The new global automatic exchange of information affects everyone who lives in France and has financial assets or receives income outside France. Are you sure you are paying tax in the right country?
The international tax planning landscape has changed dramatically over the last decade or so. When the Common Reporting Standard went live in January 2016, financial privacy was consigned to history. This affects everyone who owns financial assets and/or receives income outside their country of residence, for example if you live in France and have a UK investment portfolio, bank accounts in the Isle of Man or Switzerland, UK pension funds or property.
With the UK announcing a new “Requirement to Correct” obligation last year, and the first information exchange under the Common Reporting Standard to take place this year, this is a good time to remind readers about the new automatic exchange of information regime and the importance of taking extra care to ensure you are paying tax correctly and in the right country.
The UK and France have been particularly tough on offshore tax evasion and instrumental in creating a worldwide solution to prevent it. Tax authorities now have access to much greater levels of information about offshore financial assets, and will start to use this data to detect irregularities with offshore income, gains and wealth. They will compare it to what is declared on tax returns, and today’s technology makes it increasingly easier for them.
France’s crackdown on tax evasion yielded €12.2 billion in 2015, up almost a fifth from the previous year. While most of this came from multinational companies, the €2.6 billion collected from individuals was €700 million more than in 2014, comfortably beating the government’s €2 billion target.
HMRC’s new “Requirement to Correct”
The UK’s HM Revenue & Customs released a consultation paper last year called “Tackling offshore tax evasion: A requirement to correct”. The proposed legislation gives UK taxpayers with outstanding tax liabilities in relation to offshore assets a deadline of September 2018 to come forward and correct those liabilities. This applies to income, capital gains and inheritance taxes.
After this, tougher sanctions for “failing to correct” will come into effect. Penalties will rise to up to three times the tax that should have been paid, with the increased possibility of criminal charges.
HMRC said it “will be relentless in its pursuit of evaders”, though it also recognises that failure to comply with tax obligations is not always deliberate and can be caused by careless and unintentional behaviour. The government supports voluntary compliance to achieve better outcomes for everyone and to put the taxpayer back on a compliant footing, and a new Worldwide Disclosure Facility opened on 5th September 2016.
Global automatic exchange of information
HMRC, along with the French tax authorities, is looking ahead to when they start to receive data under the Common Reporting Standard. This new global automatic exchange of information regime is a sea change in how tax authorities share data on taxpayers and their offshore assets and income. The French and UK authorities will receive a wide range of data on offshore accounts held by its residents – they can track your wealth like never before.
Over 100 countries have committed to automatically exchange taxpayer information. The 54 “early adopters” began collecting data in 2016, ready for the first exchange by September 2017. The other countries began a year later. All committed jurisdictions will be sharing data in September 2018.
HMRC is actually already starting to receive some information, as the UK’s Crown Dependencies and Offshore Territories began providing data to HMRC last October.
Information to be shared
If you are a French resident and have financial assets outside France, every year financial institutions will collect data including your name, address, date of birth and tax identification number; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets.
All this information will land right on the French taxman’s desk – without them having to ask for it.
French tax obligations
French residents have to declare their worldwide income, gains and wealth. This includes income that is taxed elsewhere, such as UK rental income, ISAs and pensions. So even though you have paid tax on this income in the UK, you are still obliged to declare it in France. Many people who have paid UK tax mistakenly believe they have no further requirement to declare it on their French tax returns. They may have no idea they are doing anything wrong, but the error will soon catch up with them now.
Although UK government service pensions remain taxable in the UK and are not taxed in France, the income must still be declared and is taken into account for the purposes of determining the rate of tax payable on your other French source income.
Another situation we come across is where British expatiates retain UK investment portfolios. Their UK managers actively buy and sell assets to create investment growth, paying the appropriate taxes to HMRC ¬– oblivious to the fact that they may create tax liabilities in France most times a trade is made. You should speak to an adviser based in France who can help you establish an environment where you can accumulate investment growth without creating tax problems and without having to think about tax implications every time you sell a security.
Cross-border tax mitigation can be a minefield for expatriates, and specialist wealth management guidance is necessary these days to have peace of mind – both that you are not paying more tax than necessary and that your arrangements are fully compliant. It is always good to review your tax planning from time to time anyway, to make sure it is up to date with French tax changes and international legislation. Take advice on the effective and compliant tax efficient arrangements that are available for your investments, pensions and assets to establish the most effective solution for you.
Any questions? Ask our financial advisers for help.
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; an individual is advised to seek personalised advice.