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No man is an Island: The fight for international tax transparency

February 2017 saw the culmination of the trial of Princess Cristina of Spain, whose husband was accused and convicted of tax evasion. Cristina was acquitted of being an accessory, however, she was still subject to a €265,000 fine for unwittingly benefiting from her husband’s crimes.[1]

Whilst the trials and tribulations of the Spanish Royal Family may not be of interest to you in a post-Brexit vote Britain, the Spanish trial is reflective of a continued worldwide focus on those who try to abuse the tax system.

Since 2010, the UK government have been on a self-styled crackdown in relation to tax evasion and tax avoidance, making it harder than ever for people to dodge their taxes. This crackdown also includes a hunt for those who use offshore facilities to circumvent their tax responsibilities in the UK. In recent years, over £2 billion has been collected from offshore tax evasion [2]. Despite this huge sum, HMRC have been vocal in their difficulty in detecting individuals who evade tax overseas, previously relying on tax payers to disclose any tax irregularities.

To combat this, 2017 will see the introduction of unprecedented changes in international tax transparency to assist in the continued fight to detect and deter those who flout the rules of the taxman.

Common Reporting Standard

It was John Donne, the 15th century poet who wrote “No man is an Island, entire of itself; every man is a piece of the Continent, a part of the main”[3]. Donne highlights that man, or in this case governments, cannot thrive when isolated from the rest of the world; and it is this poetic notion that the UK and over 100 other participating countries have adopted in what is referred to as the Common Reporting Standard (CRS) or Automatic Exchange of Information (AE).

Approved by the Organisation for Economic Co-operation and Development (OECS) in 2014, this standard is a commitment by all of the participating countries to help deter and detect tax evasion on a multinational scale by exchanging information to improve the transparency of overseas tax affairs. By the end of 2017 the UK and 53 other early adopters of this standard (the remainder will follow in 2018) will begin exchanging information on offshore accounts, trusts and shell companies that can be used in the detection of irregularities with overseas income or investment gains. 

Tax planning

The Common Reporting Standard is designed to detect and deter tax evasion and avoidance, but it is worth remembering that everyone is allowed to avoid tax to some extent. After all, the government provides tax exemptions on ISAs and pension contributions, in addition to capital allowances introduced to provide tax saving advantages. At Equilibrium, many of these strategies or allowances will form part of your long term financial plan and are perfectly legitimate in the eyes of the law.

Conversely, tax evasion represents a deliberate plan to deceive the tax man. Those who evade their tax responsibilities are committing a crime and are liable for large fines or prison. It is important to remember that avoidance, whilst generally legal can carry equally serious consequences. Tax avoidance often involves the use of legitimate schemes, in a way that was not originally intended, operating within the letter of the law, but not the spirit of the law.

In 2015, Stuart Gulliver, CEO of HSBC came under fire for his tax arrangements when it was discovered that he had a private bank account in Switzerland routed through Panama, where up to £5 million of bonuses had been paid. Whilst never prosecuted, Mr Gulliver and HSBC faced a Treasury select committee hearing and intense media scrutiny over their tax arrangements as the scheme (and in particular the private bank) was seen to be complicit in tax evasion and aggressive tax avoidance.

Tax planning should be simple and straight forward, schemes that offer complex planning strategies, especially those that use overseas tax havens or have terms that are too good to be true, usually are. Here at Equilibrium we would always recommend consulting a qualified tax professional to review the benefits of any tax scheme before entering into any contract or arrangement, whether overseas or in the UK. 

Will I be impacted?

To ensure that the UK is ready for the automatic exchange of information, HMRC require all financial institutions, wealth managers, asset managers, insurers and relevant professionals to notify all potentially impacted clients. Here at Equilibrium we are hard at work reviewing all of our clients and trusts. In the coming months, we will be writing to anyone who may be impacted by the Common Reporting Standard. A full list of countries participating in the Automatic Exchange of Information can be found on the OECS website.

If you hold any overseas accounts, reside in another participating country for tax purposes, are in receipt of a foreign income or windfall, HMRC may deem you to be a reportable client. If we identify that a client is reportable under these new agreements, we are duty bound to provide the following information to HMRC, who will in turn exchange this data with the participating country in which tax may be due:

  • Name
  • Address
  • Date of Birth
  • Country or countries of tax residence
  • Tax identification numbers
  • Country of registration and Controlling persons for trusts
  • Account Balance
  • The gross interest, dividends, and any other income paid or credited to reportable accounts over the reporting period

If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry.

No Man is an Island

With an imminent exit from Europe on the horizon and Donald Trump’s attempt at locking down the American borders, you’d be forgiven for thinking that it was every man (or country) for himself.

At least in the fight against those who continue to evade their tax responsibilities, through the new Common Reporting Standards and the automatic exchange of information, we are reminded that, at least in terms of tax, we are not alone on our Island.

 

If you feel that you have not paid the right amount of tax, please seek the advice of a qualified tax adviser. Please be aware that the information provided in this blog is based on our understanding of current rules and regulations, which may change, it should not be regarded as a substitute for advice in any particular case. Equilibrium is not responsible for the content of external websites.

For more information about tax planning as part of a long term financial plan, please contact Equilibrium on 0808 156 1176 or email askus@eqllp.co.uk 

 

[1] http://www.reuters.com/article/us-spain-princess-idUSKBN15W0S5 

[2] ttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413931/Tax_evasion_FINAL__with_covers_and_right_sig_.pdf

[3] John Donne:  Devotions upon emergent occasions and seuerall steps in my sicknes - Meditation XVII, 1624