G20 And OECD Continue To Fight Offshore Tax Evasion

22.11.11

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The taxman certainly has wealthy taxpayers in his sights this year. Not only is he raising their taxes, he also seems to be assuming that they are potential tax evaders if they use o

The taxman certainly has wealthy taxpayers in his sights this year. Not only is he raising their taxes, he also seems to be assuming that they are potential tax evaders if they use offshore bank accounts. While we all know why governments need to increase tax revenue at this point in time, you would be forgiven for feeling as though you were being blamed for the financial crisis and their huge budget deficits!

The G20 London summit April 2009 held in the wake of the financial crisis was a decisive moment in the global fight against offshore tax evasion and 700 tax agreements were signed following it.

Fast forward to November 2011 and governments are probably even more desperate for tax revenue, so it is no surprise that the subject of tackling offshore tax evasion came up again at the G20 summit in Cannes.

In the lead up to the summit the Organisation for Economic Co-Operation and Development (OECD) released a report entitled ?The Era of Bank Secrecy is Over?, dated 26th October 2011. It says that the initiative taken by global leaders to end banking secrecy in April 2009 has ?radically improved? countries? ability to tackle tax evasion through the exploitation of offshore financial centres and banking secrecy.

According to the report, the G20/OECD initiatives are paying off, with the main outcomes being:

– Almost ?14bn of additional tax revenue secured in the last two years in 20 countries.

– The fairness of the tax system has improved since most of this revenue has come from wealthy people who had been evading taxes.

– Banks are changing their attitudes towards facilitating tax evasion and moving away from relying on bank secrecy.

Nonetheless, ?billions of dollars? of undeclared assets remain offshore and further action is needed.

The ?14bn of additional revenue was raised through voluntary compliance initiatives. With banking secrecy slowly being removed, more people realise they cannot hide assets offshore for much longer and are opting to take opportunities to come clean to the taxman. Over the 20 countries surveyed, more than 100,000 people came forward and admitted to up to ?150bn of undeclared assets.

These are considered ?conservative estimates? and the OECD also expects a multiple of these amounts to be collected over the coming years since the ?deterrence? effect will send a strong signal to would be evaders.

The figures also only reflect money collected from voluntary disclosure schemes, so other initiatives ?probably represents a multiple of these amounts?.

The report goes on to state: ?Better offshore compliance is one of the most effective responses to those who call for the wealthy to pay more taxes.?

According to the OECD, the G20 initiative has improved the fairness of the tax system since offshore compliance initiatives have targeted those with easiest access to offshore centres ? the wealthy. Not only do authorities collect significant back taxes as a result, but they also gather new information about offshore tax evasion by high net worth individuals and this helps them with future crackdowns and investigations.

Here are some examples of tax revenue collected over the last two years from offshore voluntary disclosure initiatives ?

France ? ?1.2 billion from over 4,700 taxpayers

Italy – ?5.6 billion from total undisclosed assets of ?104.5 billion

Spain ? ?260 million

UK – ?160 million from over 1,350 taxpayers

US ? ?2 billion

Speaking at the Cannes G20 summit in early November, Jeffrey Owens, director of the OECD?s centre for tax policy and administration, told global leaders that they could fill black holes in their public finances by cooperating to remove tax loopholes and by exchanging information.

He described the tax collected so far from previously hidden assets as just ?the tip of the iceberg?, saying that ?there is probably $1 trillion in assets held offshore?. A tougher crackdown on tax evasion by wealthier individuals could therefore generate up to $100 billion (?73 billion) in much needed tax revenue.

The call came as all G20 governments agreed to a multilateral convention to tackle tax evasion more effectively.

Back in 2009 the G20 had called for action ?to make it easier for developing countries to secure the benefits of the new cooperative tax environment?. The OECD and Council of Europe have now developed a protocol amending the convention to open it up to countries that are neither members of the OECD nor of the Council of Europe.

OECD Secretary-General Angel Gurr? described it as a ?major step forward?, adding that ?tax cooperation and compliance are of crucial importance for all countries and citizens – and not only in times of a tight fiscal and budgetary environment?.

France?s president Nicolas Sarkozy caused a stir in his conclusion speech at the summit when he listed eleven countries ? including Switzerland ? which should be ostracised for being ?tax havens?. He said that Switzerland, Liechtenstein, Antigua, Barbados, Botswana, Brunei, Panama, Seychelles, Trinidad & Tobago, Uruguay and Vanuatu should be shunned because they refuse to automatically exchange tax information with all countries.

While automatic exchange of information is a stated objective of the European Commission, the OECD Global Forum does not go that far. Switzerland was quick to react by stating that it has already met the OECD standards on tax information exchange.

Nonetheless, while Switzerland has made various concessions over the last few years, it is still under international pressure to relax its banking secrecy even further.

When looking to protect your assets from tax it is important to only use arrangements that are fully compliant with the tax regulations of your country of residence. For advice on the arrangements available in your area speak to an experienced tax and wealth manager like Blevins Franks.

By Bill Blevins, Managing Director, Blevins Franks

11th November 2011

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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