Exchange Of Tax Information On The Increase


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Jersey and Guernsey have joined the Isle of Man in agreeing to automatically disclose tax information with the UK. Luxembourg has suggested it will consider easing its banking secrec

Jersey and Guernsey have joined the Isle of Man in agreeing to automatically disclose tax information with the UK. Luxembourg has suggested it will consider easing its banking secrecy rules. From next year the US will start to receive information on all its citizens? overseas bank accounts. Automatic exchange of information is becoming the global standard, and we can expect more jurisdictions to sign up over the coming years.

The Isle of Man initialled its agreement with the UK in mid-February. This was followed a few weeks later by Guernsey, the Cayman Islands and finally Jersey. These offshore centres have agreed to automatically report bank account information to the UK tax authorities.

When the agreements come into effect, financial institutions will start to provide a broad range of information on bank accounts and other financial assets held by UK taxpayers. HM Revenue & Customs (HMRC) will receive more information on these funds than it currently does, and can then compare the data with that provided by the taxpayer on their past tax returns.

It is understood that the UK is looking to sign similar agreements with Gibraltar, Bermuda and the Virgin Islands.

The agreements provide for a ?disclosure facility?, a type of tax amnesty to allow investors with assets in these centres to come forward and regularise their past tax affairs before information starts being exchanged on their accounts. Once it closes in 2017 HMRC will start to impose heavier penalties on those caught evading tax.

These agreements with the UK are based on the ones they, and the UK itself, are signing with the US as part of its Foreign Account Tax Compliance Act (FATCA). Starting next year, it obliges foreign financial institutions over the world to provide information on US citizens to the US tax authority, the Internal Revenue Service (IRS). The institutions have to enter into compliance agreements with the US Treasury to report on US clients, or they will suffer financial sanctions in the US.

FATCA is likely to be increasingly used as a template for other automatic exchange of information agreements. As more countries sign them, other financial centres will come under increased pressure to follow suit.

Information is automatically exchanged within the EU as part of its Savings Tax Directive. Only two Member States, Luxembourg and Austria, retain banking secrecy and impose a withholding tax instead.

However, Luxembourg?s Finance Minister, Luc Frieden, has now indicated that Luxembourg is prepared to consider easing its banking secrecy rules.

He told the German newspaper Frankfurter Allgemeine Sonntagszeitung:

?The international trend is going toward an automatic exchange of bank deposit information. We no longer strictly oppose that.?

Luxembourg and Austria have so far insisted on maintaining banking secrecy in order to keep themselves on equal footing with Switzerland. Although Switzerland does comply with the Savings Tax Directive, it only deducts the withholding tax and does not disclose personal information. Switzerland does apply the transparency standards laid out by the Organisation for Economic Cooperation and Development (OECD), but this only provides for exchange of information on request.

Luxembourg and Austria also exchange information on request, but automatic exchange of information makes it much easier for tax authorities to spot tax evasion and illegal movement of capital.

Luxembourg?s recent comments imply quite a significant change in its stance. It may believe that Switzerland too may have to revise its banking secrecy laws before too long. If and when it does start automatic exchange of information, this would also enable the EU to put more pressure on Switzerland to do the same.

EU Taxation Commissioner, Algirdas Semeta, welcomed Luxembourg?s openness to exchange of information: ?This creates a great opportunity for fast progress on the EU savings directive, which is crucial for greater transparency and a stronger hand against tax evaders.?

The spotlight is now on Austria, he said, which ?could find itself in a lonely and quite unsustainable position?.

There has been a mixed response from Austria. Finance Minister Maria Fekter said she would ?fight like a lion? to protect bank account holders identities, but Chancellor Werner Faymann said he was ready for negotiations on a more intensive exchange of data.

Faymann also said that Germany should push the UK on the role of Channel Islands. Now that the Isle of Man and Channel Islands have agreed to automatically disclose information to the UK, other EU countries may feel justified in expecting the same treatment.

We expect that automatic exchange of information will increase over the coming years. Anyone who believes that banking secrecy will be around for ever could be in for a shock. The consequences could be very costly. It is much better to voluntarily revise your finances in a legitimate manner now, rather than wait until it is suddenly too late. For advice on the compliant tax planning arrangements available in Spain, France, Portugal, Cyprus and Malta, speak to Blevins Franks.

10 April 2013

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.