2009 ? A Very Taxing Year – Part 1

22.12.09

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It was a year of what seemed like relentless news on the crackdown on offshore banks and tax evasion; national budgets in deficit (due in no small part to falling tax revenues) and proposals for t

It was a year of what seemed like relentless news on the crackdown on offshore banks and tax evasion; national budgets in deficit (due in no small part to falling tax revenues) and proposals for tax increases. Yes, 2009 was a very taxing year!

It started to take off in February when Britain?s prime minister, Gordon Brown, spearheaded the drive to stamp out tax evasion through Offshore Financial Centres (OFCs), otherwise known as ?tax havens?. The UK would be hosting the G20 Summit of leading finance ministers and central bank governors in April and Brown called on them for support.

We want the whole of the world to take action,? Brown said. ?That will mean action against regulatory and tax havens in parts of the world which have escaped the regulatory attention they need. The changes we make will have to apply to all jurisdictions around the world.

The attack on OFCs was fired by the global financial crisis and the desperate need for governments worldwide to replenish depleted treasury coffers by recouping tax from wealth hidden offshore.

Here?s a brief reminder of the key issues which happened next –

February ? Swiss bank UBS agrees to a $780 million payout in fines to the US to settle a claim that it helped approximately 17,000 US taxpayers to escape paying the US tax due. It was hailed as one of the biggest settlements ever and another nail in the coffin for banking secrecy. UBS also agrees to hand over to the Internal Revenue Service (IRS) details of 250 people involved. The US Department of Justice immediately files a lawsuit to force UBS to disclose the details of 52,000 US account holders holding ?14.8 billion in assets.

?The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so,? the Justice Department?s Tax Division warned.

March ? Several OFCs including Liechtenstein, Andorra, Monaco, Austria, Luxembourg and Belgium announce they will co-operate with the Organisation for Economic Co-Operation and Development?s (OECD) principles on exchange of information concerning tax matters in accordance with international standards.

Renowned for its banking secrecy principles, on 13th March Switzerland agrees to relax its rules and to divulge more information on suspected tax evaders to other countries. To avoid being blacklisted by the OECD, the Swiss Federal Council announces its intention to adopt OECD standards on administrative assistance in tax matters in accordance with the OECD Model Tax Convention. It means that Switzerland will now allow the exchange of information with other countries in individual cases where a specific and justified request has been made.

Brown hails Switzerland?s announcement as ?the beginning of the end of tax havens?.

In the US, a second Stop Tax Haven Abuse Act is launched in an attempt to put a halt to the $100 billion a year lost due to offshore tax abuse.

April ? At the G20 Summit in London on 2nd April world leaders pledge to ??fight back against the global recession, not with words but with a plan for global recovery and reform?.

On the crackdown on tax evasion delegates declare that ?the era of banking secrecy is over?. They vow to ??take action against non co-operative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems?.

Following the G20 Summit, Credit Suisse starts closing down the offshore accounts of US clients who have not declared them to the US authorities, and UBS issues a global travel ban for all client-facing staff in its Wealth Management & Swiss Bank and Wealth Management US divisions.

The UK Budget on 22nd April produces a blow for high earners when Chancellor of the Exchequer, Alistair Darling, announces a 50% income tax rate for those earning over ?150,000 from 6th April 2010.

I believe that it is fair that those who have gained the most should contribute more,? Darling says.

Darling also warns that tax evaders will be named and shamed where underpaid tax exceeds ?25,000 and he announces a New Disclosure Opportunity to run from the autumn until March 2010.

May ? The National Institute of Economic and Social Research says that the basic rate of income tax will have to go up by 15p in the Pound – the equivalent of a basic tax rate of 37% – to meet the Chancellor?s forecast of UK public finances balancing within ten years.

France denies a ?tax amnesty? for French taxpayers who have evaded tax through tax havens but sets up a voluntary disclosure facility to allow taxpayers to comply with the tax rules and avoid possible criminal prosecution.

June ? France announces a new measure requiring all French banks to disclose information regarding their links to tax havens.

On 24th June the Isle of Man announces the end of banking secrecy for EU residents. From 1st July 2011, under the EU Savings Tax Directive it will automatically exchange bank account information with tax authorities in the account holder?s country of residence. The withholding tax option will be stopped.

In Part 2 I will look at what happens next. For advice on tax planning and how to legitimately mitigate your tax bill speak to an experienced tax and financial adviser like Blevins Franks.

By Bill Blevins, Managing Director, Blevins Franks

10th December 2009

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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