An update on the ongoing story of how the UK’s Crown Dependencies of Jersey, Guernsey and Isle of Man have had to adjust their practices to cooperate with UK, European and international calls for tax transparency.
Over the years, we have followed the ongoing story of how the UK’s Crown Dependencies of Jersey, Guernsey and Isle of Man have had to adjust their practices to cooperate with UK, European and international calls for tax transparency.
The story is not yet over.
There is a move towards automatic exchange of information as the new global standard in international tax co-operation, with the US leading the way with its groundbreaking Foreign Account Tax Compliance Act (FATCA).
The UK has now also opened negotiations with its offshore territories, the Isle of Man, Jersey, Guernsey, British Virgin Islands and Cayman Islands, which are likely to herald in a new era of automatic exchange of information between the islands and the UK.
It is likely that once agreement has been reached, other European countries will expect similar deals.
While you would like your wealth management to be as tax-efficient as possible, it is essential to only use arrangements that are compliant in your country of residence. Blevins Franks has decades of experience advising British expatriates on their international tax planning and wealth management and would guide you through your options.
US Foreign Account Tax Compliance Act (FATCA)
FATCA was introduced by President Obama in 2010 to start in 2014. It obliges foreign financial institutions over the world to provide information on US citizens to the US tax authority, the Internal Revenue Service (IRS). The institutions have to enter into compliance agreements with the US Treasury to report on US clients. If they fail to do so, they will have to pay a withholding penalty of 30% of the payments made to them.
Offshore centres like the Channel Islands and Isle of Man are keen to sign up to avoid the penalties, which could damage their finance industry. In October they announced that they will negotiate partnership agreements with the US, similar to the one agreed between the UK and US the previous month.
The UK’s ‘son of FATCA’
US FATCA would mean that the Crown Dependencies exchange more tax related information with the US than they do with the UK, so it is therefore not surprising that the UK Treasury is now seeking to impose its own version on its territories.
On 23rd November International Tax Review reported that its journalists had seen a leaked copy of a draft government document detailing how a UK scheme would work.
It called the scheme ‘son of FATCA’ and claimed that it would “deal an almost fatal blow to tax evasion through the UK’s tax havens.”
According to the report, the agreement would require the automatic exchange of information for each reportable account of each reporting financial institution. This would include full details of all beneficial owners of the account, including those whose identities might otherwise be hidden by trusts or companies.
The UK was said to have approached the Crown Dependencies and that a meeting would take place soon.
Geoff Cook, Chief Executive of Jersey Finance, acknowledged that: “It is well known that the principles behind the US FACTA arrangements are being looked at by the OECD, EU and UK.”
According to the Observer newspaper, the UK government could force its territories to comply by threatening to veto their own FATCA agreements with the US – the UK needs to pass the laws needed for data to be provided to the US, so it could give the islands an ultimatum.
On 30th November Jersey, Guernsey and Isle of Man governments confirmed that they had attended an explanatory meeting with Treasury officials about the possibility of extending the principles behind FATCA to ‘an exchange of information’ with Britain, and that further discussions are expected.
No details of the content of the meeting were given.
In a joint statement, the Channel Islands said: “The UK and the Crown Dependencies share a common commitment to combat tax evasion and to participate generally in international efforts to combat financial and other crime including fiscal crime.” This implies that they will accept an agreement modeled on the US FATCA.
The Isle of Man also re-affirmed its long-standing policy to meet established international standards.
If legislation goes ahead, it is expected to come into effect on 1st January 2014, with the UK government announcing information next autumn.
The biggest change will be in Jersey, since Guernsey and the Isle of Man already automatically exchange information on savings income under the EU Savings Tax Directive. Jersey has been resisting, saying it will only do so when competitors like Switzerland do as well.
According to Richard Murphy of Tax Research UK, who was speaking to the Telegraph, information exchange currently impacts around 4% to 5% of total funds in Jersey. If the agreement goes through, over 90% of funds will be subject to information exchange.
He described the demands as ‘radical’, explaining that it would not just be about interest payments but rather detailed financial information.
Contact Blevins Franks for advice on legitimate tax planning in Spain, France, Portugal, Cyprus, Malta and the UK.
4th December 2012
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; an individual should take personalised advice.