Since the G20 summit in April there has been a raft of offshore financial centres rushing to comply with the Organisation for Economic Co-operation and Development?s (OECD) international tax stand
Since the G20 summit in April there has been a raft of offshore financial centres rushing to comply with the Organisation for Economic Co-operation and Development?s (OECD) international tax standard. The centres were spurred by the G20?s threat of sanctions and blacklisting if they did not conform.
Indeed, on 8th July UK Prime Minister, Gordon Brown, and French President, Nicolas Sarkozy, said that those jurisdictions which fail to meet global tax transparency standards by next March should be punished with sanctions.
At a meeting of finance ministers in Berlin on 23rd June to discuss tax transparency and exchange of information, OECD Secretary-General, Angel Gurr?, noted that over the past eight months, more progress has been made than in the last 10 years. Some 84 countries now endorse the OECD?s standards and have agreed to implement them and more than half have done so. Since November, more than 30 Tax Information Exchange Agreements (TEIAs) have been signed in a flurry to avoid sanctions.
Switzerland was among the countries which supported sanctions despite its policy of bank secrecy. In fact, the Swiss government agreed in May to sign at least 12 TIEAs by the end of the year. Twenty-three countries have notified Switzerland that they are interested in new accords on double taxation. Negotiations have already started with the United States, Japan and Poland.
Swiss bank UBS has been under attack from the US for helping US clients evade millions of dollars in US tax. The US Department of Justice issued a summons for UBS to disclose the identity of 52,000 undisclosed accounts of US holders to the Internal Revenue Service (IRS). UBS is fighting the summons arguing that it would contravene Swiss banking law. On 30th June the US stepped up the pressure in a court filing that stated that UBS should be ordered to ?comply in full? with the summons, but the Swiss government has forbidden UBS to hand over the data and has said it would confiscate it if necessary.
In order to avoid more pressure from the US, Swiss banks have begun to close accounts belonging to US clients. Two of Switzerland?s largest banks, UBS and Credit Suisse, have informed US account holders to move their money into the US, or lose their accounts. Smaller private banks such as Geneva-based Mirabaud & Cie are closing accounts held by US taxpayers. In the UK, Lloyds Banking Group has told its US investment clients to transfer their assets.
Offshore Financial Centres (OFCs) are moving fast to bow to international pressure. Here?s a snapshot of what happened during the last week of June and the first week of July.
24th June ? The Isle of Man government announced that it will apply automatic exchange of information under the EU Savings Tax Directive (STD), and stop the withholding tax option, effective from 1st July 2011.
This is a significant measure and will affect many expatriates with accounts in the Isle of Man. It means that every year bank holders? details will be automatically passed to the tax authority in the country where they live.
The Isle of Man has fourteen TIEAs.
29th June – Guernsey released a statement regarding the Isle of Man?s decision to report on every bank account belong to EU residents. The Guernsey government underlined that it has always considered the withholding tax arrangement to be transitional and has begun a consultation with finance industry about whether to drop the withholding tax.
Chief Executive of the States of Guernsey, Mike Brown, commented: “The international climate is changing with regards to exchange of information. We are fully aware of those developments and have had the position under review for some time. Guernsey?s commitment to the highest international standards in transparency is constant.”
Guernsey has 13 TIEAS.
30th June – Singapore proposes to amend its tax laws to ?extend further co-operation on information exchange? through double taxation agreements. The move will allow the Singapore tax authority to offer overseas authorities information on local accounts even if the request is not linked to a Singapore tax matter.
1st July – Credit Suisse announced it will pass the names of clients holding French securities to Autorite des Marches Financiers (AMF), the French markets regulator. Letters have been sent to French clients seeking authorisation to pass information to the AMF. Other nationalities holding French securities would also be contacted. The French tax authority can access this information from AMF if required as part of a criminal investigation. Clients who do not agree to have their details passed on would have their French securities sold at the prevailing market price.
2nd July – Jersey confirms its continued support for the automatic exchange of information, following the Isle of Man?s announcement. Jersey authorities said the OFC had supported the automatic exchange of information approach when the STD was initially proposed. It introduced the withholding tax option when EU Member States of Belgium, Luxembourg and Austria were granted a transitional period to impose a withholding tax.
Senator Philip Ozouf said: “Jersey remains ready to introduce automatic information exchange as soon as the EU brings the transitional period to an end, and Austria, Belgium and Luxembourg move to automatic information exchange.”
If conditions set out in the STD are met by the end of 2009, this should result in all relevant jurisdictions moving to the automatic exchange of information from 1st January 2011, Ozouf noted.
Jersey has 14 TIEAs agreements.
Other compliance activity
TIEAs incorporating the OECD?s tax standard are being signed at a fast rate with nearly 40 being completed this year including 12 during May and June of which 8 are with the British Virgin Islands and two with Bermuda. Hong Kong and Macao have each announced that they will shortly put forward legislation to implement the OECD tax standard on information exchange. Andorra, Liechtenstein and Monaco, which were the only three on the OECD?s list of uncooperative tax havens, have been removed having agreed to co-operate with the OECD?s standards.
Costa Rica, Malaysia, the Philippines and Uruguay have endorsed the international standard and identified concrete steps to be taken this year to implement it.
In order to encourage citizens to wipe the slate clean by disclosing their offshore accounts, both France and the UK are introducing voluntary disclosure schemes whereby tax evaders can settle their unpaid tax with reduced penalties. France has declared that all French banks and credit institutions must disclose information concerning their links to uncooperative tax havens.
All avenues to save tax by not declaring income and capital will soon be completely blocked. There are legitimate ways to save tax through tax mitigation vehicles available in your country of residence. An authorised financial adviser like Blevins Franks Financial Management can help you plan and implement an effective and fully compliant tax planning strategy.
By Bill Blevins, Managing Director, Blevins Franks
9th July 2009