Peer Review Report Phase 1 Legal and Regulatory Framework: Montserrat

GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES
Peer Review Report Phase 1 Legal and Regulatory Framework

MONTSERRAT
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Montserrat 2012
PHASE 1
June 2012 (reflecting the legal and regulatory framework as at March 2012)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Montserrat 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264178205-en
ISBN 978-92-64-17819-9 (print) ISBN 978-92-64-17820-5 (PDF)
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
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OECD 2012
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Information and methodology used for the peer review of Montserrat . . . . . . . . . 9 Overview of Montserrat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 38 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 44 C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 47 48 54 55 57 58
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK MONTSERRAT OECD 2012
4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 61 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 65 Annex 2: List of Montserrat Exchange-Of-Information Mechanisms . . . . . . . 68 Annex 3: List of Laws, Regulations and Other Material . . . . . . . . . . . . . . . . . . 69
ABOUT THE GLOBAL FORUM 5
About the Global Forum

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. The standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest. All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 and Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once adopted by the Global Forum. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org-tax/transparency and www.eoi-tax.org.
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in Montserrat. The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain access to that information, and in turn, whether that information can be effectively exchanged on a timely basis with its exchange of information partners. 2. Montserrat is an Overseas Territory of the United Kingdom situated in the Lesser Antilles in the Southern part of the Caribbean. Montserrat only has approximately 5 000 inhabitants and is still recovering from severe volcanic eruptions in the 1990s that destroyed the capital, airport and seaport, and left 60% of the territory in an exclusion zone. Montserrat has some financial activities, including an infrastructure for offshore activities, even though this activity is not well developed. The Government of Montserrat committed to respect the principles of transparency and exchange of information on 27 February 2002 and has been involved with the Global Forum since that time. 3. In respect of ownership and identity information, Montserrats laws generally provide for the effective retention and maintenance of identity and ownership information for most companies and partnerships, in line with the terms of reference. There are however exceptions in the case of foreign entities for which no ownership information must be maintained, and in the case of trusts, for which ownership and identity information on beneficiaries is only required where there is a higher level of AML risk. The distinction made between members that must be registered and shareholders that can be unknown to the company management is also an issue that should be followed up. As to bank information, the anti-money laundering rules generally impose appropriate obligations to ensure the maintenance of relevant records. 4. The obligations imposed in respect of accounting information are generally not in line with the Terms of Reference. Montserrats laws do not provide for adequate records in respect of accounts in all cases. In addition, Montserrats laws do not provide for the keeping of underlying documentation.
8 EXECUTIVE SUMMARY
Finally, only entities subject to the record keeping obligations of the tax law must retain their books of accounts for a minimum of 7 years. 5. In respect of access to information, Montserrats competent authority is invested with broad access powers to gather relevant information for exchange of information purposes under the Tax Information Exchange Act, 2010. These powers are exercised primarily by issuing notices to require the production of relevant information and are complemented by powers, which are overseen by a court, to search premises and seize information as well as to compel oral testimony. Secrecy provisions in domestic laws are overridden where information is required for EOI purposes, and a domestic tax interest requirement is excluded. 6. Montserrat committed to the standard of transparency and exchange of information for tax purposes in 2002, and its network of agreements started to develop in 2009. To date Montserrat has signed 13 arrangements, of which 8 are in force and 5 others have been ratified by Montserrat. 7. Montserrats response to the recommendations in this report, as well as the application of the legal framework to the practices of its competent authority will be considered in detail in the Phase 2 Peer Review of Montserrat, which is scheduled for the second half of 2013. In the meantime, a follow up report on the steps undertaken by Montserrat to answer the recommendations made in this report should be provided to the PRG within six months of the adoption of this report.
INTRODUCTION 9
Introduction
Information and methodology used for the peer review of Montserrat

8. The assessment of the legal and regulatory framework of Montserrat was based on the international standards for transparency and exchange of information as described in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information For Tax Purposes, and was prepared using the Global Forums Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on the laws, regulations, and exchange of information mechanisms in force or effect as of March 2012, Montserrats responses to the Phase 1 questionnaire and supplementary questions, other materials supplied by Montserrat, and information supplied by partner jurisdictions. 9. The Terms of Reference break down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information, (B) access to information, and (C) exchange of information. This review assesses Montserrats legal and regulatory framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made that either: (i) the element is in place, (ii) the element is in place but certain aspects of the legal implementation of the element need improvement, or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. A summary of findings against those elements is set out on pages 61-63 of this report. 10. The assessment was conducted by an assessment team, which consisted of three expert assessors and two representatives of the Global Forum Secretariat: Mr. Rob Gray, Director of Income Tax, Guernsey; Messrs. Ioannis Anastasiou and Iossif Fovakis, Tax Officials of the Ministry of Finance of Greece; Ms. Gwenalle Le Coustumer and Mr. Bernd Person from the Global Forum Secretariat.
10 INTRODUCTION
Overview of Montserrat
11. Montserrat is a Caribbean island of 40 square miles (102 square km) and has a population of currently around 5 000 inhabitants. Montserrat is part of the Overseas Territories of the United Kingdom. It is also a member of the Organisation of Eastern Caribbean States (OECS), with seven other members with which it shares its currency the East Caribbean dollar (XCD) pegged to the United States dollar (XCD 2.70 for USD 1). 12. Severe volcanic activity, which began in July 1995, has had a strong negative impact on Montserrats demography and economy. A catastrophic eruption in June 1997 destroyed the capital, as well as the airport and seaport. Two-thirds of the 12 000 inhabitants fled the island and the capital city had to be relocated to other parts of the island. Today, the volcano remains intermittently active and a new capital and seaport are planned. With 60% of the territory in an exclusion zone, the agriculture sector is affected by the lack of suitable land for farming. 13. The need to rebuild the economy is explained by the fact that the economy of Montserrat is dominated by public sector led investments and projects. Government services represent 36% of the GDP of Montserrat, followed by the financial sector (15.8% of the GDP) and the construction sector (12.8%). Further, Montserrat has been active in promoting tourism. The mining of volcanic sands is the main export industry of Montserrat. The islands exports also include electronic components, plastic bags, apparel, hot peppers, limes, live plants, cattle, bottled water, honey and soap products manufactured as by products of the volcanic eruption, but exports are limited by transport and access problems. Despite these efforts to diversify the economy, the economy has not recovered from the dramatic impact of the volcanic eruption, and the contribution of the UK Department for International Development still represented 54% of the budget of Montserrat in 2011. The European Union also provided grants to Montserrat. The projected GDP for 2011 is XCD 156 million (USD 57.8 million). The proportion of financing from the UK is expected to progressively decline in future years as Montserrat makes progress on initiatives to restore self sufficiency. 1
Legal System
14. Montserrat is a British Overseas Territory with a large measure of internal self-government, particularly since the entry into force of the new Constitution in 2011. Montserrats Head of State is Queen Elizabeth II. The Constitution establishes the offices of Governor, who is appointed by the
1. Caricom statistics; US Central Intelligence Agency, The World Fact Book; IMF Public Information Notice, December 2011.
INTRODUCTION 11
Queen and is Her representative in Montserrat, and Deputy Governor, who must be a Montserratian. The Governor has certain responsibilities which include oversight for external affairs, defence, internal security, the administration of the Courts, the financial services sector, elections and disaster management. The Governor heads the Executive Council, which includes the Chief Minister, the Financial Secretary, the Attorney-General and three Ministers. The Constitution establishes enforceable fundamental rights and freedoms of the individual closely based on those in the European Convention on Human Rights. A number of laws have been amended or replaced to align them with the new Constitution. 15. Montserrat has a unicameral Legislative Council of 11 seats. Nine members are elected by direct popular vote for a five year term; the Attorney General and financial secretary sit as ex-officio members. 16. Montserrat has a legal system based on UK common law. The judicial system comprises the Magistrates court, the High Court, and the Eastern Caribbean Supreme Court of Appeal with the ultimate right of appeal to the Judicial Committee of the Privy Council in the United Kingdom.
Taxes
17. The majority of Montserrats tax revenue comes from indirect taxation which includes consumption tax, import duty, stamp tax and hotel and guest tax. Direct taxes are levied on corporate income, business income and the income of resident and non-resident individuals. Residents of Montserrat are taxed on their personal income while non-residents are subject to a withholding tax on certain payments of Montserrat source income. The tax revenues of Montserrat, as the economy, have suffered from the volcanic eruptions of the 1990s, and Montserrats budget is subsidised by substantial contributions made by the UK government and EU grants. 18. Montserrat residents are taxed on their world-wide income (subject to the application of a DTC and considering the Commonwealth tax relief). Since 1999 Montserrat has adjusted the tax rates of income tax for tax years commencing on or after 1 January 2005 and 1 January 2012. Montserrat has reduced the tax rates overall, but especially in relation to those on lower incomes. Currently progressive tax rates scale from 5 to 40%. 2
2.
Income and Corporation Tax (Amendment) Bill) 2011, Schedule 2 (section 36).
12 INTRODUCTION
Commercial laws and financial sector

19. As noted above, the legal system of Montserrat is based on the British legal system (English common law) and statute law. The commercial entities can be classified as companies and partnerships. Montserrat also recognises trusts. 20. Montserrat has the smallest financial sector of the United Kingdom overseas territories. In spite of this, there are different types of financial institutions licensed or registered to carry out business in Montserrat, including international business. 21. The volcanic eruptions effectively suspended the financial sector activities and supervision. The whole supervisory process resumed with the creation of the Financial Services Commission in 2001. The FSC then put in place supervisory arrangements for the offshore business sector. Today, financial service providers include domestic banks, international banks, trust companies, insurance companies, mutual funds, corporate service providers, company managers, international business companies, and money transmitter services. Whereas 15 offshore banks were operating in 2000, only 4 international banks remain in 2012. The total assets deposited in international banks amounted to around USD 900 million in 2011. 22. There are two domestic banks licensed under the Banking Act (BA) to conduct domestic and international banking with residents and nonresidents. One is an indigenous bank (Bank of Montserrat) and the other is a branch of a Canadian group (Royal Bank of Canada). The total assets deposited in domestic banks amounted to around USD 400 million in 2011.
International exchange of information for tax purposes

23. The Government of Montserrat committed to respect the principles of transparency and exchange of information on 27 February 2002 and has been involved with the Global Forum since that time. Montserrat, under the terms of its Entrustment from the United Kingdom, has the right to negotiate, conclude and perform tax information exchange agreements with specific jurisdictions. As a result, Montserrat has EOI arrangements with 13 jurisdictions to date.
Recent developments
24. The most recent development relating to the transparency of relevant entities is the entry into force on 1 January 2012 of the Income and Corporation Tax (Amendment) Act 2011 which includes an obligation to retain accounting records for a period of seven years.
INTRODUCTION 13
25. As concerns exchange of information, Montserrats network of EOI instruments is rather recent, since most of its TIEAs have been signed in 2010 and Montserrat notified 10 partners of completion of its internal procedure for entry into force in September 2011.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 15
Compliance with the Standards
A. Availability of information
Overview
26. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report describes and assesses Montserrats legal and regulatory framework on availability of information. 27. In respect of ownership and identity information, Montserrats laws generally provide for the effective retention and maintenance of identity and ownership information for companies and partnerships, in line with the terms of reference, and penalties are generally available to enforce these obligations. Two issues arose in relation to companies. First, the Companies Act differentiates between shareholders and members, the difference being that only the latter are registered with the company, and Montserrat should ensure that full ownership information on Montserratian companies is available, whether the owner is qualified as member or shareholder. Second, Companies incorporated outside Montserrat but with a place of effective management in Montserrat (and thus tax residents there) are not expressly required to keep ownership information. Finally, the duty to retain ownership and identity
16 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

information on trusts derives from the AML laws, but information on beneficiaries is only required in cases of a higher level of risk. As a result, element A.1 is found to be in place, but in need of improvement. 28. The obligations imposed in respect of accounting information are generally not in line with the Terms of Reference and therefore element A.2 is not in place. Montserrats laws do not provide for adequate records in respect of accounts in all cases, specifically for LLCs. In addition, Montserrats laws do not provide for the retention of underlying documentation or retention of documents for a minimum of 5 years for any entity. Therefore, this report recommends that Montserrat amend its laws to comply with the international standard in this regard. 29. Banks are covered institutions for anti-money laundering purposes and therefore required to keep adequate records and related financial and transactional information in line with the Terms of Reference. Element A.3 is considered to be in place.
A.1. Ownership and identity information

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.
30. The relevant entities in Montserrat are companies (ToR A.1.1), some of which may issue bearer shares (ToR A.1.2), partnerships (Tor A.1.3), trusts (ToR A.1.4) and foundations (ToR A.1.5).
Companies (ToR 3 A.1.1) Type of Companies in Montserrat

31. Companies may be classified as ordinary (domestic), external (foreign) or international companies. The laws of Montserrat also provide for limited liability companies. As of March 2012, there were 332 ordinary companies, 34 external companies, 10 IBCs and 3 LLCs registered in Montserrat.
Ordinary Companies
32. Companies in Montserrat are statutorily regulated by the Companies Act. Companies can issue shares and may be either private or public. The shareholders are not liable for any liability, act or default of the company (Companies Act, s. 56). Companies without share capital (or non-profit companies) can also
3. Terms of Reference to Monitor and Review Progress towards Transparency and Exchange of Information.
be incorporated subject to the approval of the Governor. In order to carry on a business, a company can conduct its affairs and exercise its powers anywhere, including in any jurisdiction outside Montserrat (to the extent the laws of Montserrat and of the other jurisdiction permit) but should have a registered office in Montserrat (ss. 17 and 175).
External (foreign) Companies

33. External companies can also carry on business within Montserrat, where the business (i) is regularly transacted from an office in Montserrat established or used for that purpose, (ii) establishes or uses a share transfer or share registration office, or (iii) if the company owns, possesses or uses assets situated in Montserrat for business purposes (Companies Act, ss. 338 and 543). The notion of external company is defined as covering a firm or other body of persons formed under the laws of a jurisdiction other than Montserrat. This therefore includes foreign companies and partnerships. Based on UK case law, external companies are considered as tax residents in practice where their place of effective management and control is in Montserrat. The Montserratian authorities indicate that these foreign entities are usually international banks and insurance companies carrying on business within Montserrat and which tend to be public limited liability companies, whose shares are listed on a foreign stock exchange.
International Business Companies (IBC)

34. IBCs were introduced by the International Business Companies Act in 1986. An IBC is formed under the IBC Act and is not permitted to carry on business activities with persons resident in Montserrat, nor can it own an interest in real property in Montserrat other than a lease for use as an office (in particular it may not accept banking deposits and contracts of insurance from persons resident in Montserrat). However, an IBC can maintain professional contact with service providers in Montserrat, prepare and maintain books and records within Montserrat, and hold shares, debt obligations or other securities in another IBC or an ordinary company incorporated under the Companies Act (s. 5). 35. An IBC is exempt from all the provisions of the Income Tax Act, the Exchange Control Act, the Foreign Currency Levy Act and the Stamp Act for 25 years from the date of its formation (Income and Corporation Tax Act, s. 12 and IBC Act, s. 111). In addition, all dividends, interest, rents, royalties, compensations and other amounts paid by an IBC to persons who are not resident in Montserrat, and capital gains realised by such persons in respect of the sale of shares of an IBC, are similarly exempted (Income and Corporation Tax Act, s. 12 and IBC Act, s. 111).
Limited Liability Companies (LLC)

36. LLCs are formed and governed under the Limited Liability Company Act, and can carry on any business, purpose or activity that is not prohibited by the laws of Montserrat. An LLC provides for the exclusion of any personal liability for managers and members regarding the debts, obligations and liability of the entity, including towards third parties (s. 22). Members can contribute to the LLC in cash, property or services rendered (or a promissory note to do so, s. 33). An LLC which does no business in Montserrat is exempt from any corporate tax, income tax, withholding tax or other like taxes based on income originating outside Montserrat; dividends or distributions to nonresidents are equally exempt from taxes in Montserrat (s. 71).
Ownership information held by government authorities

37. Companies in Montserrat must provide some ownership and identity information to governmental authorities in a variety of circumstances, particularly in the context of registration (and must maintain ownership information themselves, see below).
Ordinary Companies
38. All ordinary companies must at all times have a registered office in Montserrat (Companies Act, s. 175) and be registered with the Registrar of Companies. They must give the Registrar notice of the registered address and set out the names of every incorporator, and, if any, the classes and any maximum number of shares the company is authorised to issue (ss. 4 and 5). Ordinary companies must file an annual return, which includes the names, addresses and number of shares of the members (s. 194 and Form 24A scheduled to the act). 39. The Register of Companies contains the name of all companies that are incorporated or registered under the Companies Act and have not subsequently been struck off (s. 494), and anyone can examine any document required to be sent to the Registrar, upon payment of a fee (s. 495). The Registrar needs not produce any document after six years from the date it received it (s. 507). 40. The tax administration does not maintain similar information on companies. Every person (including a body of persons) who receives income (including overseas income) must deliver to the Comptroller of Inland Revenue an annual return of the whole of his/her income from every source whatever for the basic year (Income and Corporation Tax Act, s. 51). However the annual tax return does not require companies to disclose their ownership structure.
External (Foreign) Companies

41. External companies (and partnerships) must also register with the Registrar of Companies to carry on business in Montserrat (Companies Act, ss. 340-341). The application must indicate the companys name, the jurisdiction within which it is incorporated, the particulars of its corporate instruments, the address of its registered or head office outside Montserrat, the address of the principal office in Montserrat and all names, addresses and occupations of the directors of the company (s. 344). External companies are not required to disclose their ownership structure as part of this registration process, when it is not part of their corporate instruments. The Montserratian authorities confirm that the company annual return likewise does not require companies to provide details of shareholders. Only external companies that perform financial activities like banks and insurance companies, have to disclose their ownership structure to the regulator. To address this deficiency the authorities will make recommendations to Cabinet to amend the respective legislations to require ownership information to be submitted at registration and to be included in the annual report a requirement under the Companies Act.

42. An IBC must be registered with the Registrar of Offshore Companies, and submit thereto its Memorandum and Articles of Association (ss. 12-14). The Memorandum must in particular indicate the capital of the entity, whether the issued shares are registered or bearer shares, and its registered office and licensed registered agent in Montserrat. It must be signed by the subscriber(s) of the IBC and any amendment to the Memorandum must be sent to the Registrar (s. 16). It does not appear that the registration documents include information on the respective shares of each shareholder; however, this information is maintained by the company itself (see below). IBCs created less than 25 years ago do not fill in an annual tax return, as they are exempt from the application of the Income and Corporation Tax Act.

43. An LLC is formed by filing articles of formation with the Registrar of Companies. The application must contain: the name, purpose and duration of the LLC; the address of the registered office in Montserrat and the name and address of its agent there; and the names and addresses of the members and, if any, of the manager chosen and vested by the members (LLC Act, ss. 7 and 28). It does not appear that the registration documents include information on the shares/interest of each incorporator of the LLC. Similarly, the law does not require that the Registrar receives information on subsequent members. Ownership information is maintained by the company itself (see below).
Information held by the companies Ordinary Companies

44. An ordinary company must maintain a register of all relevant data on all members, including their name and latest known address, the date of entering or ceasing to be a member in the company, and a statement of the shares held by each member (Companies Act, ss. 177(1) and 177(2)). An ordinary company that grants conversion privileges, options or rights to acquire shares of the company must also maintain a register showing the name and latest known address of each person to whom such rights have been granted (s. 177(6)). 45. Not all shareholders are members of the company. Section 371 of the Companies Act defines members as an incorporator of the company and any other person who agrees to become a member of the company and whose name is entered in the companys register of members. Shareholders who are not members of the company are persons in whose favour a transfer of shares has been executed but whose names have not been entered in the register of members of the company (s. 105(1)). A company is not bound or entitled to recognise these transferees until the transfer is registered (s. 195(6), except for the determination of beneficial ownership). However, this provision appears to be targeted at relieving the company of any liability that results from treating the transferor of an unregistered transfer as the current shareholder and is difficult to be read as creating an obligation to register the transfer. Montserrat should clarify this position. 46. In addition to the register of members, public companies must keep a register of their substantial shareholders (s. 177(4) in conjunction with ss. 181 to 185). A person has a substantial shareholding if he/she holds by him/herself or by his/her nominee shares which entitle him/her to exercise at least 10% of the unrestricted voting rights at any general meeting of shareholders. Every substantial shareholder has the duty to inform the company of his/her name and address and must provide all particulars of the shares held by him/her or his/her nominee (naming the nominee) within 14 days after that person becomes aware that he/she is a substantial shareholder or ceased to be so (s. 181(1)). Failure to give such notice to the company is an offence (s. 185). The Registrar of Companies can at any time require the company to furnish a copy of this register (s. 181(2)). The registers may be kept at the registered office or some other designated place in Montserrat (s. 177(7)). In conclusion, ownership information maintained by the company does not include all the persons who are entitled to receive dividends without being members. However, given that companies must indicate the name of their shareholders in their annual return to the Registrar, they must in practice keep such information.
External (foreign) companies

47. There is no obligation for external companies to maintain ownership information in Montserrat.

48. An IBC must maintain one or more share register(s), a copy of which is kept at its registered office, showing the name and addresses of the persons who hold registered shares in the company, specifying the number of each class and series of registered shares held by each person, the dates on which a person entered into the share register and ceases to be a member (IBC Act, s. 28(1)). 49. The transfer of registered shares is usually done by written instrument signed by the transferor and containing the name and address of the transferee, who will be treated as a member once his/her name is entered in the share register. In the absence of a written instrument of transfer, the director of the IBC may accept such evidence of a transfer as they consider appropriate (s. 30).

50. An LLC must maintain a list of the name, last known business activity, residence or mailing address of each member, holder of an economic interest and manager, and keep the records for five years (LLC Act 2010, ss. 24(1) and 24A). The admission as member must be performed in accordance with the LLC agreement or otherwise upon the consent of all members. If the members do not consent to the transfer of interest (called assignment of interest), the assignment remains valid (and must be registered) but the assignee/holder of an economic interest has no right to participate in the management of the business of the LLC; although he/she is entitled to share in the profits and losses therein (s. 45).
Ownership Information held by nominees and service providers

51. Persons acting as registered agents for IBCs or acting as director, manager or officer or nominee shareholders of domestic companies and foreign companies must be licensed under the Company Management Act. Further, pursuant to the AML Regulations persons carrying on a regulated business or who by way of business provide services such as acting as a secretary of a company, or providing a registered office are considered as service providers.

52. Any person acting as a service provider by way of business or who holds a licence under the Company Management Act is subject to the AML Regulations, 2010 including customer due diligence measures. A person who performs the mentioned businesses without a licence is liable to a fine not exceeding XCD 25 000 (USD 9 260) and/or to imprisonment up to one year. 53. A service provider (including a nominee) must apply customer due diligence measures before it establishes a business relationship or carries out an occasional transaction. The measures must also be applied to existing customers on a risk assessment basis: the service provider must obtain identification information when there is a change in the identification information of a customer, beneficial ownership of a customer, or third parties for whom the customer is acting (AML/CFT Regulations, s. 5). A contravention of this obligation entails liability to a fine up to XCD 100 000 (USD 37 037). Records must be kept of the identity information obtained and supporting documents for 5 years (ss. 13 and 14). The Dictionary under Schedule 1 to the Regulations clarifies that beneficial owner includes an individual who is an ultimate beneficial owner of the legal person, partnership or arrangement (including trust) as well as an individual who exercises ultimate control over the management of the legal person, partnership or arrangement, whether alone or jointly with any other person(s). 54. The AML/CFT Code provides rules for the implementation of the Regulations and specifies that when the customer, the identity of which must be verified, is a legal entity, the service provider must obtain the name and date of incorporation of the entity, any official identifying number, name and address of the registered agent (if any), mailing address and principal place of business of the entity, and identification of the individuals who are the ultimate holders of 20% of the entity (unless the entity presents a low AML/ CFT risk) (rules 16 to 18).
Bearer shares (ToR A.1.2)

55. A bearer share is a share in the capital of a company represented by a certificate that does not record the owners name and which is transferable by the mere delivery of the certificate. Where a jurisdiction permits the issuance of bearer shares, it should have appropriate mechanisms in place that allow the owners of such shares to be identified. One possibility among others is a custodial arrangement with a recognised custodian or other similar arrangement to immobilise such shares. 56. In Montserrat, ordinary companies are expressly not permitted to issue bearer shares or bearer share certificates (Companies Act, s. 29(2)). On the other hand, IBCs can issue bearer shares, but since 2002 these shares must be immobilised. The law amending the IBC Act to insert provisions on
the immobilisation of bearer shares prescribed that IBCs had to ensure that their bearer shares were deposited with a custodian within 12 months of the entry into force of the amending law (or 24 months with the FSC approval). Remaining bearer shares became null and void thereafter, unless restored by the Court in the next three years (IBC Act, s. 37B), i.e. at the latest in 2008. The Memorandum of Association of an IBC must indicate the number of initial bearer shares (s. 12) and the share register(s) of the IBC must specify the total number of each class and series of bearer shares and, for each certificate, its identifying number, its date of issuance, and the name of its custodian (s. 28(1)). In practice, eight IBCs are permitted to issue bearer shares. 57. Since 2002, bearer shares can only be issued to a custodian licensed by the FSC to this effect, and who must also be licensed either under the Company Management Act or the Banking Act (IBC Act, s. 37A). As of March 2012, three entities are licensed to act as custodians of bearer shares in Montserrat. The FSC may issue a licence when satisfied that the applicant is a fit and proper person and is qualified to carry on the business of company manager (Company Management Act, s. 5). There is no specific requirement that a licensee must be a resident of Montserrat, however, the Company Management Act contemplates that the licensee is conducting business in Montserrat (Company Management Act, s. 4). 58. The transfer of bearer shares can only occur between custodians, unless the shares are to be redeemed by the company or converted into registered shares, and a person that holds a beneficial interest in those bearer shares cannot transfer or deal in the interest in those shares without the approval of the custodian (s. 37(A)(4)). If bearer shares were delivered to persons other than a licensed custodian, the recipient of the bearer shares would have to forward the shares to a custodian within 60 days, or the shares would be null and void. 59. Where there is a change of custodian (s. 38(B)(6) and (7)) the custodian is obliged to inform the beneficial owners of the bearer shares when he/ she is unable to act as custodian. 60. A breach of these rules constitutes an offence. A company that issues bearer shares to a non-custodian, as well as every responsible director and officer, is liable to a fine of USD 10 000. The custodian who contravenes the rules is liable to a fine of USD 25 000 and the shareholder to a fine of USD 10 000 (s. 37A). 61. Finally, as any person licensed under the Company Management Act or the Banking Act, a custodian is a service provider subject to the AML/CFT rules, and must apply customer due diligence measures. Consequently, there is a requirement to identify and maintain information on the person on whose behalf they hold the bearer share (see discussion above regarding nominees).

62. Bearer shares must always be held by licensed custodians in Montserrat. The company that has issued the bearer share is required to maintain in its share register the identity of the custodian of the share. The custodian is subject to AML customer due diligence rules and so is required to know the identity of the person on whose behalf it is holding the share. Consequently, information on the owners of bearer shares will be known.
Partnerships (ToR A.1.3)

63. Partnerships in Montserrat can be either general or limited: A General Partnership is defined as the relationship which subsists between several persons carrying on a business in common with a view to profit. These entities are governed by the Partnership Act, supplemented by the rules of equity and common law, unless the entity is registered or incorporated under another act, such as the Companies Act (Partnership Act, s. 3). All partners are jointly liable for all debts and obligations of the general partnership, and are jointly and severally liable for any wrongdoing (ss. 11-14). The general partnership is the simplest form of entity: it can (but has no obligation to) be created by a deed. A Limited Partnership (LP) is defined as an entity comprised of one or more general partners who are liable for all debts and obligations of the partnership, and one or more limited partners who made a capital or property contribution at the time of entering the partnership and who are not liable for any debts or obligations of the entity, but cannot take part in the management of the LP (Limited Partnership Act, ss. 4 and 6). Partners (general or limited) of an LP can be individuals and legal entities, including foreign ones, but at least one general partner must be resident in Montserrat (or, if a company, be incorporated or registered under the Companies Act; s. 4). An LP must have a registered office in Montserrat (s. 5A(1)). LPs are governed by the Limited Partnership Act, supplemented by the Partnership Act and the rules of equity and common law (s. 3). 64. A general partnership or limited partnership that carries on trade or business cannot have more than 20 members. Above this threshold, the entity must be incorporated as a company under the Companies Act (Companies Act, s.3). 65. The Montserratian authorities indicate that as of March 2012 there is no record of any entities registered under the Limited Partnerships Act. General partnerships are registered under the Registration of Business Names Act. However, they are not categorised as partnerships in the Register of Business Names and set apart from sole traders. Therefore it not possible to indicate how many partnerships exist in Montserrat. Foreign partnerships can
also carry on activities in Montserrat, in which case they are covered by the concept of external company (see Companies above).
Ownership and identity information held by the public authorities

66. Ownership and identity information on general and limited partnerships is held by the tax authorities of Montserrat, and to a lesser extent, by the Registrar of the High Court (for general partnerships) and the Registrar of Companies (for limited partnerships). 67. General and limited partnerships are not subject to tax under the Income and Corporation Tax Act partners are but they nonetheless must submit a return of their income to the tax administration of Montserrat. This annual return includes the names and addresses of the general and limited partners in the firm together with the amount of the share of the income to which each partner was entitled for that year (s. 24). In addition, the partners must also each declare their respective share of the income of the partnership in their own return of income (s. 24). Where no partner is resident in Montserrat, the return must be made and delivered by the attorney, agent, manager or factor of the firm resident in Montserrat. The tax administration therefore maintains full ownership information. 68. An LP that does not do business in Montserrat (other than so far as may be necessary for the carrying on of the business of that limited partnership outside Montserrat) can be exempted from tax for 25 years on the assets and income originating outside the island. Profits distributed to persons non resident or citizen of Montserrat are similarly tax exempted (LP Act, ss. 17-19). Section 51 of the Income and Corporation Tax Act was amended on 1 January 2012, so that the obligation to fill in a tax return applies to any person who receives an income, and no longer only to persons who are chargeable with tax. This now includes exempted LPs. 69. An LP must also be registered with the Registrar of Companies (or is otherwise considered a general partnership) and provide the following data: the name of the firm and the general nature of its business; the term for which the LP is entered into (or, if for an unlimited duration, a statement to that effect), and the date of its commencement; the address of the registered office in Montserrat and the name and address of the registered agent; and the full name and address of each general partner (and the certificate of incorporation or registration of corporate general partners) (LP Act, s. 7). The registrar must be informed of any changes to the composition of the LP, and receive an annual return from the general partners certifying that the LP has complied with the requirements to notify any change (ss. 8(1) and 9). The law does not require that the registration documents contain information on limited partners or on the repartition of shares between partners, but this information is maintained by the LP itself (see below).
Information held by the Partnership or Partners

70. The General Partnership Act does not specify whether or to which extent any ownership and identity information must be available, but nonetheless indicates that no person may be introduced as a partner without the consent of all existing partners (subject to any agreement, s. 25(g)). In addition, the partners are obliged to render true accounts and full information of all things affecting the partnership to any partners (s. 29). Any partner of a general partnership should therefore know the identity and share in partnership of the other partners, but in any event the tax administration has full ownership information. 71. The Limited Partnership Act requires that the general partner(s) of an LP maintain at the registered office of the entity a register which contains the name, address and contribution of each general or limited partner, and the amount and date of any payment representing a return of any part of the contribution of any partner. The register must be updated within 21 days of any change (s. 10).
Information held by service providers

72. An LP must have at all times a registered office and a registered agent in Montserrat, provided by a person who holds a licence under the Companies Management Act. This means that the registered agent has to fulfil the requirements stated by the FSC and the AML/CFT Code (LP Act, ss. 5A and 5B), including the customer due diligence obligations described above under Companies.
Trusts (ToR A.1.4)

73. The Trusts Act governs the creation and administration of trusts, and is based on the principles of English trust law: the rules of equity and common law apply to trusts, except in so far as they are inconsistent with the express provisions of the Act (s. 56). The Act defines a trust as a legal relationship created when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust can be created by oral declaration, or in written form (all exempted trusts in particular), by conduct, or by operation of law (s. 5). The Act permits the creation of purpose trusts (whether charitable or not). A trustee may at his/her option register the trust instrument or will, and as of March 2012, there is only one registered trust in Montserrat. 74. Any person under the law of Montserrat who has the capacity to own or transfer property may be the settlor or trustee of a trust (ss. 11 and 28). The settlor may also be a trustee, beneficiary or protector of the trust (s. 28) and the
trustee may be a beneficiary (s. 17). If a trustee is not a resident in Montserrat, a beneficiary may apply to the High Court for the appointment of an additional trustee who is resident in Montserrat (s. 14), but this is not mandatory. 75. The trustee owes a fiduciary duty to the beneficiaries (s. 31), and has a duty to provide full and accurate information as to the state and amount of the trust property and the conduct of the trust administration to the court, trust settlor or protector, and any beneficiary of the trust who is of full age and capacity (s. 32). A trustee, therefore, has a duty to know the identity of the settlor or any beneficiaries. 76. In addition to the provisions of the Trust Act, the profession of trustee is also governed by the International Banking and Trust Companies Act (IBCT Act), pursuant to which a person shall carry out trust business in or from within Montserrat only if he/she holds a valid licence issued by the Financial Services Commission. This broadly covers all persons that carry on the business of acting as a trustee (IBCT Act, ss. 14 and 2)). A licensee must have a principal office in Montserrat being a place of business and must also have two authorised agents, that must be either an individual resident in Montserrat and authorised under the Company Management Act or a general trust company licensed under the IBCT Act. 77. Licensed trust companies are also service providers subject to the obligations under the AML/CFT regime (AML/CFT Regulation, Dictionary, rule 10), and the AML/CFT Code (s. 19(1)) requires service providers to identify client trusts with the name and any official identification number of the trust; and identification information on each trustee, settlor, protector or enforcer of the trust. The beneficiaries with a vested right must be identified only where the service provider determines that any business relationship or occasional transaction concerning the trust presents a higher risk of money laundering or terrorist financing. This is a substantial deficiency and Montserrat should update its legislation to require that trustees obtain identification information on beneficiaries in all cases. 78. Finally, as for companies and partnerships, the trustee of a trust that receives an income (including overseas income) must deliver to the Comptroller of Inland Revenue an annual return of the whole of his/her income from every source whatever for the basic year (Income and Corporation Tax Act, ss. 25 and 51). When the settlor, who may be a beneficiary, retains the power to decide on the beneficiary of the trust, this person remains liable to be taxed on the income derived from the trust (s. 31). When the trust first registers, it should provide its deed to the tax administration (pursuant to the Business Tax Guide). The annual tax return requires that the names, addresses and share of assessable income of all partners, joint owners, etc. be reported, but does not specifically require that the identity of the settlor, trustees and beneficiaries of a trust be included.

79. As a result, it appears that whilst identity information on the settlors and trustees of trusts is available in Montserrat based on regulatory and AML obligations of professional trustees, identity information on the beneficiaries of trusts is available only in situations of AML/CFT risk. Therefore the only complete obligations on the trustee to maintain information on the trust beneficiaries other than in high risk cases arise from the fiduciary duties of the trustee pursuant to section 31 of the Trust Act. While the Trust Act does not further define the scope of this fiduciary duty, the common law places obligations on trustees to have full knowledge of all the trust documents, to act in the best interests of the beneficiaries and to only distribute assets to the right persons. These obligations implicitly require all trustees to identify the beneficiaries of the trust since this is the only way the trustee can carry out his/ her duties properly. If the trustees fail to meet their common law obligations they are liable to being sued. The extent of these common law obligations could not be established during the Phase 1 review, as the Montserratian authorities have not provided supporting case law. An in-depth assessment of the effectiveness of the common law requirements with respect to availability of identity information pertaining to the beneficiaries of trusts will be considered as part of Montserrats Phase 2 review. 80. In addition, no obligation other than the above-mentioned fiduciary duties appears to lie on non-professional trustees. Even though that gap is potentially narrow, covering only persons acting without remuneration, Montserrat should monitor this gap to ensure that it does not in any way hamper the effective exchange of information in tax matters. This will be considered further in the Phase 2 review. Finally, it is conceivable that a trust could be created under the laws of Montserrat and have no other connection with Montserrat. In that event there may be no information about the trust available in Montserrat.
Foreign trusts
81. Montserrat passed an act enabling the United Kingdom to ratify the Hague Convention on the Law Applicable to Trusts and on their Recognition, on behalf of Montserrat. The provisions of the Convention therefore have the force of law in Montserrat. A person resident in Montserrat can act as a trustee, protector, or administrator of a foreign trust or otherwise in a fiduciary capacity related to a trust governed under foreign law. The AML/CFT Regulations and Code described above apply correspondingly to professional trustees of foreign trust, since the IBCT Act does not discriminate between trustees of Montserratian and foreign trusts. 82. The Trust Act also recognises that a settlor may create a trust of a type recognised by the law or rules of his/her religion or nationality or which is customarily used by his/her community, provided that there is a recital to
that affect in the instrument creating the trust. In addition, the trust must be of a type approved by the Governor (Trust Act, s. 29).
Foundations (ToR A.1.5)

83. The concept of private foundation does not exist under the laws of Montserrat.
Other entities and arrangements

84. A co-operative society created under the Co-operative Societies Act is a self-help, collectively owned and democratically controlled business enterprise registered under this Act, which consists of a group of people that provide socially desirable and economically beneficial services to its participating members on a joint action and not-for-profit basis. Co-operative Societies are prescribed service providers under the AML/CFT Regulations 2010 and registered with the FSC, which ensures the availability of ownership information (see above Ownership Information held by nominees and service providers).
Enforcement provisions to ensure availability of information (ToR A.1.6)

85. Montserrat should have in place effective enforcement provisions to ensure the availability of ownership and identity information, one possibility among others being sufficiently strong compulsory powers to access the information. This subsection of the report assesses whether the provisions requiring the availability of information with the public authorities or within the entities reviewed in section A.1 are enforceable and failures are punishable. Questions linked to access are dealt with in Part B. 86. Pursuant to the Companies Act, a company, and every director and officer who does not submit the annual return showing its ownership structure to the Registrar of Companies is guilty of an offence and liable on summary conviction to a fine of XCD 5 000 (USD 1 850, ss. 194 and 533). In addition, a natural person and/or director who knowingly makes or assists in making a report, return, notice or other document that is required to be sent to the Registrar that contains an untrue statement of a material fact; or omits to state a material fact required is guilty of an offence and liable on summary conviction to a fine of XCD 5 000 and/or to imprisonment for a term of up to three years (s. 530). If an external company fails to comply with its registration duties, neglects or refuses to make an annual return, it may be stricken off the Register of Companies, which prevents the foreign entity from carrying on any more business in Montserrat (ss. 351 and 356).

87. An IBC that does not (or ceases to) meet the requirements specific to this type of company is punishable by a fine of USD 100 per day of infringement (IBC Act, s. 6). In addition, a contravention of the obligations on the maintenance of a share register is punishable by a fine of USD 25 per day (s. 28(6)), and a member can also apply to the court for an order of rectification and damages (s. 29). In addition as noted above under subsection A.1.2 of the report, offences related to bearer shares and their transfer are punishable by fines between USD 10 000 and 25 000. 88. If a service provider fails to comply with the requirements to identify its customers, he/she is punishable by a fine not exceeding XCD 100 000 on summary conviction (AML/CFT Regulation, s. 5). 89. Pursuant to the LLC Act (s. 24A), an LLC that contravenes its obligation to maintain a list of members and holders of economic interest is liable on summary conviction to a fine of USD 50 000. A person who knowingly makes untrue or misleading statements is liable to a fine of USD 100 000 and to imprisonment for a term of 5 years. 90. The International Banking and Trust Companies Act provides that a person that carries on trust business without a licence is subject upon summary conviction to a fine of USD 25 000 and/or to a term of imprisonment of 2 years (s. 14). A contravention of the obligation to identify customers entails liability to a fine up to USD 100 000 under the AMC/CFT Regulations (s. 5). 91. Every partner of a general partnership (with a business name other than the list of all partners) that does not register with the Registrar is liable to a fine of XCD 25 (USD 10) for every day during which the default continues; and the rights of the defaulter under any contract made is not enforceable by legal proceedings (Registration of Business Names Act, ss. 9-10). Persons who knowingly make a false statement are liable to a fine of XCD 100 (USD 37) and/or imprisonment for 3 months (s. 11). The Registrar may also require any person to furnish such particulars as he/she thinks necessary to ascertain whether a registration or modification should be made, upon sanctions (s. 12). 92. Under the LP Act, the absence of registration of the LP deprives the entity of its limited nature and all partners are considered to be general partners (s. 7(5)). The non registration of a change to the registered particulars is subject to a fine of USD 250 for every day during which the offence continues (s. 21). In addition, a person who provides the registered office to an LP or acts as a registered agent without having a valid licence is liable a fine of USD 25 000 and/or to a term of imprisonment of one year, and the general partners to a fine of USD 10 000 (ss. 5A and 5B). 93. The Income and Corporation Tax Act also provides for sanctions that would be relevant in particular for partnerships that do not disclose their
ownership structure in their annual return. First, a person who fails to deliver a true and correct tax return must pay a fine of XCD 10 per month of delay (USD 3.7 or EUR 2.9). 4 Second, any person who wilfully fails to comply with his/her obligation to deliver a true and correct tax return is guilty of an offence (s. 51). The Act further provides that any person who without reasonable excuse (whether or not liability to tax is involved) does not render any return is guilty of an offence and liable on summary conviction to a penalty not exceeding XCD 2 000 (USD 741 or EUR 576), and, in default of payment to imprisonment up to 4 months, and after judgement has been given for that penalty to a further penalty of XCD 100 (USD 37 or EUR 29) for every day during which the offence continues. Making a false or incomplete declaration is punishable by a fine up to XCD 4 000 (USD 1 481 or EUR 1 152), and in default of payment to imprisonment up to 8 months, and doing so knowingly is publishable by a fine up to XCD 20 000 (USD 7 407 or EUR 5 758) or imprisonment up to 12 months (ss. 85-87). 94. The effectiveness of the enforcement provisions which are in place in Montserrat will be considered as part of the Phase 2 Peer review.
Determination and factors underlying recommendations
Phase 1 Determination The element is in place, but certain aspects of the legal implementation of the element need improvement Factors underlying recommendations The Companies Act differentiates between shareholders and members, the difference being that only the latter are registered with the company. It remains unclear whether identity information on shareholders is maintained by the company or any public authority in Montserrat. Companies incorporated outside Montserrat which have their effective place of management and control in Montserrat (and thus tax resident there) are not expressly required to keep ownership information. Recommendations Montserrat should ensure that full ownership information on Montserratian companies is available, whether the owner is qualified as member or shareholder.
Montserrat should ensure the availability of ownership information of all foreign companies with sufficient nexus to Montserrat.
4.
The East Caribbean dollar (XCD) pegged to the United States dollar (XCD 2.70 for USD 1). As of 10 may 2012, USD 1 = EUR 0.77.

Montserrat law only requires a service provider to obtain identity information on beneficiaries of a trust in cases of a higher level of risk for AML/CFT purposes. Montserrat should ensure that trustees in Montserrat maintain identity information on the beneficiaries of trusts in all cases.
A.2. Accounting records

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements.
General requirements (ToR A.2.1)

95. The Terms of Reference sets out the standards for the maintenance of reliable accounting records and the necessary accounting record retention period. It provides that reliable accounting records should be kept for all relevant entities and arrangements. To be reliable, accounting records should; (i) correctly explain all transactions, (ii) enable the financial position of the entity or arrangement to be determined with reasonable accuracy at any time; and (iii) allow financial statements to be prepared. Accounting records should further include underlying documentation, such invoices, contracts, etc. Accounting records need to be kept for a minimum of five years. 96. The Income and Corporation Tax Act obliges any person that is engaged in any trade, business or profession to keep proper books of account in English sufficient to record all transactions (s. 21). This obligation covers ordinary companies, general partnerships, foreign companies and partnerships, and IBCs created more than 25 years ago. IBCs created less than 25 years ago are exempted from the application of the ICTA. Exempted LLCs and exempted LPs are exempted from taxes for 25 years, but it is unclear whether this exempts them from the other obligations of the ICTA such as the obligations to submit an annual tax return and keep books of accounts. In addition, only entities that are engaged in trade, business or any profession are covered by this record keeping obligation. According to the Montserratian authorities, entities engaged in passive investment activities are considered as being covered by this obligation, on the basis that the long term profit motive would constitute a business activity. This statement will be followed up in Phase 2. 97. Any person who fails to comply with this obligation is guilty of an offence and liable to a penalty not exceeding XCD 2 000 (USD 741 or EUR 576) and in default 4 months imprisonment, and after judgment has been given for that penalty to a further penalty of XCD 100 (USD 37 or EUR 29) for every day during which the obligations are not complied with (s. 85). Any person who without reasonable excuse (whether or not liability
to tax is involved) does not render any return or does not otherwise comply with the law, is guilty of an offence and liable on summary conviction to a penalty not exceeding XCD 2 000 (USD 741 or EUR 576), and, in default of payment to imprisonment up to 4 months, and after judgement has been given for that penalty to a further penalty of XCD 100 for every day during which the offence continues (USD 37 or EUR 29). Making a false or incomplete declaration is punishable by a fine up to XCD 4 000 (USD 1 481 or EUR 1 152), and in default of payment to imprisonment up to 8 months, and doing so knowingly is punishable by a fine up to XCD 20 000 (USD 7 407 or EUR 5 758) or imprisonment up to 12 months (ss. 85-87). 98. In addition, the Acts that govern the different entities in Montserrat include separate provisions on accounting standards. 99. All Ordinary Companies must keep accounting records that are sufficient to record and explain the transactions of the company, that at any time enable the financial position of the company to be determined with reasonable accuracy, and that are sufficient to enable financial statements to be prepared and audited (Companies Act, s. 148A). The accounting records must contain all entries from day to day of all sums of money received and expended by the company, details of all sales and purchases and a record of the assets and liabilities. A company in Montserrat that consolidates the income from subsidiaries in its financial statements is obliged to keep at its registered office a copy of the financial statements of each subsidiary (s. 151(1)). In the case of a public company or of a private company the gross income of which exceeds XCD 4 millions or the assets exceed XCD 2 millions (respectively USD 1.5 and 0.7 million), copies of annual financial statements must be sent to the Registrar of Companies (s. 154). By failing to comply with the obligations of s. 148A a company and every officer of a company affected is guilty of an offence and is subject to a penalty of XCD 5 000 (USD 1 850, s. 533). 100. An IBC must keep, at its registered office or elsewhere, accounting records that are sufficient to record and explain the transactions of the company and that at any time enable the financial position of the company to be determined with reasonable accuracy. A company that fails to keep accounting records or the minutes of meetings or copies of all resolutions is liable to a penalty of USD 25 for each day or part thereof which the contravention continues (IBC Act, s. 66). This applies whether or not the IBC was created less than 25 years ago. 101. Pursuant to the LLC Act, an LLC must maintain records relating to true and full information regarding the status of the business and its financial condition (s. 24(1)(a)). An LLC must also maintain such information regarding the affairs of the LLC as is just and reasonable. This phrasing does not clearly explain what records should be maintained. This minimal requirement does not appear to comply with the standard and it is unclear whether

it is only complemented by the tax obligations under s. 21 of the Income and Corporation Tax Act when the LLC operates locally (companies that operate overseas are exempted from taxes). 102. The Partnership Act provides generally that the partners have to render true accounts and full information of all things affecting the partnership to any partner or his/her agents (s. 29). The LP Act provides more specifically that an LP must keep accounting records sufficient to explain all transactions and enable the financial position to be determined with reasonable accuracy, at any time. In the case of failure to comply, each general partner commits an offence and is liable to a fine of USD 10 000 (s. 9A). The Income and Corporation Tax Act also includes specific rules that apply to a partnership: all partnerships must prepare a return of the income of the entity, supported by a statement of accounts, including a balance sheet (s. 24). This is in addition to the above-mentioned requirement for any person engaged in any trade or business (including general partners) to keep proper books of account sufficient to record all transactions necessary in order to ascertain the gains and profits made or the loss incurred in each such business (s. 21 of the Income and Corporation Tax Act). 103. Trustees are required by the Trust Act to keep accurate accounts and records of their trusteeship (s. 31(7)). However, the phrasing in the Trust Act does not explicitly indicate if the records and accounts must correctly explain all transactions, and allow financial statements to be prepared. Still, a trustee is subject to the Income and Corporation Tax Act and will therefore be assessed to tax in respect of the income derived from the property he/she manages on behalf of a person in like manner and to like amount as this person would be assessable if he/she had received the income (Income and Corporation Tax Act, s. 26). As a consequence a trustee is obliged to do all matters and things required to be done under the Act for the purpose of assessment and payment of tax (Income and Corporation Tax Act, s. 25(1)). This includes the obligation to keep proper books of account sufficient to record all transaction (s. 21). 104. Finally, under the AML/CFT Code service providers (e.g. trustees, nominee shareholders, secretaries of a company) are required to keep records that must include sufficient information to enable the reconstruction of individual transactions. This means that amongst others all account files and all business correspondence relating to a business relationship or an occasional transaction must be available (Guidance note to rule 40).
Underlying documents (ToR A.2.2)

105. Montserrat laws do not require the retention of underlying documents in line with the Terms of Reference for any entity.
5-year retention standard (ToR A.2.3)

106. First, the Income and Corporation Tax Act (Amendment) Act 2011, which entered into force on 1 January 2012, amends s. 21 of the Act by including an obligation to keep the books of accounts for at least seven years following their creation. This obligation would cover ordinary companies, general partnerships, and IBCs created more than 25 years ago as such entities are no longer exempted from the application of the Income and Corporation Tax Act. The situation of exempted LLCs and exempted LPs remains unclear concerning the record keeping obligations under section 21. In addition, only entities that are engaged in trade, business or any profession are covered by this record keeping obligation. 107. Second, in the limited cases where accounting information is retained pursuant to Montserrats AML/CFT regime, information is subject to a five year retention period (AML/CFT Regulations, s. 14). 108. In cases where the accounting records of ordinary companies, IBCs or limited partnerships are kept outside Montserrat, the entities are obliged to keep at the registered office or at some other designated place in Montserrat a written record of the place or places outside Montserrat where the accounting records are kept (Companies Act, s. 148(A)(1); IBC Act, s. 66; LP Act, s. 9A).
Phase 1 Determination The element is not in place. Factors underlying recommendations Montserrats legislation does not clearly provide for detailed and adequate accounting records on LLCs that operate outside Montserrat. Recommendations Montserrat should ensure that all LLCs must keep accounting records that are sufficient to record and explain the transactions and that at any time enable the financial position of the entity to be determined with reasonable accuracy. Montserrat should introduce binding requirements on all relevant entities to maintain relevant underlying documentation for at least five years. Montserrat should ensure that its laws require that accounting records, including underlying documentation, are kept for all entities for a minimum of 5 years
There is no express requirement that any relevant entities and arrangements keep underlying documentation. Only the entities covered by the record keeping obligations of the tax law are required to retain accounting records for a minimum 5 year period.
A.3. Banking information

Banking information should be available for all account-holders.
109. Access to banking information is of interest to the tax administration when the bank has useful and reliable information about its customers identity and the nature and amount of financial transactions.
Record-keeping requirements (ToR A.3.1)

110. Banks and financial institutions when acting in the course of a business carried on in, or from within, Montserrat, are service providers within the definition of the AML/CFT Regulations. As service providers banks and financial institutions must maintain all records relating to each transaction with their customers in detail and must apply customer due diligence measures in order to be able to identify a customer or a third party if a customer is acting for someone else (Schedule 1, Dictionary). 111. According to the AML/CFT Code (s. 36) all records must contain the following information concerning each transaction: The name and address of the customer; The currency and amount of the transaction if the transaction is a monetary transaction; The number, name or other identifier for the account if the transaction involves a customer account; The date of the transaction; Details of the counterparty including account details; The nature and details of the transaction. 112. All files must be kept for a minimum period of 5 years (ss. 13-14). A bank that fails to meet these record keeping requirements commits an offence and is liable on summary conviction to a fine up to XCD 50 000 (USD 18 520). 113. In addition, a service provider cannot set up or maintain a numbered account, an anonymous account or an account in a name which it knows, or has reasonable grounds to suspect, is fictitious, or otherwise it commits an offence and is liable to a fine up to XCD 100 000 (USD 37 000, AML/CFT Regulations, s. 11).
Phase 1 Determination The element is in place
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 37
B. Access to information
Overview
114. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether Montserrats legal and regulatory framework gives to the authorities access powers that cover the right types of persons and information and whether rights and safeguards would be compatible with effective exchange of information. 115. Montserrats competent authority, the Comptroller of Inland Revenue, is given broad access powers under the Tax Information Exchange Act, 2010. The competent authority can request anyone to provide ownership, identity, accounting or banking information, whether or not the information is required to be kept pursuant to a law. 116. Access powers can be exercised in relation to EOI arrangements that are scheduled to the Tax Information Exchange Act, 2010. To date ten EOI arrangements have been scheduled, out of the 13 arrangements signed by Montserrat (see section C.1 below for more details). 117. Access powers can be exercised by issuing a notice requesting the production of the information or, where the information is sought in relation to civil or criminal proceedings in the requesting jurisdiction, depend on a court order. Search and seizure measures are also available and the non-compliance with a notice or court order can be sanctioned with fines and imprisonment. 118. Existing secrecy obligations in Montserrats laws are lifted where information is sought for EOI purposes. The law also provides for a notification right to the subject of a request in some cases, to which no exception exists, contrary to the prescription of the standard.
38 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
B.1. Competent Authoritys ability to obtain and provide information

Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information).
119. The competent authority to gather and exchange information in Montserrat is the Comptroller of Inland Revenue. Whereas the same person has powers to collect information for both domestic and exchange of information purposes, different laws apply to domestic and EOI cases. The Income and Corporation Tax Act governs the access powers of the Montserrat tax authorities for domestic tax purposes: Pursuant to section 54, the Comptroller may by notice in writing require any person, their agent or attorney, as well as the secretary, attorney, manager, agent or other principal officer of any company to furnish him with information especially accounting records and tax returns and all connected particulars. Montserrats access powers for EOI purposes are regulated in the Tax Information Exchange Act Tax No. 21 of 2010 (TIE Act). 120. The TIE Act applies for the purpose of giving effect to the terms of a scheduled agreement (s. 3). To be scheduled, an EOI arrangement must have been the object of an order of the Governor in Council, published in the official Gazette, setting out the full text of the agreement and inserting in Part A of the Schedule to the TIE Act: the parties; the effective date; and the designated competent authority (s. 5(1)). To date ten EOI instruments have been scheduled, out of the 13 instruments signed by Montserrat. 121. The TIE Act also enables information on taxation matters to be provided to a scheduled country on its request under the scheduled country requirements (s. 3). The reference to scheduled countries relates to the ability of the authorities to exchange information on a unilateral basis where certain conditions are met (the EOI unilateral mechanism is discussed further, under section C.1 below). Whether the Act applies in respect of a scheduled agreement or a scheduled country, the access powers are identical. No countries have been scheduled to date. 122. Section 8 of the Act gives the competent authority (also called the Tax Information Authority under the TIE Act) the power to do all things necessary or convenient for the exchange of information on taxation matters under this Act, the relevant scheduled agreement or the relevant scheduled country requirements. This includes, in particular, executing requests and ensuring compliance with scheduled agreements (s. 8(1)(a) and (b)). 123. The TIE Act applies to requests made after the later date between the entry into force on 6 February 2011 or the date of entry into force of the relevant EOI instrument, and permits the provision of information on taxation matters prior to 6 February 2011 (s. 4(2)).
Ownership and identity information (ToR B.1.1) and accounting records (ToR B.1.2)
124. The competent authority can do all things necessary or convenient for the exchange of information on taxation matters, including executing requests, as noted above. This includes obtaining ownership, identity, and accounting information. The term information on taxation matters to which access powers refer is broadly defined as any fact, statement, document and record in whatever form (s. 2). The law further specifies that this includes: any fact, statement, document or record held by any bank, other financial institution, or any person, including any nominee and trustee, acting in an agency or fiduciary capacity; any fact, statement, document or record regarding the beneficial ownership of any company, partnership and any other person, including (i) in the case of a collective investment fund, information on any shares, units and other interests; and (ii) in the case of a trust, information on any settlors, trustees and beneficiaries; articles of evidence relating to a taxation matter. 125. Before proceeding with a request, the competent authority must notify the Attorney General of any request received, including particulars of the request. If the Attorney General considers that the execution of the request is contrary to public policy, he/she may issue a certificate to that effect and the competent authority will deny the request (sections 9 and 10). The law does not specify any time-limit for the Attorney General to issue a certificate or authorise the competent authority to proceed with the request. However, section 20 of the Interpretation Act applies to all legislation in Montserrat, and provides that Where no time is prescribed or allowed within which anything is to be done, the thing must be done with all convenient speed, and as often as the prescribed occasion arises. The Attorney General is therefore required to act with all convenient speed in issuing the certificate. 126. The procedure for collecting information will differ, depending on whether or not the information is requested for proceedings in the jurisdiction of the requesting authority (or for investigations related to such proceedings). Proceedings are defined by reference to the Supreme Court Act as including an action (a civil proceeding commenced by writ or in such other manner as may be prescribed by rules of Court, but does not include a criminal proceeding), cause (includes any action, suit or other original proceeding between a plaintiff and defendant, and any criminal proceeding) or matter (every proceeding in court not in a cause). 127. First, when the information is requested in the absence of any proceeding or investigation, and the competent authority considers it necessary

to obtain the information from a person (i.e. the information is not already in the possession of the competent authority), he/she issues a notice in writing requiring the production of the information specified in the notice. The notice may require the information to be provided within a specified time, in a specific form, and verified or authenticated in a specified manner (s. 13). The competent authority may take copies or extracts of the information. The access powers of the competent authority apply, whether or not the information is required to be kept pursuant to a law of Montserrat. 128. Second, when the information is requested for civil or criminal proceedings or related investigations in the requesting jurisdiction, the competent authority must apply to a judge for an order to produce the information (s. 14). Before making an order, the judge must be satisfied that five conditions are fulfilled, i.e. that: (a) the Authority has certified the request in accordance with the relevant scheduled agreement and the TIE Act; (b) the information is under the control of a person in Montserrat; (c) the information does not include items subject to legal privilege or items subject to protection as secret, under the scheduled agreement; (d) the provisions of section 19(1) (on the notification of the person subject to the request) have been complied with; and (e) under the relevant scheduled agreement, there are no reasonable grounds for not granting the request. 129. The judge may then make an order that the person who appears to be in control of the information produces it to the competent authority to take away or give the competent authority access to it within a specified period, which in general would be of 14 days, unless the judge considers that another period would be more appropriate (s. 14(3)). The judge may also issue a warrant for the competent authority, accompanied by a police officer, to enter the premises to obtain access to the information. No appeal right is granted in the TIE Act, but a judicial review is possible, in principle, as for any court order. 130. It should be noted that where the judge is satisfied that the conditions are met, he/she may rather than shall issue an order, pursuant to section 14(2). The judge therefore does not appear to be bound to do so. In addition it is not clear what may constitute reasonable grounds for refusing to issue an order, particularly if the competent authority is satisfied that the request conforms with, and is therefore valid under, the relevant agreement. The practical impact of this potential restriction on the effectiveness of the competent authoritys access powers will be considered as part of the Phase 2 review of Montserrat. 131. Finally, if a person is required to testify, the competent authority applies to a judge for the judge to receive the testimony. The judge can issue a subpoena, take evidence under oath and exercise any other power that the High Court may exercise for the purpose of compelling testimony (s. 12, but
a person cannot be compelled for EOI purposes to give evidence that he/she cannot be compelled to give in proceedings before a court in Montserrat). 5
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
132. The powers described above apply for the express purpose of responding to requests for information from a foreign authority, without regard to whether the information is relevant for Montserrats domestic tax purposes (s. 3 and 8).
Compulsory powers (ToR B.1.4)

133. The competent authority is empowered, upon application to the High Court for a warrant, to execute searches and seizures in order to obtain information for exchange purposes (s. 17). In considering such an application, the judge must be satisfied that (i) a notice under section 13 or an order under section 14 has not been complied with and the EOI request might be seriously prejudiced unless immediate access to the information can be secured; or (ii) the judge considers that an order under section 14 would not be appropriate because it is not practicable to communicate with the subject person, or another person entitled to grant access to the information, or because the EOI request might be seriously prejudiced unless a police officer is able to secure immediate access to the information. 134. The TIE Act stipulates penalties fines and/or imprisonment if a person who is required to provide information does not comply with a notice of the competent authority or an order of the judge within the specified time, or otherwise alters, destroys, mutilates, defaces, hides or removes the information. The offender is liable on summary conviction to a fine of XCD 10 000 (USD 3 700) and/or imprisonment of two years. A person who refuses to provide testimony in response to a request is liable on summary conviction to a fine of XCD 5 000 (USD 1 850) and/or imprisonment of up to one year (s. 26).
Secrecy provisions (ToR B.1.5)

135. Jurisdictions should not decline on the basis of secrecy provisions (e.g. bank secrecy, corporate secrecy) to respond to a request for information made pursuant to an exchange of information mechanism.
5. The TIE Act also allows a representative of the foreign competent authority to interview a person with his/her consent or examine records in Montserrat, if this is provided for in the EOI bilateral instrument (s. 18).

136. Under common law, banks and all other financial institutions in Montserrat have a duty to keep the affairs of their customers confidential. Exceptions exist, for instance where disclosure is under compulsion of law or agreed by the customer. The Confidential Information Act and the General Banking Law regulate the disclosure of information. 137. The Confidential Information Act regulates the disclosure of information imparted under conditions of professional confidence by banks and financial institutions, barristers and solicitors, accountants, and every person subordinate or in the employ or control of such persons or institutions for professional activities, as well as to all IBCs and their directors, officers, etc. (IBC Act, s. 119). Information considered as confidential is information received by a professional person from or in respect of a principal concerning any property in which the principal has an interest and which the recipient of such information is not authorised by the principal to divulge. The confidentiality obligation extends to all persons coming into possession of confidential information (s. 3(1)). 138. A person is guilty of an offence and liable on summary conviction to a fine not exceeding XCD 50 000 (USD 18 500) and/or to imprisonment up to two years if being in possession of confidential information he/she divulges it or attempts, offers or threatens to divulge it, or wilfully obtains or seeks to obtain confidential information to which he/she is not entitled. The sanction is doubled for professionals (s. 5). 139. Similarly, pursuant to section 32(1) of the Banking Act, no person who has acquired knowledge in his capacity as director, manager, secretary, officer, employee or agent of any financial institution can disclose to any person or governmental authority the identity, assets, liabilities, transactions or other information in respect of a depositor or customer of a financial institution. 140. Finally, trustees are also subject to a confidentiality duty pursuant to the Trust Act (s. 32). Only a court, the settlor or protector and, subject to the terms of the trust, the beneficiaries have access to the full and accurate information as to the state and amount of the trust property. The trustee must otherwise keep such information confidential except by reason of any other Act. Similarly, s. 24 provides that the instrument creating a purpose trust and the register that contains the name of the settlor and protector thereof is confidential (except for the Attorney General and protector). 141. The confidentiality duty under the Confidential Information Act is lifted in particular by directions of the High Court, a Minister or the Attorney General; or with the consent of the principal; or in accordance with the provisions of another act (s. 3(2)). The Banking Act similarly provides for exceptions, in particular where the disclosure is made under the provisions of any law of Montserrat (s. 32(1)(c)).
142. The TIE Act lifts these confidentiality duties. Section 22 expressly indicates that a person who divulges confidential information in compliance with a notice (under section 13) or order (under section 14) does not commit an offence under the Confidential Information Act or any other law in Montserrat. Furthermore, any disclosure or testimony given to satisfy a request is deemed not to be a breach of any confidential relationship between that person and any other person, and protects the person making the disclosure from any civil claim or action by reason of such disclosure or testimony (s. 22(2)). Section 13 also expressly indicates that a notice has effect despite any obligation as to confidentiality or other restriction upon the disclosure of information whether imposed by the Confidential Information Act, any other law or the common law. Finally, as already mentioned, the definition of the information on taxation matters that can be exchanged includes any fact, statement, document or record held by any bank, other financial institution (s. 2).
Attorney-client privilege
143. Notwithstanding section 22 of the TIE Act, section 13 (on information notices) and section 14 (on court orders) both expressly exclude access to items subject to legal privilege. The Montserratian authorities have explained that the term legal privilege, also expressed as legal professional privilege, is a common law protection which is afforded to any person who consults with a legal practitioner for advice. The Montserratian authorities have provided case law from the Eastern Caribbean Supreme Court, which applies to legal privilege in the course of litigation: Essentially, it embodies the rule that a client should be able to place unrestricted and unbounded confidence in the professional agent, and that the communications he so makes to him should be kept secret, unless with his consentthat he should be enabled properly to conduct his litigation. 6 The Montserratian authorities add that pursuant to common law, the documents covered by the privilege are the instructions given by the client to the attorney, documents created by a party for the purpose of instructing the attorney and obtaining advice, copies of documents the original of which were created for such a purpose, and a selection of pre-existing documents, whether obtained from the client or a third party, which are not in themselves privileged, but which have been copied or assembled by an attorney and betray the trend of the advice which he/she is giving the client.
6.
The above quotation is from Anderson v Bank of British Columbia (1876) 2 Ch D 644, 649 which was cited in the decided case of Danone Asia Pte. Ltd. et al. v. Golden Dynasty et al. BVIHCV2007/0262, which is authority from the regional Supreme Court, applicable in Montserrat.

144. The Montserratian authorities further state that the attorney-client privilege is applied rigidly by the courts in Montserrat and is very seldom eroded. The client has to grant permission for release of privileged information or there is no legally enforceable right to obtain access to privileged information. The case law presented does not clarify whether the privilege extends to third parties other than the attorney and the client who may be involved in the communications and, if so, to what extent and in what circumstances. The Montserratian authorities confirm that the privilege extends to communication with third parties such as potential witnesses, experts, or office clerks. However no supporting case law was provided. This issue will be followed up in Phase 2 of the review process.
Phase 1 Determination The element is in place.
B.2. Notification requirements and rights and safeguards

The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.
Not unduly prevent or delay exchange of information (ToR B.2.1)

145. Rights and safeguards should not unduly prevent or delay effective exchange of information. For instance, notification rules should permit exceptions from prior notification (e.g. in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction). 146. The TIE Act provides for three types of rights and safeguards. First, as mentioned, before proceeding with a request, the competent authority must notify the Attorney General of any request received, including particulars of the request. If the Attorney General considers that the execution of the request is contrary to public policy, he/she may issue a certificate to that effect and the competent authority will deny the request (sections 9 and 10). The Montserratian authorities clarified that this would cover cases where disclosure is likely to be injurious to the interests of the territory, the community or the Crown. Section 10 empowers the Attorney General to act as amicus curiae in any proceedings relating to a request and, in such cases, they have also advised that there would be an obligation on the Attorney General to disclose, to the relevant tribunal, all matters of which she is aware and which were relevant to the case, even if this may involve the disclosure of facts that do not directly relate to public policy.
147. Second, the TIE Act provides for notification rights to the person who is the subject of the request in some circumstances: (i) where a request for information is made that is not in connection with an (alleged) criminal matter, and (ii) if the persons whereabouts or address are made known to the competent authority. In these cases, the person must be notified by the competent authority of the existence of the request, and specifying the country making the request and the general nature of the information sought (s. 19(1)). The competent authority is under no obligation to search for or conduct enquiries into the address or whereabouts of any person for this purpose (s. 19(5)). Any person notified may, within 15 days from the date of receipt of the notice, make a written submission to the competent authority specifying any grounds which he/she wishes the authority to consider in making its determination as to whether or not the request is in compliance with the scheduled agreement, including any assertions that the information requested is subject to legal privilege (s. 19(3); the competent authority may, but is not obliged to, accept an oral submission). 148. Therefore, the notification requirement only applies in limited circumstances, i.e. in civil tax matters and where the address or whereabouts of the person who is subject of the request are made known to the competent authority. The time for making a written submission by the subject of the request is short (15 days for receiving the notification plus 15 days for contesting it) but there is no deadline for the competent authority to take a decision, and in the case of civil proceedings this can be cumulated with the time for the judicial oversight of s. 14. In addition, provided the whereabouts of the persons are indicated in the EOI request, it does not appear that there is any possibility to dispense with notification in a civil tax matter where, for example, the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction, including where a search is deemed necessary because a mere order under section 14 might seriously prejudice the purpose of the EOI request (section 17(2)(b)(iii)). It may be the case that such circumstances more often arise in criminal tax matters, where no notification is required. The extent of this potential restriction will be the monitored in the Phase 2 assessment of Montserrat. 149. Third, where the EOI request relates to a civil or criminal proceeding in the requesting jurisdiction, the TIE Act provides for judicial oversight. It is narrowly prescribed and the conditions that must be met appear reasonable. Nevertheless, where the judge is satisfied that the conditions are met, the judge may issue such an order, but is not bound to do so. Moreover, it is not clear what reasonable grounds for not granting the request would consist of, particularly where the competent authority has certified that the request is valid under the relevant agreement. The practical impact of these potential restrictions on the effectiveness of the competent authoritys access powers will be considered as part of the Phase 2 review of Montserrat, especially as

it may be that an important proportion of EOI cases would require judicial oversight.
Phase 1 Determination The element is in place. Factors underlying recommendations The prior notification procedure in civil tax matters only allows for an exception when the whereabouts of the taxpayer are not disclosed to the competent authority. Recommendations It is recommended that wider exceptions from prior notification be permitted in civil tax matters (e.g. in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of the success of the investigation conducted by the requesting jurisdiction).
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 47
C. Exchanging Information
Overview
147. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. In Montserrat, the legal authority to exchange information is largely derived from Tax Information Exchange Agreements and double tax conventions (DTCs). This section of the report examines whether Montserrat has a network of information exchange that would allow it to achieve effective exchange of information (EOI) in practice. 148. Montserrats network for exchange of information is multiform, comprising bilateral and unilateral mechanisms covering a total of 13 partner jurisdictions. Montserrat is party to two old DTCs with Switzerland and the United Kingdom (which do not meet the standard). Its EOI network has developed rapidly since December 2009, with the signing of 11 TIEAs and a protocol to the DTC with the United Kingdom. To date, six TIEAs are in force, as well as the two protocol/DTCs. 149. In addition, Montserrat has implemented a unilateral mechanism by which it can name scheduled countries to which it can provide relevant information for tax purposes upon request, but no jurisdiction has been scheduled yet. 150. Montserrat continues to expand its EOI network and discussions or negotiations are underway with additional jurisdictions. Comments were sought from Global Forum members in the course of the preparation of this report, and no jurisdiction advised that Montserrat had refused to negotiate or conclude such an arrangement. 151. All EOI articles in Montserrats bilateral arrangements have confidentiality provisions which meet the international standard, and its domestic legislation also contains relevant confidentiality provisions. 152. Montserrats post-2009 EOI arrangements ensure that the parties are not obliged to provide information that would disclose any trade, business, industrial, commercial or professional secret or information the disclosure of which would be contrary to public policy.
48 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION

153. There appear to be no legal restrictions on the ability of Montserrats competent authority to respond to requests within 90 days of receipt by providing the information requested or by providing an update on the status of the request. The present report does not address this element, as this involves issues of practice that will be dealt with in the Phase 2 review.
C.1. Exchange of information mechanisms

Exchange of information mechanisms should allow for effective exchange of information.
154. The EOI network of Montserrat is multiform, comprising tax information exchange agreements (TIEAs), double tax treaties (DTCs), and a unilateral mechanism, covering a total of 13 jurisdictions (see Annex 2). 155. First, Montserrat has signed 11 TIEAs, with Australia, Belgium, Denmark, Faroe Islands, Finland, Germany, Greenland, Iceland, the Netherlands, Norway and Sweden. Only the TIEAs with Australia, Denmark, the Faroe Islands, Finland, the Netherlands and Norway have entered into force, as of February 2012. 156. Second, Montserrat has signed a DTC with the United Kingdom (1947) and benefits from an extension of the United Kingdoms DTC with Switzerland (1961). The EOI provision in the UK treaty was updated through a protocol signed in 2009 that includes the full EOI provision in line with Article 26 of the Model Tax Convention. The DTC with Switzerland contains a number of restrictions, of which the most important are that the DTC limits the exchange of information to information as is necessary for carrying out the provisions of the Convention and it does not contain a provision corresponding with Article 26(5) of the OECD Model Tax Convention regarding bank information. Although Montserrat is able to exchange bank information on a reciprocal basis in the absence of such provision, Switzerland is not. Because of these restrictions, the DTC with Switzerland does not allow Montserrat to exchange information in accordance with the international standard. The Montserratian authorities should approach the Swiss authorities in view of upgrading the EOI provision of the treaty. The DTC with Switzerland is not further considered in this section. 157. Finally, Montserrats Tax Information Exchange Act, 2010 (the TIE Act) provides for powers to access and provide information for exchange of information purposes in respect of a scheduled country on a unilateral basis. Jurisdictions which are eligible to become a scheduled country, are those in respect of which there is (a) a bilateral agreement or arrangement between Montserrat or the United Kingdom and the country that facilitates trade and investment in Montserrat or the United Kingdom by nationals or residents of that country; or (b) a Double Taxation Agreement between Montserrat or the United Kingdom and the country, if that Agreement does
not cover exchange of information on taxation matters to the OECD standard. The Governor may bind Montserrat to execute requests from a scheduled country by order published in Montserrats Gazette that sets out the scope of the assistance offered to the jurisdiction and any other conditions subject to which requests are to be executed (TIE Act, section 6). 158. The Governor in Council made Rules for the Exchange of Information on Taxation Matters to govern the exchange of information on taxation matters with scheduled countries, pursuant to section 28 of the TIE Act. These Rules, dated 6 October 2011, are largely based on the OECD Model Tax Information Exchange Agreement. They apply unless otherwise provided under section 6(3) of the Act in an Order scheduling the country. Currently, no jurisdiction is designated as a scheduled country. As the conditions and limits for the unilateral transmission of information by Montserrat are to be set out in the individual order scheduling a particular jurisdiction, the present report cannot definitively assess whether this way of exchanging information could meet the standard.
Foreseeably relevant standard (ToR C.1.1)

159. The international standard for exchange of information envisages information exchange upon request to the widest possible extent. Nevertheless it does not allow fishing expeditions, i.e. speculative requests for information that have no apparent nexus to an open inquiry or investigation. The balance between these two competing considerations is captured in the standard of foreseeable relevance which is included in Article 1 of the OECD Model TIEA, set out below: 7 The competent authorities of the Contracting Parties shall provide assistance through exchange of information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Contracting Parties concerning taxes covered by this Agreement. Such information shall include information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters. 160. All TIEAs concluded by Montserrat meet the foreseeably relevant standard set out above and described further in the Commentary to Article 1 of the OECD Model TIEA. Similarly, the protocol to the DTC with the United Kingdom provides for the exchange of information that is foreseeably relevant for carrying out the provisions of the arrangement or of the domestic laws of the parties.
7. Article 26(1) of the Model Tax Convention contains a similar provision.

161. Under Article 2 of the TIEAs concluded with Belgium and Germany the requested party is under no obligation to provide information which is neither held by the authorities nor in the possession of nor obtainable by persons who are within its territorial jurisdiction. These provisions use the words obtainable by instead of the expression in control of used in Article 2 of the OECD Model TIEA. The Montserratian authorities consider that the term obtainable by to be broader or narrower than in control of. The interpretation and implementation of those provisions will be monitored in Phase 2 of the review process.
In respect of all persons (ToR C.1.2)

162. For exchange of information to be effective it is necessary that a jurisdictions obligation to provide information is not restricted by the residence or nationality of the person to whom the information relates or by the residence or nationality of the person in possession or control of the information requested. For this reason the international standard for exchange of information envisages that exchange of information mechanisms will provide for exchange of information in respect of all persons. 163. None of Montserrats TIEAs nor the protocol to the DTC with the United Kingdom is restricted to certain persons such as those considered resident in or nationals of one of the contracting jurisdictions, or precludes the application of EOI provisions in respect to certain types of entities. 164. The TIEA with the Netherlands expressly indicates that information shall be exchanged without regard to whether the person to whom the information relates is a resident, national or citizen of a contracting party, or whether the person by whom the information is held is a resident, national or citizen of a contracting party.
Obligation to exchange all types of information (ToR C.1.3)

165. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity. Both the OECD Model Convention and the OECD Model TIEA, which are primary authoritative sources of the standards, stipulate that bank secrecy cannot form the basis for declining a request to provide information and that a request for information cannot be declined solely because the information is held by nominees or persons acting in an agency or fiduciary capacity or because the information relates to an ownership interest. 166. The TIEAs concluded by Montserrat as well as the protocol to its DTC with the United Kingdom explicitly forbid the requested jurisdiction
to decline to supply the information requested solely because it is held by a financial institution, nominee or person acting in an agency or a fiduciary capacity, or because it relates to ownership interests in a person. 167. All of the TIEAs concluded by Montserrat expressly provide that information to be exchanged extends either to information on the beneficial ownership of companies, partnerships, trusts, foundations and other persons or all persons in an ownership chain of such entities.
Absence of domestic tax interest (ToR C.1.4)

168. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. A refusal to provide information based on a domestic tax interest requirement is not consistent with the international standard. EOI partners must be able to use their information gathering measures even though invoked solely to obtain and provide information to the requesting jurisdiction. 169. All of the TIEAs concluded by Montserrat as well as the protocol to its DTC with the United Kingdom explicitly permit the information to be exchanged, notwithstanding that it may not be required for a domestic tax purpose. In addition, Montserrats TIE Act does not constrain the competent authoritys access powers by a requirement that the information must be required for a domestic tax purpose.
Absence of dual criminality principles (ToR C.1.5)

170. The principle of dual criminality provides that assistance can only be provided if the conduct being investigated (and giving rise to the information request) would constitute a crime under the laws of the requested country if it had occurred in the requested country. In order to be effective, exchange of information should not be constrained by the application of the dual criminality principle. 171. None of the TIEAs concluded by Montserrat, nor the protocol to its DTC with the United Kingdom, apply the dual criminality principle to restrict the exchange of information.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
172. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to

information requested for tax administration purposes (also referred to as civil tax matters). 173. All of the TIEAs concluded by Montserrat explicitly or implicitly provide for the exchange of information in both civil and criminal tax matters.
Provide information in specific form requested (ToR C.1.7)

174. In some cases, a contracting party may need to receive information in a particular form to satisfy its evidentiary or other legal requirements. Such forms may include depositions of witnesses and authenticated copies of original records. Contracting parties should endeavour as far as possible to accommodate such requests. The requested party may decline to provide the information in the specific form requested if, for instance, the requested form is not known or permitted under its law or administrative practice. A refusal to provide the information in the form requested does not affect the obligation to provide the information. 175. All of the TIEAs concluded by Montserrat allow for information to be provided in the specific form requested, to the extent allowable under the requested jurisdictions domestic laws. In addition, there are no restrictions in Montserrats TIE Act that would prevent it from providing information in a specific form.
In force (ToR C.1.8)

176. Exchange of information cannot take place unless a jurisdiction has EOI arrangements in force. Where EOI arrangements have been signed, the international standard requires that jurisdictions must take all steps necessary to bring them into force expeditiously. 177. Montserrat has signed 12 arrangements which allow for the exchange of information for tax purposes to the standard (11 TIEAs and 1 protocol to a DTC), out of which only seven are now in force, despite the fact that Montserrat has ratified them all but the TIEA signed with Germany in October 2011 (the two DTCs with Switzerland and the United Kingdom have been in force for a long time). 179. It appears that for some other arrangements not in force, the treaty partner has not finalised its internal procedures (e.g. Belgium, Iceland and Sweden). Montserrat has notified all these partners of the conclusion of its internal procedure.
Be given effect through domestic law (ToR C.1.9)

180. For information exchange to be effective the parties to an exchange of information arrangement need to enact any legislation necessary to comply with the terms of the arrangement.
181. The United Kingdom has constitutional responsibility for the defence and international relations of the Overseas Territories (including Montserrat) and the Crown Dependencies. However, in certain circumstances, they may be authorised to represent their own interests internationally by a process of entrustment, through letters of entrustment from the UK Government. A Letter of Entrustment is a formal means by which Her Majestys government transfers the competence to conclude international agreements to Montserrat. New letters of entrustment can be solicited to conclude TIEAs with jurisdictions which are not covered by existing Entrustment. 182. The TIE Act indicates that an EOI arrangement is given legal effect by the publication in the official Gazette of an order of the Governor in Council. The order must set out the full text of the arrangement and insert in Part A of the Schedule to the TIE Act the parties, effective date and designated competent authority (section 5). Ten TIEAs have been the object of separate orders of the Governor made on 14 June 2011, and published by exhibition at the Clerk of Councils Office on 21 June. The effective date specified in each of the orders is the one of the signature of the TIEA. 183. This procedure diverges from the articles of the TIEA that govern their entry into force, and differs from the TIE Act provision as well. First, the TIEAs generally provide that they will enter into force 30 days/2 months after the later of the dates on which each of the Parties has notified the other in writing that the formalities constitutionally or otherwise required in their respective jurisdictions have been complied with. However, as noted under the preceding subsection, the exchange of diplomatic notes has been completed with only six partners. Second, section 4 of the TIE Act provides that the act does not permit a request to be made or executed prior to the effective date, which is defined in section 2 as the date of entry into force stipulated in the agreement. However, the effective date mentioned in the order is the one of the signature of the TIEAs. It is questionable whether exchange of information can be performed, even if an order has been taken, where the corresponding TIEA has not properly entered into force. The legal consequences of these apparent inconsistencies are unknown, and this should be followed up on a bilateral basis with the jurisdictions concerned and will be addressed in Phase 2 of the review process.
C.2. Exchange of information mechanisms with all relevant partners

The jurisdictions network of information exchange mechanisms should cover all relevant partners.
184. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce their tax laws it may indicate a lack of commitment to implement the standards. 185. As of March 2012, Montserrat has signed a total of 11 TIEAs and 1 protocol to a DTC that meet the international standard, of which only six are in force and five others have been ratified by Montserrat. The major economic partner of Montserrat, the United Kingdom, is already part of this network. 186. Montserrat continues to work on expanding its network, with negotiations ongoing. Montserrat has also initialled a number of TIEAs and is waiting for its partners to be available to sign the agreements. Montserrat has never refused to enter an EOI arrangement with a Global Forum member; however the launch of some negotiations has been delayed in the past, as the authorisation to do so from the United Kingdom through letters of entrustment was awaited.
Phase 1 Determination The element is in place. Factors underlying recommendations Recommendations Montserrat should continue to develop its network of EOI mechanisms with all relevant partners.
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
187. Governments would not engage in information exchange without the assurance that the information provided would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved. Information exchange instruments must therefore contain confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used. In addition to the protections afforded by the confidentiality provisions of information exchange instruments, jurisdictions with tax systems generally impose strict confidentiality requirements on information collected for tax purposes.
Information received: disclosure, use, and safeguards (ToR C.3.1)

188. The TIEAs concluded by Montserrat, as well as the protocol to the DTC with the United Kingdom and its unilateral mechanism meet the standard for confidentiality, including the limitation on disclosure of information received and use of the information exchanged, which is reflected in Article 8 of the OECD Model TIEA. These confidentiality obligations are also reflected in specific domestic provisions.
Exchange of information mechanisms

189. The TIEAs of Montserrat include a confidentiality provision (Article 8) that conforms to the standard. Similarly, the EOI provision of the protocol to the DTC with the United Kingdom has confidentiality provisions to ensure that the information exchanged will be disclosed only to persons authorised by the treaty: Any information received by a Contracting Party under this Agreement shall be treated as confidential and may be disclosed only to persons or authorities (including courts and administrative bodies) in the jurisdiction of the Contracting Party concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this agreement. Such persons or authorities shall use such information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

190. All of the TIEAs and the protocol to the DTC with the United Kingdom also allow the disclosure of information exchanged for other purposes, with the consent of the requested party, in accordance with Article 8 of the Model TIEA and Commentary 12.3 to the Model Tax Convention. In addition, the EOI mechanisms of Montserrat, except the ones with Australia, Germany and the Netherlands, provide that information provided to the competent authority of the requesting party may be disclosed to another jurisdiction with the consent of the competent authority of the requested Party. 191. The TIE Act further regulates the use of exchanged information for other purposes, requiring the authorisation of the Montserrat Court (s. 25). The law does not provide any guidelines or conditions upon which the court would grant the authorisation. 192. The DTC with Switzerland also provides for confidentiality. Pursuant to its EOI provision, Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those concerned with the assessment and collection of the taxes which are the subject of this Arrangement.
Montserrat legislation
193. The maintenance of secrecy in the contracting party receiving information is a matter of domestic laws (whether it is the requested or the requesting jurisdiction). Sanctions for the violation of such secrecy in that party are governed by the administrative and penal laws of that party. The laws should also ensure that the competent authority can disclose confidential information to a requesting party. 194. Section 24 of the TIE Act indicates that the particulars of and all matters relating to a request must be treated as confidential if so instructed by the competent authority. Considering that all the TIEAs and DTCs of Montserrat contain a clause on confidentiality, it is expected that the competent authority would always consider an EOI request as confidential. 195. Tax officials in Montserrat have more generally a duty of official secrecy under section 43 of the Income and Corporation Tax Act, the breach of which constitutes an offence (Every person having any official duty or being employed in the administration of this Act shall regard and deal with all documents, information, returns, assessment lists, and copies of such lists relating to the income or items of income of any person as secret and confidential). The duty is lifted where provision is made for the granting of double taxation relief. Most of the EOI arrangements of Montserrat are TIEAs, and TIEAs do not provide for double taxation relief.
196. However, section 22 of the TIE Act protects any person, who divulges confidential information or gives testimony in compliance with an order or notice, against claims or actions for a breach of confidentiality duty under any other law in Montserrat. Therefore, when a tax official exchanges information under the TIE Act he/she is acting under the powers in that Act, and under the protection of section 22 of that Act, not under the Income and Corporation Tax Act, and so there is no offence of breach of confidentiality under section 43 of the Income and Corporation Tax Act.
All other information exchanged (ToR C.3.2)

197. Confidentiality rules should apply to all types of information exchanged, including information provided in a request, information transmitted in response to a request and any background documents to such requests. The provisions of Montserrats EOI arrangements are not restrictive on this respect.
C.4. Rights and safeguards of taxpayers and third parties

The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties.
Exceptions to requirement to provide information (ToR C.4.1)

198. The international standard allows requested parties not to supply information in response to a request in certain identified situations where an issue of trade, business or other secret may arise. All Montserrats TIEAs and the protocol to the DTC with the United Kingdom ensure that the contracting parties are not obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy. 8 199. Among other reasons, an information request can be declined where the requested information would disclose confidential communications protected by the attorney-client privilege, as defined in the commentary to the OECD Model Tax Convention. Attorney-client privilege is a feature of the
8. The DTC with Switzerland does not cover commercial secrets, but includes a reservation for sovereignty and security in addition to public order.

legal systems of many jurisdictions. However, communications between a client and an attorney or other admitted legal representative are, generally, only privileged to the extent that the attorney or other legal representative acts in his or her capacity as an attorney or other legal representative. Where attorney-client privilege is more broadly defined it does not provide valid grounds on which to decline a request for exchange of information. To the extent, therefore, that an attorney acts as a nominee shareholder, a trustee, a settlor, a company director or under a power of attorney to represent a company in its business affairs, exchange of information resulting from and relating to any such activity cannot be declined because of the attorney-client privilege rule. 200. All the TIEAs of Montserrat expressly refer to the attorney-client privilege as an exception to the disclosure of information. As mentioned in Section B.1, the precise scope of legal professional privilege in Montserrat is somewhat unclear. The TIEAs with Belgium and the Netherlands also specify that this does not prevent an attorney, solicitor or barrister from providing the name and address of a client where doing so would not constitute a breach of legal privilege. The practical impact will be considered as part of the Phase 2 review of Montserrat. 201. In respect of rights and safeguards of persons, the OECD Model TIEA provides that they remain applicable to the extent that they do not unduly prevent or delay effective exchange of information. In contrast, the TIEA with Australia provides that a requested party shall use its best endeavours to ensure that they do not so unduly prevent or delay effective EOI. The TIEA with Germany does not set any exception to the rights and safeguards in domestic law. Nevertheless, it is unlikely that this will materially affect exchange of information to international standards.
C.5. Timeliness of responses to requests for information

The jurisdiction should provide information under its network of agreements in a timely manner.
Responses within 90 days (ToR C.5.1)

202. In order for exchange of information to be effective, it needs to be provided in a timeframe which allows tax authorities to apply the information to the relevant cases. If a response is provided but only after a significant lapse of time, the information may no longer be of use to the requesting
authorities. This is particularly important in the context of international cooperation as cases in this area must be of sufficient importance to warrant making a request. 203. There are no provisions in Montserrats protocol to the DTC with the United Kingdom pertaining to the timeliness of responses or the timeframe within which responses should be provided. 204. All of Montserrats TIEAs require the provision of request confirmations, status updates or the provision of the requested information, within the timeframes foreshadowed in Article 5(6) of the OECD Model TIEA. 205. The only deadlines in the TIE Act relate to the notification rights of the person subject to an EOI request: the person has 30 days to contest the validity request (15 days for receiving the notice and 15 days to contest it).
Organisational process and resources (ToR C.5.2)

206. A review of Montserrats organisational process and resources will be conducted in the context of its Phase 2 review.
Absence of restrictive conditions on exchange of information (ToR C.5.3)

207. Exchange of information assistance should not be subject to unreasonable, disproportionate, or unduly restrictive conditions. 208. There are no laws or regulations in Montserrat that impose restrictive conditions on exchange of information, which would be incompatible with the international standard.
Phase 1 Determination The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 61
Summary of Determinations and Factors Underlying Recommendations

Factors underlying recommendations
Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1.) The element is in place, but certain aspects of the legal implementation of the element need improvement The Companies Act differentiates between shareholders and members, the difference being that only the latter are registered with the company. It remains unclear whether identity information on shareholders is maintained by the company or any public authority in Montserrat. Companies incorporated outside Montserrat which have their effective place of management and control in Montserrat (and thus tax resident there) are not expressly required to keep ownership information. Montserrat law only requires a service provider to obtain identity information on beneficiaries of a trust in cases of a higher level of risk for AML/CFT purposes. Montserrat should ensure that full ownership information on Montserratian companies is available, whether the owner is qualified as member or shareholder.
Montserrat should ensure the availability of ownership information of all foreign companies with sufficient nexus to Montserrat.
Montserrat should ensure that trustees in Montserrat maintain identity information on the beneficiaries of trusts in all cases.
62 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2.) The element is not in place. Montserrats legislation does not clearly provide for detailed and adequate accounting records on LLCs that operate outside Montserrat. Montserrat should ensure that all LLCs must keep accounting records that are sufficient to record and explain the transactions and that at any time enable the financial position of the entity to be determined with reasonable accuracy Montserrat should introduce binding requirements on all relevant entities to maintain relevant underlying documentation for at least five years. Montserrat should ensure that its laws require that accounting records, including underlying documentation, are kept for all entities for a minimum of 5 years
There is no express requirement that any relevant entities and arrangements keep underlying documentation. Only the entities covered by the record keeping obligations of the tax law are required to retain accounting records for a minimum 5 year period.
Banking information should be available for all account-holders. (ToR A.3.) The element is in place. Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (Tor B.1.) The element is in place. The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2.) The element is in place. The prior notification procedure in civil tax matters only allows for an exception when the whereabouts of the taxpayer are not disclosed to the competent authority. It is recommended that wider exceptions from prior notification be permitted in civil tax matters (e.g. in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of the success of the investigation conducted by the requesting jurisdiction).
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 63
Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1.) The element is in place. The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2.) The element is in place. Montserrat should continue to develop its network of EOI mechanisms with all relevant partners.
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3.) The element is in place. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4.) The element is in place. The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5.) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review.
ANNEXES 65
Annex 1: Jurisdictions Response to the Review Report*
Montserrat is a small Caribbean island and a British Overseas Territory, with a land mass of approximately 102 square kilometres and a population of 4 922 persons, predominantly comprised of Montserratians and CARICOM nationals, with a small American, European and Canadian resident population. Persons over the age of 60 years represent the largest resident population group. As an Overseas Territory of the United Kingdom, Montserrats constitution and laws require the approval of the UK. Additionally, as a consequence of its constitutional relationship with the UK, it is also an Overseas Country and Territory (OCT) of the European Union and is listed as such in the EU constitution. Montserrat wishes to take this opportunity to first reiterate its commitment to having in place systems for sharing of information in a manner that would lead to greater transparency, fairness and equity. As a result of this commitment the Government of Montserrat has substantially repealed its legislation to bring it in line with global practices from as far back as 2006. Our current menu of regulations for the administration of taxation and financial services reflect this fact.
Structure of Montserrats Financial and Commercial Industry

Montserrat has the smallest financial sector of the British Overseas Caribbean Territories. The commercial entities in Montserrat can be classified as companies and partnerships. Montserrat also recognizes trusts and limited liability companies. As of March 2012, there were 332 ordinary companies and 10 international business companies registered with the Registrar of Companies, 1 registered trust and 3 limited liability companies.
* This Annex presents the Jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
66 ANNEXES
Transparency and exchange of information for tax purposes

On February 27, 2002, Montserrat expressed its commitment to observing the principles of effective exchange of information and transparency in tax matters. It gave an undertaking then that no new legislation and practices will be introduced that undermine these principles. Also, it committed to a systematic review and amendment of existing legislation to ensure that sections that offend the transparency principle are adjusted. Montserrat has complied with these principles and this is evidenced by the enactment of the Tax Information Exchange Act and the Tax Information Exchange Rules, which provide for the mutual exchange of information on tax matters between Montserrat and other countries. Montserrat also fulfilled the requirements of the OECD by signing thirteen (13) Exchange of Information Agreements that include 11 tax information exchange agreements and two double taxation agreements. Similarly, the Income and Corporation Tax (Amendment) Act 2011 was enacted to require the retention of accounting records for a period of seven years, two years above the requirement set by the OECD. Further, Cabinet is being asked to consider whether or not to apply to the UK to extend the Convention on Mutual Administrative Assistance on Tax Matters to Montserrat. We are confident that Montserrat has a strong taxation and financial framework that does not undermine the rest of the global system. Clearly, there is room for improvement but that I believe is something that all the members of this Global Forum aspire to in order to further their efforts to comply with the transparency criteria established by the Forum.
Preliminary answer to recommendations

The Peer Review Group, in Montserrats Phase 1 Review recommends at ToR A.1 that Montserrat should ensure that full ownership information on Montserratian companies is available, whether the owner is qualified as member or shareholder. However, although a shareholder (who is an owner of a share, but not a member of the company) isnt entered in the register of members and no legal obligation is placed on the company to recognize him until shares are registered, companies require that a transferor notify the company of the transfer. In discussing this element further with the assessors, Montserrat gave an undertaking to review the relevant sections of the Companies Act to clarify the position. In respect to ToR A.2, this element relates to the obligation to maintain accounting records including source documents which was deemed to be not
ANNEXES 67
in place. Montserrat recognizes its obligation under this component of the Terms of Reference and the importance that the existence of this element plays in achieving transparency and the effective exchange of information and the need to cure the defect highlighted. Montserrat undertakes to recommend an amendment to Cabinet for approval and enactment. Another element the Peer Group determined is in place is ToR B.2. However, the group recommended that Montserrat provide wider exceptions for the provision of information prior to notification. Montserrat has made provision for a person to be given prior notification in a civil matter and empowers the Tax Authority to provide information, without notification, if the relevant persons whereabouts are unknown. Montserrat recognizes the need for urgency in some situations but also recognizes the need to protect the rights afforded to a person under its Constitution. This is a balance we feel is best exercised by the relevant authority at the time of the request.
Conclusion
Montserrat is a small jurisdiction, and the size and scope of institutions existing in other jurisdictions doesnt exist in Montserrat. Most transactions conducted in Montserrat are small. The largest transactions are in real estate transactions, conducted by Montserratians and resident persons for private use, as opposed to transfers between companies. Nevertheless, Montserrat has continually taken action to effectively improve its exchange of information framework. Montserrat also remains committed to have in place a robust general legal framework that does not undermine its international obligations but more important to have an acceptable legal system that facilitates future development. John Skerritt, Financial Secretary of Montserrat
68 ANNEXES
Annex 2: List of Montserrat Exchange-Of-Information Mechanisms
Exchange of information mechanisms signed by Montserrat as of March 2012, in alphabetical order:

Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 Australia Belgium Denmark Faroe Islands Finland Germany Greenland Iceland Netherlands Norway Sweden Switzerland* United Kingdom Type of arrangement TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA DTC DTC DTC Protocol Signed 22.11.2010 16.02.2010 22.11.2010 22.11.2010 22.11.2010 28.10.2011 22.11.2010 22.11.2010 10.12.2009 22.11.2010 22.11.2010 20.08.1963 19.12.1947 09.12.2009 Date entered into force/in effect 01.07.2010 Ratified by Montserrat on 14.06.2011 21.10.2011 In force 31.12.2011 Ratified by Montserrat on 14.06.2011 Ratified by Montserrat on 14.06.2011 01.12.2011 19.12.2011 Ratified by Montserrat on 14.06.2011 01.01.1961 19.12.1947 14.03.2012
* Switzerlands double tax convention with Montserrat arises from the ongoing application to Montserrat of the United Kingdoms 1954 double tax convention with Switzerland.
DTCs and protocols are available in English on the EOI Portal at http:// eoi-tax.org/.
ANNEXES 69
Annex 3: List of Laws, Regulations and Other Material
Banking Act, Cap 11.03 International Banking and Trust Companies Act, Cap. 11.04 Trusts Act Cap. 11.06 Partnership Act, Cap. 11.09 Limited Partnership Act, Cap. 11.10 Registration of Business Names Act, Cap. 11.11 Companies Act, Cap. 11.12 International Business Companies Act, Cap. 11.13 Limited Liability Company Act, Cap. 11.14 and Limited Liability Company (Amendment) Act 2010 Confidential Information Act, Cap. 11.25 Company Management Act Cap. 11.26 Income Tax and Corporation Act Cap. 17.01 and Income and Corporation Tax Act (Amendment) Act No. 21 of 2011 Tax Information Exchange Act Tax No. 21 of 2010 Financial Services Act 2008 AML/CFT Regulations 2010
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Union takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisations statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members.
OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2012 21 1 P) ISBN 978-92-64-17819-9 No. 60111 2012
Global Forum on Transparency and Exchange of Information for Tax Purposes
PEER REVIEWS, PHASE 1: MONTSERRAT

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org.
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Montserrat 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264178205-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.
ISBN 978-92-64-17819-9 23 2012 21 1 P
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Phase 1 Legal and Regulatory Framework

ISBN 978-92-64-17819-9 (print) ISBN 978-92-64-17820-5 (PDF)

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

ABOUT THE GLOBAL FORUM 5

About the Global Forum

Information and methodology used for the peer review of Montserrat

Commercial laws and financial sector

International exchange of information for tax purposes

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 15

Compliance with the Standards

16 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

A.1. Ownership and identity information

Companies (ToR 3 A.1.1) Type of Companies in Montserrat

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 17

External (foreign) Companies

International Business Companies (IBC)

18 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Limited Liability Companies (LLC)

Ownership information held by government authorities

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19

External (Foreign) Companies

International Business Companies (IBC)

Limited Liability Companies (LLC)

20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Information held by the companies Ordinary Companies

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 21

External (foreign) companies

International Business Companies (IBC)

Limited Liability Companies (LLC)

Ownership Information held by nominees and service providers

22 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

Bearer shares (ToR A.1.2)

COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23

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Partnerships (ToR A.1.3)

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Ownership and identity information held by the public authorities

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Information held by the Partnership or Partners

Information held by service providers

Trusts (ToR A.1.4)

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Foundations (ToR A.1.5)

Other entities and arrangements

Enforcement provisions to ensure availability of information (ToR A.1.6)

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A.2. Accounting records

General requirements (ToR A.2.1)

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Underlying documents (ToR A.2.2)

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5-year retention standard (ToR A.2.3)

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A.3. Banking information

Record-keeping requirements (ToR A.3.1)