Offshore Bank Accounts and Tax Planning ? A Changed Landscape – Part 1


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The simple fact is that banking secrecy is dead. Offshore banks are succumbing to international pressure and it is becoming standard practice for them to report susp

The simple fact is that banking secrecy is dead.

Offshore banks are succumbing to international pressure and it is becoming standard practice for them to report suspicious accounts (eg, where the bank suspects that an account is not being declared) to the tax authorities. The CIA tracks payments in Europe through SWIFT and will pass information on to overseas authorities. Governments are taking increasingly concerted steps to crack down on tax evasion.

Anyone needing to regularise their tax affairs, whether to avoid the most punitive penalties, or for peace of mind, or to prevent saddling their heirs with an illegal inheritance, needs to do so now? before long it will be too late.

An estimated $7 trillion is held offshore, with the Tax Justice Network calculating that developed countries lose around $180 billion a year in evaded taxes. Such behaviour will not be allowed to go on anymore.

Tax collectors worldwide to co-operate in revenue-raising

At the April G20 Summit in London British Prime Minister, Gordon Brown, called on ?the whole world to come together to outlaw offshore tax havens?. On 28th and 29th May more than 100 representatives from 34 countries participated at the Organisation of Economic Co-operation and Development (OECD)?s Forum on Tax Administration.

The introduction for the official communiqu?read:

?With governments facing soaring budget deficits as they seek to combat the global economic slump, tax authorities from around the world have agreed on a new cooperation plan to encourage tax compliance and counter tax evasion and abusive tax avoidance, with special focus on banks, wealthy individuals and offshore activities.?

It stressed that governments need to find sustainable ways to finance the cost of exiting the economic crisis and that revenue bodies have a key role to play in helping them do this.

?Individuals who hide assets overseas can expect an increasing number of revenue bodies to cooperate and share information to ensure people pay their fair share to help fund governments worldwide,? warned Douglas H. Shulman, Commissioner of the US Internal Revenue Service.

Tax evaders could be vilified

In the UK, as HM Revenue & Customs (HMRC)?s drive to crackdown on tax evasion steps up a gear, it announced plans to start ?naming and shaming? tax evaders. The tax department will publish details ? names, addresses and amounts – of those individuals and businesses who deliberately understate ?25,000 or more of tax.

PKF Accountants has warned that those named could be vilified in a similar way to MPs accused of falsely claiming expenses.

John Cassidy, tax investigations partner at PKF, said: ?With the Finance Bill proposing similar publicity for those who have deliberately misled HMRC, we?re advising anyone who thinks they have tax irregularities to come forward now, or risk the same fallout as MPs? the alternative is to risk sensitive and potentially damaging data being made public?.

With the current economic situation impacting so much on the public, there has been a shift in public opinion as to the morality of dodging taxes.

UK Revenue forces banks to disclose client information

HMRC has reportedly won court cases recently which will force four as yet unidentified banks with offshore operations to disclose identities and addresses of thousands of UK residents with offshore accounts. Head of national tax investigations at Smith & Williamson, Sue Holmes, said that HMRC already knows the identity of 9,000 clients at one of the institutions.

According to Smith, tax disclosures from the foreign associated companies of one of the institutions typically resulted in tax settlements of around ?189,000 in the 2007 Offshore Disclosure Facility.

?400 million was collected in total from the 2007 Facility ? when just five high street banks had been targeted.

The new 2009 New Disclosure Opportunity (NDO) is targeting 500 banks.

The NDO has been delayed to the autumn (it will then run until the spring), giving HMRC more time to collate information from the institutions and therefore make it easier to prosecute those who do not come forward voluntarily.

Accountancy Age also reported that HMRC is applying to the Tax Tribunal to obtain a ?blanket? notice to legally oblige all banks to provide the taxman with full details of overseas account holders.

This tactic will dispense with the need for HMRC to apply for orders on a piecemeal basis, thereby saving it and the Tribunals Service much time and effort. The tax authorities will argue that the amount of tax revenue at risk justifies the unprecedented move.

While it is reported that HMRC calculates ?83 million is at stake, PricewaterhouseCoopers has claimed that the department believes it can collect up to ?2 billion from the latest crackdown on offshore bank accounts.

?Now is a critical time for anyone with undeclared funds in an offshore account or undeclared income from offshore assets, to take stock of their situation and ?come clean?, if they are to minimise the costs and other consequences of their mistakes,? warns Stephen Camm, tax partner, PricewaterhouseCoopers. ?There will be no more chances.?

Besides those who have chosen to evade tax, family members who receive an inheritance in an offshore account, without being able to explain where the funds came from, will also be affected.

Banks are expected to fight against this approach, and there are doubts that it can avoid seeking separate notices for each institution, but an HMRC spokesman explained:

?It?s a kind of class action. We?ve made it clear that we?re going to do this, it?s now just a matter of finessing the detail. It doesn?t make sense to go one, two, three when we?re dealing with hundreds?.

A source told Accountancy Age that the case it expected to go before the Tax Tribunal ?in the next few weeks?.

In the 2007 disclosure facility, penalties were applied at 10%. On 2nd June Accountancy Age An HMRC spokesman has confirmed that the penalties for the 2009 facility will also be 10% – but this only applies to taxpayers who were not covered by the 2007 one, which had targeted Barclays, HSBC, HBOS, Lloyds and RBS. Those who had the opportunity to come forward then but failed to do so will face higher penalties this time around. Obviously the back tax will also have to be paid, plus interest.

Outside the disclosure facilities, HMRC can charge up to 70% for deliberate inaccuracies and up to 100% where concealment is involved. It is unlikely to be lenient on anyone who fails to come clean under the NDO and is caught when tax investigators shift through the information received from the banks.

In Part 2 I take a closer look at the future for offshore financial centres and how all these changes may affect you. If you have any concerns about your tax planning it is advisable to seek advice from an experienced financial adviser like Blevins Franks sooner rather than later.

By David Franks, Chief Executive, Blevins Franks

3rd June 2009

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.