Days of banking secrecy and tax evasion are coming to an end.jpg

Days of banking secrecy and tax evasion are coming to an end

By BILL BLEVINS [email protected]

Bill Blevins is the Managing Director of Blevins Franks. He has specialised in expatriate investment and tax planning for over 35 years. He has written books and gives lectures on this subject in Southern Europe and the UK

The global economic downturn has fast-forwarded the annihilation of banking secrecy, forcing the world of offshore banking to change from concealment to transparency.

It is now impossible to hide money away from the taxman without a very high risk of being found out. For those who feel that they are caught in a trap by the international tax crackdown, lifelines are being offered.  There are also legitimate arrangements whereby you may be able to pay less tax than the withholding tax being applied by the Isle of Man, Channel Islands, Switzerland and so on.

The attack on offshore banking has gathered momentum and is coming to a head. The notorious tax haven of Liechtenstein has toed the line in an historic signing of a Tax Information Exchange Agreement (TIEA) with the UK.  Anyone who has not declared income from funds in Liechtenstein as required will have to come clean now to avoid penalties up to 100 per cent and having their accounts closed.

TIEAs are being signed at a fast rate of knots since leaders at the April G20 Summit declared that the “era of banking secrecy is over”. Renowned tax havens are signalling their willingness to comply. Liechtenstein, Andorra and Monaco were the last remaining jurisdictions on the Organisation for Economic Co-operation and Development (OECD)’s blacklist of “uncooperative tax havens” but all three were removed in May for their “commitments to implement the OECD standards of transparency”.

Offshore financial centres need to sign at least 12 TIEAs to receive favour from the OECD and be whitelisted as having “substantially implemented” its standard on the exchange of information. Many have already done so, including Jersey, Guernsey and the Isle of Man.

Switzerland also agreed to relax its banking secrecy laws and is aiming for 12 TIEAs by the end of the year. So far this year, 58 TIEAs have been signed compared to 45 between 2000 and 2008.

In June, the Isle of Man called an end to banking privacy for EU residents using its banks. Under the Savings Tax Directive, it will start to automatically exchange information on all accounts held by EU residents with the tax authority where they live.

From July 1 2011, the withholding tax option will be scrapped. All interest will be paid gross and personal information on the account holder and details of the interest earnings sent to the owner’s home tax authority each year.  Guernsey is also considering dropping the withholding tax.

Bear in mind that irrespective of the withholding tax, residents of Portugal, the UK and many other countries are already legally obliged to declare and pay tax on their worldwide income.

The UK has announced its New Disclosure Opportunity to persuade all those with undeclared accounts and assets offshore (as well as onshore) to disclose them to the taxman. The carrot is a reduced penalty of 10 per cent for all those who were not contacted under the last “amnesty”.  Prior to the 2007 Offshore Disclosure Facility, HM Revenue & Customs (HMRC) obtained information from five high street banks on their clients’ offshore accounts. If the account owners chose not to take up the last offer, this time their penalty is 20 per cent.

HMRC insists this is the “final opportunity” to come clean. Those who still do not come forward will be “relentlessly pursued” and attract a penalty of between 30 per cent and 100 per cent and, in severe cases, a criminal prosecution.  

In mid-August, the Tax Chamber of the First-tier Tribunal ordered 308 UK and foreign banks to disclose all information on offshore accounts to HMRC.  Targeted banks are believed to be UK institutions with offshore branches plus foreign banks with UK customers, including several UK institutions with operations in Switzerland.  HMRC will use this information to pursue those who continue to flout its tax laws.

France has a voluntary disclosure programme in place and is compelling all French banks to disclose information regarding their activities in tax havens. Italy is working on its third “tax amnesty”. Its government’s objective is to put an end to tax havens, rather than merely to combat tax evasion.

In the US, wealthy taxpayers have flocked to own up under the Internal Revenue Service’s disclosure facility which offers tax evaders the possibility of facing civil charges rather than criminal charges for volunteering to come clean.

The US has taken legal action to force Swiss bank UBS to disclose the identities of some 4,450 secret account holders – a significant turning point for Swiss banking secrecy. UBS and Credit Suisse are closing bank accounts owned by US nationals and other countries such as Monaco are thought to be moving accounts to the taxpayer’s country of residence.

The days of tax evasion through tax havens, wherever they are in the world, are well and truly numbered.  In the end, no one will be able to escape the intense crackdown in progress. Anyone with undeclared offshore accounts is at risk of being discovered by their tax authority and suffering crippling consequences.  You need to wipe the slate clean and get your finances in order. Even if you are prepared to take the risk, what will happen when your family inherit your assets?

In any case, there are legitimate methods of lowering your tax bill which are more effective than using an offshore bank account.

Blevins Franks, a reputable and experienced international financial adviser, can advise you on setting up legitimate tax efficient investment structures.

To keep in touch with the latest developments in the offshore world, check out the latest news on the Blevins Franks website by clicking the link on the right of this page.