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India: No place to hide for beneficial owners after September 11


Added on 29/08/2018

(Financial Chronical) -- HNWIs will soon find it difficult to hide their identity in companies floated to manage their business interests while avoiding scrutiny of tax authorities. By amending section 90 of the Companies Act, 2013 the Indian government has made it mandatory to file details of significant beneficial owners in a company. It has notified the Companies (Significant Beneficial Owners or SBO) R-ules, 2018 and seems in no mood to relent on filing date or relaxing its provisions. The SBO rules came into effect last June and the deadline for filing the details is September 11, 2018.

The move is a part of the government effort to make business activities transparent and plugging loopholes in existing systems that allow corporate forms to avoid tax by creating a maze of subsidiaries. The Modi government has come out with a series of measures such as restriction on number of layers of subsidiaries to pin down the real owner in a company.

The new rules require all Indian companies to maintain record of persons holding beneficial shares in their respective entities. "Every significant beneficial owner shall file a declaration in Form No. BEN-1 to the company in which he holds the significant beneficial ownership on the date of commencement of these rules within 90 days from such commencement and within 30 days in case of any change in his significant beneficial ow-nership," the rule stated.

As per the rule, a significant beneficial owner or simply SBO is any person who is not a registered shareholder of the company (whose name is not entered in the company’s statutory register of members) but owns not less than 10 percent of the share capital of the company or exercises significant influence or control over the company. Co-rporate firms generally set up subsidiaries and SPVs to save on tax. Most big business houses have hundreds of group companies. While there is layered ownership in the-se companies, the real owner is the main boss of the group. Besides hiding ownership, the structure helps them shift liability and escape the regulations.

Clearly, the corporates are not happy with the new set of rules that put additional compliance burden on them. They have also raised questions on desirability of further disclosures.

“The industry is concerned about timing of the new rules - the first filing is due in early September but people believe that the government could have done a lot more policy advocacy. People are not very sure of what are the various issues and interpretations - on certain items, the rules are either silent or vague. Further, there are apprehensions that the new rules may lead to disclosure of otherwise private documents,” said Sameer Sah, associate partner, Khaitan & Co.

An industry executive who did not wish to be named said that the SBO rules may lead to various unnecessary disclosures and give tax authorities opportunity to go after businesses. “Quite a few people are concerned about public disclosure of many documents,” he said.

The SBO rules put onus of filing ownership details on both companies and ind-ividuals. Failing compliance, they may be slapped with fine or initiating court proceedings. Such beneficial owners also risk losing their rights attached to shares.

Source: www.mydigitalfc.com