France is one of the leading crusaders against tax evasion. Time is running out for those French residents who have failed to declare any of their income and wealth, including that generated or h
France is one of the leading crusaders against tax evasion. Time is running out for those French residents who have failed to declare any of their income and wealth, including that generated or held offshore.
In March France signed Tax Information Exchange Agreements with Jersey, Guernsey and the Isle of Man, which means they can now more routinely obtain information on bank accounts held in the UK offshore islands if a French resident is suspected of evading tax in France.
In June a new measure was announced to require all French banks to disclose information regarding their links to offshore centres. Credit institutions in France are now legally obliged to publish information in their accounts regarding their activities in jurisdictions regarded as tax havens.
On 27th August French Minister for the Economy Christine Lagarde met with Swiss President Hans Rudolf Merz to amend the double taxation agreement the two countries share in order to provide for greater transparency and the exchange of information in tax matters in line with the Organisation for Economic Co-operation and Development (OECD)?s internationally-agreed standard.
This revised agreement allows French authorities to conduct investigations in bank accounts in Switzerland by its residents who they suspect are guilty of tax evasion. Or, in other words, Swiss banking secrecy no longer exists for those French residents whom the authorities believe have not declared, or under declared, income and capital held in Switzerland.
Just three days later the French government announced that it had obtained a list of 3,000 suspected tax evaders holding around ?3 billion in Swiss bank accounts.
Chief of staff at the budget ministry, Sebastien Proto, warned: ?This is not an empty threat. We are getting more and more information and protection is falling. Bank secrecy is being rolled back?.
Budget minister Eric Woerth told the Journal du Dimanche that the government would pursue the account holders if necessary to force them to pay up. If they do not come forward and regularise their situations, the authorities will ?bring them to justice?.
According to the government, it received much of the information on the 3,000 Swiss accounts from two banks operating in France which had volunteered the information. The rest came from its own tax investigation.
Woerth explained that France was now ?in the process of constructing a post crisis capitalism? and said that banks were ?an essential link in this change?. He told the newspaper that he would be summoning banks to a meeting with himself and Lagarde, to ask them to hand over information on clients who had transferred funds to countries regarded as tax havens.
There is popular pressure in France for the government to clampdown on financial misbehaviour by the wealthy. Besides the tax evasion crackdown president Nicolas Sarkozy has also announced his intention to curb the bonus culture in banks.
While it is good news that France was one of the first countries to come out of recession, it is not out of the woods yet. The government faces a growing deficit because of spending measures aimed at combating the crisis, at the same time as falling tax receipts. For example, the corporation tax receipts for the first half of the year were a mere 20% of the revenue received over the same period the year before. The total received for this tax in 2008 was ?49.2 billion, but this year the government only expects to receive around ?20-?25 billion.
At the end of June the national deficit was ?86.6 billion, compared with ?32.8 billion in 2008.
Sarkozy is in a difficult position because while he needs to increase tax revenue, during his election campaign he pledged not to raise taxes. He therefore needs to find other measures to increase tax revenue and with the crackdown on tax evasion he can also prove that he will enforce the rules to curb the excesses of the wealthy.
He is of course aided by the growing international campaign for increased tax transparency, and there is growing support from the public for tax evaders to be made to pay their share. Speaking to the OECD Global Forum on Transparency and Exchange of Information at the beginning of September, Secretary-General Angel Gurria said that over 90 new Tax Information Exchange Agreements and double taxation conventions had been signed since April.
?What we are witnessing is nothing short of a revolution?, he argued. ?By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign. With the crisis, global public opinion?s expectations are high, their tolerance of non-compliance is zero and we must deliver?.
The French government?s crusade against tax evaders is only going to increase and the investigation into Swiss bank accounts is just the start of a campaign that will eventually uncover many tax evaders who have no connection with Switzerland at all. The net is tightening, and not only around the very wealthy. Anyone who has failed to declare all their income and wealth could find themselves in trouble, and now is the time to ensure your affairs are fully in order to avoid the fines and penalties and possibly more serious punishments that follow discovery.
When it comes to using offshore bank accounts in centres like Switzerland and the Isle of Man (and paying the withholding tax but ?forgetting? to declare the income in France), the irony is that it is often possible to pay less tax using legitimate arrangements than you do in withholding taxes. At the same time you may also be able to lower your wealth and succession tax liabilities if needed.
You can save yourself a lot of worry by using such legitimate structures, but always seek advice from an experienced and qualified tax and financial adviser to ensure you get it right and that the arrangement is suitable for you.
By Bill Blevins, Managing Director, Blevins Franks
9th September 2009
