Loading...

The ?tax haven? landscape has shifted. Over a matter of days a number of key jurisdictions, including Switzerland, bowed to global pressure and pledged to adopt international standards of tax transparency and allow increased information exchange with other countries. It?s likely that we are moving into an environment where the confidentiality of investing offshore will be no less secret than investing in your local high street bank.

The financial crisis has brought a renewed focus on offshore financial centres (OFCs) or ?tax havens?. Governments around the world have been feeling the pinch after spending large sums on stimulus projects at the same time as tax revenue has been falling. There have been growing calls for an intensified global crackdown on the offshore industry. With the issue due to be tackled at the April G20 meeting, many jurisdictions chose to make concessions now (many announced just prior to the meeting of G20 finance ministers) to avoid being placed on a new blacklist of uncooperative OFCs, which could potentially result in sanctions.

It is becoming increasingly difficult to hide money away from the taxman, wherever in the world you put it - these latest concessions make it harder for the remaining OFCs to cling to secrecy. People who, for example, moved their money out of reach of the EU Savings Tax Directive to Hong Kong or Singapore may be wondering if it is time to move it again? but where to?

It also begs the question as to why so many people still use offshore centres, whether legally (declaring their capital and income as required) or illegally (failing to declare it) when there are legitimate onshore structures that can be used to save tax and which are held in a much more secure, regulated environment than some of the tax havens used.

British Prime Minister, Gordon Brown, hailed Switzerland?s announcement as ?the beginning of the end of tax havens? and ?a very real step on the road towards the exchange of tax information between all countries?. He added, ?tax evasion, which costs the global economy billions of pounds each year, will become more difficult in future?.

In a statement, Organisation for Economic Co-operation and Development (OECD) Secretary General, Angel Gurria, said that "moves by a number of financial centres over recent weeks have given a welcome boost to efforts to promote transparency and exchange of information on tax matters?. He also emphasised that ?in the current crisis, it is important to assure honest taxpayers that tax burdens are being fairly shared. Improvements in exchange of information in tax matters are part of a broader agenda to improve transparency and global governance and to restore confidence in financial markets.?

Besides the G20 and OECD initiatives, the US House of Congress is introducing anti-tax haven bills, with Treasury Secretary Timothy Geithner promising ?a much more ambitious effort to deal with offshore tax havens?. The legislation listed 34 ?secrecy jurisdictions?, though some could be removed if they have information exchange practices which overcome the secrecy barriers.

OFCs are also braced for European Commission attempts to close loopholes in the Savings Tax Directive. The Commission is keen to extend its reach outside the EU to include centres like Hong Kong, Singapore and Dubai.

SWITZERLAND

Switzerland banking secrecy goes back to 1934 and an estimated $2 trillion worth of capital is held in the country?s banks.

On 13th March the Swiss Federal Council announced its intention to adopt OECD standards on administrative assistance in tax matters in accordance with Article 26 of the OECD Model Tax Convention. This was a change of tune for Switzerland which has previously said that signing up to the OECD standards would compromise banking secrecy.

Switzerland cited its desire to avoid being placed on the OECD?s blacklist, implying that the whole economy would suffer as a result.

The Federal Council insisted that it will not drop secrecy altogether and will only pass on information following detailed requests on individual cases. However Swiss president and finance minister, Rudolf Merz, did stress that banking secrecy ?does not protect any form of tax offence?.

He went on: ?With the globalisation of financial markets and in particular the current financial crisis, international cooperation in tax matters has become increasingly important. The Federal Council will actively continue to support efforts in this regard?.

Unlike most other countries, Switzerland currently differentiates between tax fraud and tax evasion. Tax fraud involves actively forging documents to hide income from the tax authorities and is a criminal offence. Tax evasion is not fully declaring one?s income and is a civil offence punishable by a fine. Up till now the authorities have mainly just shared information on tax fraud, but once it negotiates new double taxation treaties it will start to share information on tax evasion.

In February, in a landmark settlement, Switzerland?s largest bank UBS agreed to pay a $780 million fine after US investigators alleged that it had helped thousands of Americans hide $18 billion from the tax authorities. Berne also agreed to disclose names of 300 UBS clients to the US authorities? before a Swiss court had ruled on whether tax fraud had been committed.

TIMELINE

29 September 2008 ? Isle of Man signs Tax Information Exchange Agreement (TIEA) with UK. Financial Secretary to the Treasury, Jane Kennedy said it "represents a significant step in our efforts to counter and prevent tax evasion and avoidance?. TIEAs allow governments to exchange information that may be relevant to the determination, assessment, enforcement or collection of tax, or to the investigation of tax matters, or the prosecution of criminal tax matters.

20 January 2009 ? Guernsey signs new TIEA with UK.

25 February ? Hong Kong?s budget speech included an announcement that the territory will seek to extend its double taxation treaty network and put in place measures to allow more information to be exchanged with treaty partners.

6th March ? Singapore said that it will remove domestic hurdles to information exchange for tax purposes and will commit to OECD standard on fiscal transparency.

10th March - A new TIEA is put in place between Jersey and UK to help crack down on offshore tax evaders. HMRC Chief Tax Inspector, Dave Hartnett, said: "The importance of this TIEA with Jersey should not be under-estimated. It will enable us to obtain the information we need to ensure that the days when putting assets offshore provided an unfair tax advantage are well and truly over."

12th March ? Belgium, Liechtenstein and Andorra announced their intention to co-operate with OECD principals and pass legislation to ease banking secrecy controls.

13th March ? Switzerland made a similar announcement, just hours before the G20 finance ministers? meeting.

Take advice on legitimate and effective shelters for your money from an experienced and regulated financial advisory company such as Blevins Franks Financial Management Limited.

by David Franks, Chief Executive, Blevins Franks

18th March 2009