By Gavin Scott
The UK government is getting even tougher on tax fraud. Prime Minister David Cameron has made “fighting the scourge of tax evasion” a key priority of the UK’s presidency of the G8 group of countries this year. He is pushing for multilateral tax information exchange agreements and has made the UK’s offshore centres commit to improving tax transparency.
HM Revenue & Customs (HMRC) has also stated its intention to toughen its stance against tax evasion. It released a report called “No Safe Havens: Our Offshore Evasion Strategy 2013 and Beyond” in March, which was published alongside the Budget. It warned that the dramatic increase in information flows means that tax evaders are even more likely to be caught and suffer the strongest penalties.
In April the UK signed an agreement with the other G5 countries, Spain, France, Germany and Italy, to develop and pilot a multilateral information exchange. So far, 12 other EU Member States have said they will sign up. A wide range of financial information will be automatically exchanged, which will help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange.
The G5 called on the EU to take the lead in promoting a global system of automatic information exchange.
Before Mr Cameron faced the world stage on this issue at the June G8 Summit, he had to get his own house in order. He urged the Crown Dependencies of Isle of Man, Jersey and Guernsey and Overseas Territories of Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat and Turks and Caicos Islands to sign up to new agreements to exchange financial information.
The islands are widely regarded at ‘tax havens’, though they strongly dispute the term.
In May, the Prime Minister wrote to the offshore islands, calling on them to continue to work in partnership with the UK in taking the lead on two critical issues: tax information exchange and beneficial ownership of companies. He told them:
“I respect your right to be lower tax jurisdictions. I believe passionately in lower taxes as a vital driver of growth and prosperity for all. But lower taxes are only sustainable if what is owed is actually paid – and if the rules to achieve this are set and enforced fairly to create a level playing field right across the world. There is no point in dealing with tax evasion in one country if the problem is simply displaced to another.”
He summoned leaders of each island to attend a meeting in London the weekend before the G8 Summit. Business representatives also attended.
At the meeting, all Britain’s offshore centres committed to tackling tax evasion. They agreed to sign the Organisation for Economic Cooperation and Development’s (OECD) multilateral convention on mutual tax assistance, where financial and tax information will be shared between countries.
They also agreed to publish action plans on beneficial ownership, to provide details of the true owners of so-called “shell companies”.
In a joint statement, the leaders of the territories and dependencies said: “We are committed to continuing to play a leading role in delivering a responsible and effectively regulated global business environment and in tackling the global problem of tax evasion.”
The Chief Ministers of the Channel Islands also released a joint statement confirming their view that “tackling tax evasion and fraud is a global responsibility in which we will continue to play our full part”.
The UK’s offshore islands have already made significant steps to improve tax transparency.
The Channel Islands and Isle of Man have signed up to the US Foreign Account Tax Compliance Act (FATCA), which provides for automatic exchange of information, and have agreed to enact similar arrangements with the UK.
The Offshore Territories have offered to sign up to the G5 scheme, both bilaterally with the UK and on a multilateral basis with the other European countries signed up.
Under automatic exchange of information, local authorities will receive information on their taxpayers who have foreign based bank accounts and other financial instruments.
Information will include names, addresses, account numbers, account balances and details of payments, gross interest, dividends and other income generated within the account.
There is nothing illegal with having offshore bank accounts and investments. However when you have cross border financial interests taxation can get very complicated. You need to be sure that you are fulfilling your tax obligations in your country of residence, and that your assets are set up to be as tax efficient as they legitimately can be.
You should never hide assets and income from the taxman, even if withholding tax is deducted at source.
Residents of Portugal have another important consideration.
All the UK offshore centres, including the Channel Islands, Isle of Man and Gibraltar, remain on Portugal’s blacklisted jurisdictions. This has tax consequences for those with assets in the territory, since income and gains derived from these assets are taxed at a penal rate of 35%.
Owning assets in the Isle of Man or Channel Islands is therefore not the most tax efficient way of holding your capital.
Ask an experienced wealth management and tax planning firm like Blevins Franks to review your current holdings and recommend the most tax efficient ways of holding your investment assets.
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Gavin Scott, Senior Partner of Blevins Franks. Gavin has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com
