How are compliance and changing taxation impacting private clients?
In terms of investments, we identify two major regulatory trends. The first is the strengthening of anti-money laundering and financing of terrorism (AML/FT) rules, both at the European Union (EU) and at national level. Investors shall expect to disclose their identity, residence, professional activity and of course the origin of funds used in investments. These rules impact in all transactions: from the opening of bank accounts to the acquisition of real estate or investing in funds.
One of the key elements of the system is the mandatory registration of beneficial owners of legal entities. Non- European investors might be startled by the requests of financial intermediaries and fund managers (and sometimes the bureaucracy) but shall know that non-transparent and complex structures will delay investments and bear the risk of targeting the eyes of authorities.
Another relevant trend is the investment in green activities, projects, or securities. The market has well understood the appetite of investors for anything labelled as green. This generated the risk of greenwashing and created difficulties of classification, comparability, transparency, and control. Again, at EU level major steps Another relevant trend is the investment in green activities, projects, or securities. The market has well understood the appetite of investors for anything labelled as green. This generated the risk of greenwashing and created difficulties of classification, comparability, transparency, and control. Again, at EU level major steps
With the European Green Bond Standard, the EU is aiming to set a clear gold standard for green bonds. The labels EuGB or European Green Bond will be reserved for entities that comply with the provisions of the regulation, use of funds must be consistent with the taxonomy rules and projects and information will be verified by external reviewers registered with European Securities and Markets Authority (ESMA). This new standard is consistent with the green bond principles proposed by the International Capital Market Association (ICMA). Another entity working in this field is the Climate Bonds Initiative (CBI), which offers its own Climate Bonds Standard and Certification.
Governments tend to increase tax compliance obligations to tackle tax avoidance and tax minimisation schemes. However, too burdensome tax compliance obligations can actually lead to non-compliance, with taxpayers willing to risk non-compliance, rather than provide too much information or commit to complex procedures or reports. A stable and reliable tax regime is one of the most relevant conditions to attract (foreign) investment. Often the stability of the tax system is left behind due to political arrangements. In these situations of change, it is of utmost importance to anticipate any adverse impact at the level of private clients.
When dealing with changes in compliance and in tax regimes/policies private clients can be more impacted than corporate clients, since to benefit from more favourable tax regimes private clients frequently redomicile abroad or make important investment decisions that impact their personal life. If these benefits are taken away or revoked, it is not only the financial impact, but also the personal impact that needs to be considered.
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