The Fifth Money Laundering Directive (‘5MLD’) has expanded the registration requirements in relation to trusts who have connections with EU Member States, as a result of the changes made to Article 31.
Under the previous version of Article 31 (as contained in the Fourth Money Laundering Directive (‘4MLD’)) trustees of an express trust governed by the law of an EU Member State were subject to two separate obligations: firstly an obligation to collect and keep up to date information regarding beneficial ownership of the trust (where beneficial ownership was widely construed in accordance with the meaning attributed to it by the 4MLD) and secondly, an obligation to record this information into a Trust Register maintained by the tax authority of the relevant Member State where the trust produced tax consequences.
The 5MLD amended Article 31 so that the above (and additional) registration requirements will kick in if the Trust is ‘administered’ in a EU Member State (rather than governed by the law of a EU Member State). The definition of ‘administered’ has been widely discussed and considered in the UK and, following extensive consultation, the draft Regulations (currently laid with the Parliament) now provide that a trust would be regarded as administered in the UK if the trust has at least one UK resident trustee. [Please refer to previous article of 22 July on this topic here.
Article 31 was further amended to provide that such registration requirements apply to trusts as well as to “other types of legal arrangements […] where such arrangements have a structure or functions similar to trusts”.
The Member States were requested by the EU Commission to notify what domestic arrangements (if any) should be regarded as akin to trusts for the purposes of the 5MLD provisions. The EU Commission published a list of such legal arrangements in October 2019 (to view the list, please click here). A number of states confirmed that none of their domestic arrangements should be treated as akin to trusts. Three countries (including the UK) sent no notification. Luxembourg included contracts fiduciers; Malta included foundations; Belgium included fidei-commis de residue; the Netherland included the fonds; France, included the fiducies whilst Italy included mandato fiduciario and vincolo di destinazione. Quite interestingly none of the countries whose domestic laws recognise the usufruct/bare ownership arrangement in their domestic legal systems has regarded it as a trust-like arrangement.
The issue whether the arrangement in question is to be treated as akin to a trust remains an issue of national law as applicable in the relevant EU Member State. Therefore, although usufruct arrangements may be treated as trusts for certain UK tax purposes, they will not be subject to registration requirements even where the bare owners or usufruct interest holders (or one of them) may be resident in the UK.