Circular/Fragmented ownership structures and the CRS/FATCA?

[forbidd3nknowl3dg3]

Hey OffshoreCorpTalk

This is my first post (apart from my introduction) and I thought I'd kick things off by asking a question I've been wondering about for awhile now.

I've read that the CRS defines a 'reportable person' of a passive non-financial entity as a natural person who owns 25% or more of the entity's shares. But what happens when one employs circular/fragmented ownership structures to maintain control over a specific entity while technically owning less than 25% of the entity's shares? To anyone's knowledge, does the CRS/FATCA have a way to look through circular/fragmented ownership structures? Or is this a viable way to get around AEOI?

 

[JohnnyDoe]

This article elaborates on the matter: More beneficial ownership loopholes to plug: circular ownership, fragmented control and companies as parties to the trust - Tax Justice Network
Unless you find complacent/dumb DD officers, there is no way around it other than employing a nominee UBO.

 

[forbidd3nknowl3dg3]

Thanks for the article JohnnyDoe! I'll give it a read tomorrow.

Nominees are an interesting topic as well, although I know very little about the CRS/FATCA procedures for looking through nominees to the UBO. Can you speak to the effectiveness of nominees to avoid CRS/FATCA reporting? The concept of a nominee is so simple and yet its hard to see how banks can prevent themselves from being fooled in the overwhelming majority of cases. I don't see what the ideal solution for banks is when confronting nominees designed to hide the UBO.

 

[JohnnyDoe]

If you choose your nominees well, everything will work. Someone will say that it is illegal to use a nominee UBO, so you have to consider if it’s worth the risk. Obviously nobody except you and the nominee should know that you are using a nominee.