New Tax Information Exchange Agreements

04.12.13

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

The UK Crown Dependencies have signed their new agreements with the UK to automatically exchange tax information. Agreements are also in progress with Spain. Spain and Portugal have agreed to strengthen automatic exchange of information on tax matters.

The UK Crown Dependencies have signed their new agreements with the UK to automatically exchange tax information.   Agreements are also in progress with Spain. Spain and Portugal have agreed to strengthen automatic exchange of information on tax matters.

These types of agreements are becoming more and more common, with countries globally starting to automatically share information bilaterally and unilaterally. This kind of information sharing leaves little room for tax evasion or concealed offshore funds going forward.

While Double Tax Treaties are primarily aimed at avoiding double taxation, Tax Information Exchange Agreements govern the exchange of information between two countries. Around 1,100 new agreements were signed from 2009.

Tax Information Exchange Agreements tend to cover exchange of information on request. Today we are seeing new intergovernmental agreements signed where financial information on taxpayers’ assets will be automatically reported each year, regardless of whether the individual’s home country suspects tax evasion or not.

On 10th October, the Isle of Man became the first UK Crown Dependency to sign an intergovernmental agreement with the UK on automatic exchange of tax information. This was closely followed by Jersey and Guernsey. Most recently, Gibraltar signed an intergovernmental agreement on 21st November to improve international tax compliance with the UK.

Once in effect, a wide range of financial information on UK taxpayers will be automatically shared with HM Revenue & Customs (HMRC) every year. This will significantly enhance HMRC’s ability to close in on those who fail to declare offshore assets.

Often referred to as “UK FACTA agreements” or “son of FATCA”, these agreements are modelled on the requirements of the Foreign Account Tax Compliance Act (FATCA), introduced by the US to ensure tax compliance of its citizens with international interests.

The Isle of Man and Guernsey already automatically share information on personal savings income with the UK and EU, under the Savings Tax Directive. Jersey has committed to start in 2015. The new intergovernmental agreements extend the scope of automatic disclosure to include, for example, trusts and companies.

Isle of Man Chief Minister, Allan Bell, described its agreement as “historic” and a “clear commitment of both countries to the development of a new global standard in automatic exchange”.

Guernsey Chief Minister, Peter Harwood, said its agreement illustrated Guernsey’s “commitment to combating tax evasion and the principle of automatic exchange”, while his Jersey counterpart, Ian Gorst said the agreement   “sends another clear signal that Jersey has no need or desire to tolerate tax evasion”.

When the agreement was signed with the Isle of Man, UK Chancellor George Osborne said it was “a momentous step forward in tax transparency” and warned:

For anyone attempting to hide their money offshore our message is clear: our resolve is stronger than ever, the net is closing in and the world is becoming a smaller place to evade paying the taxes which are owed.”

Under the agreements, financial information on UK resident taxpayers will start to be forwarded to HMRC from January 2015.   Under the reporting schedule, information for the 2014 and 2015 calendar years must be reported by 30th September 2016.   Going forward, reporting will take place within nine months of the end of the year.

Disclosure facilities are currently available for UK taxpayers who have undisclosed assets and income in the Isle of Man, Guernsey and Jersey to disclose unpaid tax liabilities to HMRC. They allow individuals to come forward and make full disclosure under protection from the normal penalties. Penalties are reduced to between 10% and 40%, compared to the normal range of 20% to 200%.

The disclosure facilities are available until September 2016.

Spain and exchange of information

A press release from the Spanish government on 22nd November confirmed that exchange of information agreements with the Isle of Man, Jersey and Guernsey are in progress. It is also working on one with Monaco.

New Spain/Portugal agreement

In October Spain and Portugal signed agreements to improve automatic exchange of information and mutual assistance on tax matters.

They target tax evasion and fraud, and focus on self-employed Spanish tax residents who work in Portugal and receive income from a Portuguese source which is not being taxed in Spain, and fictitious tax residency in Spain (Portuguese citizens with tax residency in Spain, usually at third party offices set up in order to avoid paying tax in Portugal and in Spain. For corporations they cover “phantom” entities in Spain (companies with tax residency in Spain, with Portuguese shareholders and board members but with no activity or employees).

International tax planning is becoming increasingly complex. It is essential to keep up to date and only use approved and legitimate tax planning arrangements. To avoid being caught out, and ensure your assets are in the right place, seek specialist professional advice.

26 November 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.

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