This article highlights significant legal developments in International Tax Law in 2023. It underscores changes and additions to corporate transparency and reporting regimes that are relevant to attorneys practicing in Austria, Brazil, China, the European Union, the United Kingdom, and the United States.
Austria has implemented mandatory reporting rules in line with the EU Notification Obligation Act, which provide that intermediaries must file information with the Austrian Minister of Finance on reportable cross-border arrangements that are within their knowledge, possession, or control within thirty days.
An intermediary is any person who designs, markets, organizes, or implements a reportable cross-border arrangement. An intermediary also includes any person who, with the relevant facts and circumstances, based on available information, and possessing relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance, or advice with respect to designing, marketing, organizing, or implementing a reportable cross-border arrangement.
The reporting rules apply if an intermediary:
Has their domicile, habitual abode, legal seat, and/or place of management in Austria;
Is not a tax resident in another EU Member State and provides his services with respect to the arrangements via a permanent establishment in Austria;
Is not a tax resident in another EU Member State and is subject to Austrian professional or trade law provisions; or
Is not a tax resident in another EU Member State and is registered with an Austrian professional association related to legal, tax, or consultancy services.
Intermediaries are unconditionally required to provide notification of the following arrangements:
Arrangements that involve deductible cross-border payments made between two or more associated enterprises where: (i) the recipient of the payment is not resident for tax purposes in any tax jurisdiction; or (ii) although the recipient of the payment is resident for tax purposes in a jurisdiction, that jurisdiction is included in a list of third-country jurisdictions which have been assessed by EU Member States collectively or within the framework of the OECD as being non-cooperative;
Arrangements in which deductions for the same depreciation on the asset are claimed in more than one jurisdiction;
Arrangements where relief from double taxation in respect of the same item of income or capital is claimed in more than one jurisdiction;
Arrangements that include transfers of assets and where there is a material difference in the amount being treated as payable in consideration for the assets in the jurisdictions involved;
Certain arrangements that may have the effect of undermining the reporting obligations under legislation on the automatic exchange of financial account information or which take advantage of the absence of such legislation;
Arrangements involving a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements, or structures: (i) that do not carry on a substantive economic activity supported by adequate staff, equipment, assets, and premises; (ii) that are incorporated, managed, resident, controlled, or established in any jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets held by such persons, legal arrangements, or structures; and (iii) where the beneficial owners of such persons, legal arrangements, or structures are not made identifiable in line with the fourth Anti-Money Laundering Directive; and
Arrangements concerning transfer pricing involving (i) the use of unilateral safe harbor rules; (ii) the transfer of hard-to-value intangibles; or (iii) an intragroup cross-border transfer of functions, risks or assets, if the projected annual EBIT during the three-year period after the transfer of the transferor is less than 50 percent of the projected annual EBIT of such transfer had the transfer not been made.
Intermediaries are required to provide notification of the following transactions only if it can be established that the main benefit or one of the main benefits, after considering all relevant facts and circumstances, is that a person may reasonably expect to derive a tax advantage from the following types of arrangements:
Arrangements in which the relevant taxpayer or a participant in the arrangement attempts to comply with a condition of confidentiality, which may require them not to disclose how the arrangement could secure a tax advantage vis-à-vis other intermediaries or tax authorities;
Arrangements in which the intermediary is entitled to receive a fee (or interest, remuneration for finance costs, and other charges) for the arrangement, and that fee is fixed by reference to (i) the amount of the tax advantage derived from the arrangement; or (ii) whether or not a tax advantage is actually derived from the arrangement (including an obligation on the intermediary to partially or fully refund the fees where the intended tax advantage derived from the arrangement was not partially or fully achieved);
Arrangements that have substantially standardized documentation or structures and are available to more than one relevant taxpayer without a need to be substantially customized for implementation;
Arrangements whereby a participant in the arrangement takes contrived steps that consist of acquiring a loss-making company, discontinuing the main activity of such company and using its losses in order to reduce its tax liability, including through a transfer of those losses to another jurisdiction or by the acceleration of the use of those losses;
Arrangements that have the effect of converting income into capital, gifts, or other categories of revenue that are taxed at a lower level or exempt from tax;
Arrangements that include circular transactions resulting in the round-tripping of funds, namely through involving interposed entities without other primary commercial functions or transactions that offset or cancel each other or that have other similar features; and
Arrangements that involve deductible cross-border payments made between two or more associated enterprises, where: (i) the recipient is resident for tax purposes in a jurisdiction that does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero; (ii) the payment is non-taxable or has a full exemption from tax in the jurisdiction where the recipient is resident for tax purposes; or (iii) the payment is subject to a preferential tax regime in the jurisdiction where the recipient is resident for tax purposes.
Intermediaries are granted a waiver from filing information on a reportable cross-border arrangement where the reporting obligation would breach the legal professional privilege under Austrian law unless the intermediary is released from the obligation to secrecy.
Brazil seeks to adhere to the G20 High-Level Principles on Beneficial Ownership Transparency to promote greater transparency of the beneficial ownership of legal entities. Pre-existing regulations from the Brazilian Central Bank mandated financial institutions to collect beneficial owner information as part of Know Your Customer (KYC) procedures related to anti-money laundering laws. However, regulations put into place in 2018 require active companies in Brazil to disclose their ultimate beneficial ownership to the Brazilian Federal Tax Authorities (RFB). This regulation and company information are most relevant to M&A transactions involving entities in Brazil.
All legal entities domiciled in Brazil are required to enroll with the National Register of Legal Entities (CNPJ). Certain non-domiciled entities must also be registered with CNPJ, including those with an ownership interest in a Brazilian entity or assets in Brazil, such as real estate, bank accounts, investments, or vehicles. Foreign entities engaged in specific activities in Brazil, like leasing and securities consulting, must also enroll with CNPJ.
Entities registered with CNPJ, both domestic and foreign, must report ultimate beneficial ownership to the RFB. Amendments to these reporting rules became effective on January 1, 2023.
Certain entities for which information is already publicly disclosed, such as Brazilian and foreign publicly listed companies, are exempt from reporting ultimate beneficial ownership, provided that such company is domiciled in a jurisdiction requiring public disclosure of relevant shareholders and is not a tax haven jurisdiction. Exemptions also apply to public companies, international organizations, central banks, and government entities.
Foreign collective investment vehicles with ownership interest in a Brazilian company must declare ultimate beneficial ownership unless exempted by these specific criteria:
(1) it is a collective investment whose number of investors, directly or indirectly, through other collective investment vehicles, is equal to or greater than 100 (one hundred), provided that none of them have significant influence, except for investment made in Brazil in a private equity fund;
(2) its portfolio management is carried out by a professional administrator registered with a regulatory entity recognized by the Securities and Exchange Commission of Brazil (CVM);
(3) it is subject to investor protection regulation of a regulatory entity recognized by the CVM; and
(4) it has a diversified asset portfolio, understood as one whose concentration of assets from a single issuer does not characterize the significant influence, except for investment made in Brazil in a private equity fund. Shareholders of funds domiciled abroad are also subject to reporting obligations.
The ultimate beneficial owner is defined as the “natural person who, directly or indirectly, owns, controls, or significantly influences the entity,” or a natural person “on whose behalf a transaction is conducted.”
A person is presumed to have significant influence over an entity if he owns more than twenty-five percent directly or indirectly of the entity’s capital stock or voting rights, or if he can, individually or collectively, prevail in corporate deliberations and in the election of the entity’s management. The characterization also extends to every natural person within the chain of ownership who meets the ultimate beneficial owner definition requirements.
For trusts, all relevant parties, including settlers, trustees, protectors, beneficiaries, and anyone exercising final effective control, must be identified as beneficial owners.
The following information for each beneficial owner must be provided to the RFB:
Full legal name;
Date of birth;
Nationality;
Country of residence.
Non-domiciled entities must provide corporate documents related to the incorporation of the company and its legal representation, as well as a copy of the passports of its legal representatives and ultimate beneficial owners.
Furthermore, they are required to present to the Brazilian tax authorities an organizational chart showing the corporate chain of the entity up to the ultimate beneficial owner level (or an exemption case). Such a chart needs to identify the name of each shareholder, its equity participation, tax identification number, and country of origin.
All foreign documents must be apostilled or legalized by a Brazilian consular representation if the document is from a country that is not a party to The Hague Apostille Convention.
As of January 1, 2023, entities must declare ultimate beneficial ownership to the RFB within 30 days of CNPJ registration, with a provision to extend the deadline by another thirty days. However, meeting this timeframe, particularly when presenting complex organizational charts, can pose challenges.
Normative Instruction 2119/2022 stipulates that failure to timely report ultimate beneficial ownership information or provide necessary documents results in the suspension of the CNPJ registration. This suspension blocks entities, whether domiciled in Brazil or abroad, from engaging in transactions with Brazilian banks, including using bank accounts, making investments, or taking loans.
Exceptions exist for operations necessary for returning investments to the country of origin and fulfilling obligations assumed before CNPJ suspension.
The rules for reporting beneficial ownership must be considered in M&A transactions that involve an acquisition target in Brazil, including when the acquisition of a Brazilian subsidiary of an international group is made indirectly through the acquisition of a parent company abroad. Adequate preparation for compliance with Brazilian regulations is needed to avoid possible disruptions in the business of the Brazilian entity.
China requires that any establishment of, change to, or cancellation of a company in China shall be registered with the State Administration for Market Regulation (SAMR) in accordance with the Regulation on the Administration of the Market Entity Registration (Entity Registration Regulation) and its implementing rules (Entity Registration Implementing Rules). The information that must be registered includes:
Entity name;
Entity type;
Entity’s scope of business;
Entity’s domicile or main place of business;
The entity’s registered capital or amount of capital contribution;
The name of the entity’s legal representative;
The names of shareholders of a limited liability company; and
The names of promoters of a joint stock limited company.
Furthermore, directors, supervisors, and senior managers of the company, as well as any “relevant information” regarding “beneficial ownership” of the company, must also be reported to the SAMR. Despite this requirement, the concept of a “beneficial owner” is not defined and guidance as to what “relevant information” should be disclosed for the “beneficial owner” is not specified. Relevant rules will be issued jointly by the People’s Bank of China (PBC) and SAMR.
After issuance of the Entity Registration Regulation and the Entity Registration Implementing Rules, neither SAMR nor PBC issued any additional guidance governing a “beneficial owner.” Therefore, certain best practices have emerged to identify “beneficial owners” in the absence of formal rules.
The concept of “beneficial owners” first appeared in Anti-Money Laundering Law in 2006, though no definition was provided therein. In 2017, the PBC published guidance on how to identify “beneficial owners” in the Notice of the People’s Bank of China on Strengthening the Identification of Anti-Money Laundering Customers (PBC 2017 Notice). In this PBC 2017 Notice, a beneficial owner of a company may be identified in the following order: (i) a natural person who directly or indirectly owns more than 25 percent of such company’s equity or voting rights; (ii) a natural person who controls the company through controlling company’s decision making, including without limitation, selecting board members, hiring and firing personnel, providing financing to the company; and (iii) any senior management personnel of such company which include “manager, vice manager, person responsible for financial matters, the board secretary of public companies and other personnel defined in the articles of association of the company.
If the senior management personnel of a company proves not to be the “beneficial owners” or there is doubt that such senior management is a beneficial owner, the bank should consider third parties in determining whether any natural person who actually “controls” or influences the decision making of the company.
If a beneficial owner is identified, the information of each beneficial owner of a company including name, nationality, place of residence, type of valid identity certificate, certificate number and expiration date should be disclosed. In 2018, the China Banking Regulatory Commission further clarified the channels for obtaining information relating to the “beneficial owner” or “actual controller” of a company, which includes, among other things, asking the company to disclose such information or the bank entrusting a third party to collect beneficial owner’s information. Since the information collection relates to the bank’s compliance with anti-money laundering laws and regulations, failure to cooperate with the bank may result in that bank’s refusal to establish a customer relationship with such entity or terminating the bank-customer relationship for existing customers.
In applying for a company registration, applicants are responsible for the authenticity, legality, and validity of the materials submitted. Applicants who submit false materials or conceal important facts will be ordered by SAMR to make corrections or will be subject to a fine of not less than RMB 50,000 but not more than RMB one million, depending on the seriousness of the situation. In addition to or in lieu of a fine, the company’s business license may be revoked. Any changes with respect to such registered items on file, including a change of the beneficial owner, require that an applicant apply for the change of registration and record it within 30 days from the date of making the resolution or decision on the change. Despite these requirements, there have not been any reported instances where registering a nominee shareholder as holding shares for the true shareholder has been deemed to be providing false material or concealing important facts.
We expect that SAMR and the PBC will issue further regulations governing the disclosure of beneficial owners of the company.
Across Europe, financial disclosure regimes tend to originate with multinational organizations rather than with national governments. The leading groups for such projects are the Organization for Economic Cooperation and Development (OECD) and the Council of the European Union (EU), which often work collaboratively, as their memberships, and their mandates overlap. In the past year, we have seen the fruits of this collaboration in two cross-border information disclosure and exchange regimes, both of which build on the OECD’s Common Reporting Standard (CRS).
The EU’s Mandatory Disclosure Rules on certain cross-border arrangements (referred to as DAC6), derive in pertinent part from the OECD’s Mandatory Disclosure Rules (the MDRs). The MDRs were developed to close off loopholes in CRS that had been routinely exploited since the disclosure regime’s inception. The novel facet of the MDRs was its focus on intermediaries: to wit, the advisors and other facilitators that recommended or in some way aided CRS avoidance. The direct targets for disclosure were, therefore, not the taxpayers themselves, but rather their lawyers, tax advisors, accountants, and fiduciaries. Accordingly, any transaction or arrangement that met one or more of the listed indicators of aggressive tax planning (referred to as “Hallmarks”) was subject to disclosure, and any parties who designed, promoted, or implemented the transaction or arrangement were potentially subject to disclosure as well.
The EU adopted the MDRs and expanded them significantly by amending Council Directive 2011/16/EU, its general legal framework for information exchange amongst EU Member States. Beyond CRS avoidance, the EU’s expansive DAC6 encompassed multiple areas of taxation where the domestic tax authorities of Member States saw a benefit from the disclosure of the advisors and facilitators of dubious transactions. Accordingly, the EU built a heterogenous intermediary reporting regime on top of the MDRs, adding new Hallmarks for tax shelter promotions (e.g., contingency pricing and confidentiality clauses), conventional cross-border income tax maneuvers (e.g., income character conversion, hybrid mismatches and related-party transactions) and transfer pricing.
The DAC6 regime entered into force in all EU countries as of January 1, 2021. Despite the broad sweep of DAC6, the reporting requirements implicated fewer transactions and arrangements than perhaps was expected. The reason may be that many Hallmarks are also subject to the Main Benefit Test, which queries whether a reasonable person would think that the tax benefit gained was a main motivation for the particular transaction or arrangement. The resultant wiggle room may have limited the number of parties needing to file reports. Unsurprisingly, perhaps, the perception of limited success for DAC6 in the EU has tempered the interests of other countries—especially financial centers in and outside of Europe—to adopt the OECD MDRs.
The challenges associated with one new-fangled disclosure regime—for intermediaries—did not deter OECD and EU efforts to collaborate simultaneously on another new-fangled disclosure regime, this one for crypto assets. Based in primary part and closely linked to CRS, the OECD’s Crypto-Asset Reporting Framework (CARF) seeks to compel the disclosure, reporting, and exchange of information on the beneficial owners of digital assets. Because digital assets may be stored outside of traditional custodial institutions, the methods deployed for CRS are inapposite to a crypto asset disclosure regime. To that end, CARF targets crypto exchanges as the backbone of the digital financial system. Crypto exchanges qualify as the core reporting parties under CARF, like banks and other Financial Institutions under CRS. Crypto exchange clients are the parties to be reported under CARF, like account holders under CRS. Crypto exchange transactions generate the financial information to be reported under CARF, like payments and account balances or values under CRS.
In tandem with the OECD’s development of the CARF regime, the EU proposed further amendments to 2011/16/EU, its general legal framework for information exchange amongst EU Member States. These amendments, referred to as “DAC8,” are designed to regulate the taxation of digital assets through similar mechanisms adopted by the OECD for CARF. The definition of reportable holdings is broad enough to include familiar cryptocurrencies, as well as stablecoins and e-money tokens and certain non-fungible tokens (NFTs). The aim of this sweeping definition is to identify any assets that can be used for payments and/or investments. In furtherance of this aim, the EU expressly encourages national governments of its Member States and any parties potentially subject to DAC8 reporting requirements to refer to CARF and the accompanying OECD commentaries for guidance.
The EU Parliament formally adopted DAC8 on September 18, 2023, and, accordingly, EU Member States must codify DAC8 into their national laws by December 31, 2025. As of 2026, qualifying crypto asset service providers in the EU will begin the process of information collection for reportable transactions of EU-resident customers to exchange with the competent authorities of the other Member States.
C. The MiCA Regime
Parallel to its efforts to regulate crypto assets via a cross-border information exchange regime like CARF, the EU also formally adopted a framework on markets in crypto assets (referred to as “MiCA”). MiCA aims to regulate the issuance of digital assets, including—notably—stablecoins. For purposes of MiCA, stablecoins encompass a range of tokens, from those referencing a single underlying fiat currency to those referencing a basket of fiat currencies and other asset classes. The EU-authorized issuers of qualifying digital assets must publish a “white paper” (i.e., a prospectus), disclosing key information on the asset and its issuer to any prospective buyers. MiCA will come into effect EU-wide on December 30, 2024.
A register of the ultimate beneficial owners (UBO), or rather the persons with significant control (PSC) over UK corporate entities (PSC register), was introduced in the United Kingdom (UK) under the Small Business, Enterprise, and Employment Act 2015 (SBEEA), which came into force in 2016
The European Union (EU) followed suit under Directive (EU) 2015/849 (the 4th AML Directive), which introduced the obligation for all the EU member states to create a register of the ultimate beneficial owners of their corporate entities (UBO registers). Originally, such registers were not publicly accessible until a new Directive (EU) 2018/843 (the 5th AML Directive) opened them up to any member of the general public.
The European Court of Justice (ECJ), in its decision of November 22, 2022, on the joined cases C-37/20 and C-601/20, declared that unrestricted public access to the UBO registers of companies is unlawful insofar as it breaches the fundamental right to privacy under Articles 7 and 8 of the EU Charter of Fundamental Rights.
As a result, and regardless of a few exceptions such as France and some Nordic countries, such UBO registers have gone off-line in most EU member states. New legislation is expected at the EU level to determine a harmonized approach to their access by people who can demonstrate a legitimate interest.
The situation is different in the UK. Since the institution of “Brexit” on January 30, 2020, the UK has officially left the EU, and as a consequence,, the ECJ decisions are no longer binding on its courts. As a preliminary note, it must be mentioned that there are other publicly accessible UBO registers in the UK in addition to the PSC register.
In particular, a Register of Overseas Entities was established under the Economic Crime (Transparency and Enforcement) Act 2022 as of September 5, 2022. It contains the beneficial ownership information of all overseas entities holding an interest in UK real estate. Its access is free and unrestricted in the same way as to the PSC Register.
A Register of Persons Holding a Controlling Interest in Land was also established in Scotland under the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlling Interest in Land) (Scotland) Regulations 2021. This register, which will come into being in 2024, will also be accessible to the general public.
The UK government updated a policy paper in 2023 stating that public access to these UBO registers is compatible with the European Convention on Human Rights. More precisely, the EU Charter of Fundamental Rights—which was the basis of the ECJ decision—is no longer part of UK law under section 5(4) of the European Union (Withdrawal) Act 2018. Nonetheless, the European Convention on Human Rights (ECHR) is part of UK law under the Human Rights Act 1998
Article 8 of Schedule 1 of the Human Rights Act reads as follows: “Everyone has the right to respect for his private and family life, his home, and his correspondence.” This is almost identical to Article 7 of the EU Charter of Fundamental Rights: “Everyone has the right to respect for his or her private and family life, home and communications.”
Article 8 of Schedule 1 to the Human Rights Act continues with a subsequent paragraph 8(2), which introduces a public interest exemption to the right to respect for private and family life insofar as:
There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.
The argument for the validity of public access to the UBO registers in the UK is that their interference with the right to privacy is supported by the legislation that created them, as is expressly contemplated by paragraph 8(2) above. A difference is earmarked between Article 7 of the EU Charter of Fundamental Rights, which consists of a single paragraph, and Article 8 of Schedule 1 to the Human Rights Act 1998, which includes a qualification to the right to privacy under paragraph 8(2).
In actuality, a provision substantially equivalent to paragraph 8(2) above exists also under the EU Charter of Fundamental Rights. It is Article 52(1) which introduces the principle of proportionality:
Any limitation on the exercise of the rights and freedoms recognised by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others.
The ECJ, in its decision of November 22, 2022, analyzed in some detail the compatibility of unrestricted public access to the UBO registers with this principle of proportionality and concluded that it is not compatible. As a result, the provision granting access to any member of the general public under the 5th AML Directive was struck out as invalid.
The UK government did not provide any robust justification to its contention that such an invasion of privacy as public access to the UBO registers is indeed “necessary in a democratic society” as prescribed under paragraph 8(2) of Schedule 1 to the Human Rights Act 1998. A court decision may have to expressly clarify this aspect, and it is not impossible that a UK court might engage in reasoning similar to that of the ECJ in its November 2022 decision and yield the same result.
Incidentally, a case about the breach of the right to privacy under the ECHR might, in fact, be brought before the European Court of Human Rights in Strasbourg, which is the ultimate arbiter of any issues relating to the ECHR. The ECJ decisions are not binding on the Strasbourg court, but they may be regarded as even more persuasive than a decision by a UK court. A breach of the fundamental right to privacy should, therefore, be sanctioned under this data protection legislation as well.
Finally, the ECJ decision of November 22, 2022, was also based on Regulation (EU) 2016/679 (the General Data Protection Regulation or GDPR). A modified and more restrictive version of the GDPR was implemented in the UK after Brexit pursuant to the Data Protection, Privacy and Electronic Communications (Amendments, etc.) (EU Exit) Regulations 2019/419. Nonetheless, absent a court order to the contrary, such registers are here to stay, and anybody can easily learn the UBOs of any UK corporation with no legal protections against abuse.
In the United States, the Corporate Transparency Act (the CTA) became effective on January 1, 2024. The CTA requires certain entities, referred to as “reporting companies,” to disclose the identity of their beneficial owners to the U.S. Financial Crimes Enforcement Network (FinCEN). The beneficial ownership information (BOI) will be compiled into a database available to certain federal, state, and non-U.S. law enforcement agencies, the Treasury Department (including the Internal Revenue Service), and certain financial institutions subject to customer due diligence requirements. According to FinCEN, the CTA will require 32.6 million entities to submit BOI reports in 2024, the CTA’s first year of applicability.
According to the U.S. Congress, the CTA is needed to combat “money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.” BOI reporting under the CTA will join Foreign Bank and Financial Accounts (FBAR) reporting and Foreign Account Tax Compliance Act (FATCA) as tools to unmask persons who use sophisticated legal structures to conceal their activities from U.S. tax authorities and law enforcement.
The CTA requires each reporting company to report its BOI to FinCEN. Under the CTA, a reporting company is any corporation, LLC, or similar entity that is created in a U.S. State or Indian Tribe or that is formed under the law of a non-U.S. country and is registered to do business in the United States. The regulations provide twenty-four exceptions to this definition, including for public companies, governmental entities, banks and certain other financial entities, and certain large operating entities.
The BOI that must be reported includes identifying details about the entity and information about each “beneficial owner.” For this purpose, a beneficial owner is an individual who directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls twenty-five percent or more of the entity’s ownership interests. The statute includes exceptions for minors, nominees and other types of agents, employees, individuals who expect to inherit an interest in the entity, and creditors.
Any person who willfully fails to provide BOI or who willfully provides or attempts to provide false or fraudulent BOI may be subject to a civil penalty of $500 per day while the violation continues and a criminal penalty of up to $10,000 or up to two years of imprisonment. The CTA provides penalty relief for a person who corrects an incorrect BOI report within ninety days of submitting the incorrect BOI report.
As noted above, the CTA became effective on January 1, 2024. On the effective date, reporting companies will have to file BOI reports on the following timetable:
A U.S. reporting company created on or after January 1, 2024, and before January 1, 2025, must file a BOI report within ninety calendar days of the effective date of its creation;
A U.S. reporting company created on or after January 1, 2025, must file a BOI report within thirty calendar days of the effective date of its creation;
An entity that becomes a non-U.S. reporting company on or after January 1, 2024, and before January 1, 2025, must file a BOI report within ninety calendar days of the effective date of its registration to do business in the United States;
An entity that becomes a non-U.S. reporting company on or after January 1, 2025, must file a BOI report within thirty calendar days of the effective date of its registration to do business in the United States;
A U.S. reporting company created before January 1, 2024, and an entity that became a non-U.S. reporting company before January 1, 2024, must file a BOI report by January 1, 2025;
An entity that loses an exemption from BOI reporting must file a BOI report within 30 calendar days after the date of the loss.
For the purpose of these rules, the effective date of a reporting company’s creation or registration to do business is the earlier of (i) the date on which the reporting company receives actual notice that its creation or registration has become effective or (ii) the date on which a secretary of state or similar office first provides public notice that the reporting company has been created or been registered to do business.
In the context of M&A transactions, the CTA creates two new clusters of issues. First, the structures used to acquire target companies often involve multiple tiers of entities and are specifically structured to provide anonymity for the ultimate owners of the contracting parties. Moreover, because of these structures, it may be difficult for the contracting parties to obtain the information needed to provide BOI reports. In the absence of more guidance from FinCEN, the CTA will increase the inherent compliance risks of using entities in acquisitions.
Second, the target companies will have compliance obligations under the CTA and will be subject to penalties in the case of non-compliance. In particular, the $500-a-day civil penalty is not subject to a maximum, and there is no guidance on situations where compliance is impossible. Will this penalty accrue indefinitely where compliance is impossible? Buyers will be well-advised to seek representations and indemnities to protect against a target’s potential CTA liability.
Christie Galinski and Jeffrey Golds are editors. Paolo Panico (author of the United Kingdom section); Heath Martin (author of the U.S. section); Paul Millen (author of the E.U. section); Dr. Niklas J.R.M. Schmidt (author of the Austria section); Marcio Sperling (author of the Brazil section; and Yanping Wang (author of the China section).
