosure of beneficial ownership when a company is incorporated BY JULIUS MELNITZER New reporting standards on horizon PHOTO: SHUTTERSTOCK | REGULATION | THE BORDER

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