New tax information exchange agreements

New tax information exchange agreements

The UK Crown Dependencies have signed their new agreements with the UK to automatically exchange tax information. Portugal and Spain have agreed to strengthen automatic exchange of information on tax matters.

These types of agreements are becoming more and more common, with countries globally starting to automatically share information bilaterally and unilaterally. This kind of information sharing leaves little room for tax evasion or concealed offshore funds going forward.

While Double Tax Treaties are primarily aimed at avoiding double taxation, Tax Information Exchange Agreements govern the exchange of information between two countries. Around 1,100 new agreements were signed from 2009. Portugal signed 14, most notably with the Isle of Man, Guernsey, Jersey, Gibraltar, Cayman Islands and British Virgin Islands.

Tax Information Exchange Agreements tend to cover exchange of information on request. Today we are seeing new intergovernmental agreements signed where financial information on taxpayers’ assets will be automatically reported each year, regardless of whether the individual’s home country suspects tax evasion or not.

On October 10, the Isle of Man became the first UK Crown Dependency to sign an intergovernmental agreement with the UK on automatic exchange of tax information. This was closely followed by Jersey and Guernsey. Most recently, Gibraltar signed an intergovernmental agreement on November 21 to improve international tax compliance with the UK.

Once in effect, a wide range of financial information on UK taxpayers will be automatically shared with HM Revenue & Customs (HMRC) every year. This will significantly enhance HMRC’s ability to close in on those who fail to declare offshore assets.

Often referred to as “UK FACTA agreements” or “son of FATCA”, these agreements are modelled on the requirements of the Foreign Account Tax Compliance Act (FATCA), introduced by the US to ensure tax compliance of its citizens with international interests.

The Isle of Man and Guernsey already automatically share information on personal savings income with the UK and EU, under the Savings Tax Directive. Jersey has committed to start in 2015. The new intergovernmental agreements extend the scope of automatic disclosure to include, for example, trusts and companies.

Isle of Man Chief Minister, Allan Bell, described its agreement as “historic” and a “clear commitment of both countries to the development of a new global standard in automatic exchange”.

Guernsey Chief Minister, Peter Harwood, said its agreement illustrated Guernsey’s “commitment to combating tax evasion and the principle of automatic exchange”, while his Jersey counterpart, Ian Gorst said the agreement “sends another clear signal that Jersey has no need or desire to tolerate tax evasion”.

When the agreement was signed with the Isle of Man, UK Chancellor George Osborne said it was “a momentous step forward in tax transparency” and warned: “For anyone attempting to hide their money offshore our message is clear: our resolve is stronger than ever, the net is closing in and the world is becoming a smaller place to evade paying the taxes which are owed.”

Under the agreements, financial information on UK resident taxpayers will start to be forwarded to HMRC from January 2015. Under the reporting schedule, information for the 2014 and 2015 calendar years must be reported by September 30 2016. Going forward, reporting will take place within nine months of the end of the year.

Disclosure facilities are currently available for UK taxpayers who have undisclosed assets and income in the Isle of Man, Guernsey and Jersey to disclose unpaid tax liabilities to HMRC. They allow individuals to come forward and make full disclosure under protection from the normal penalties. Penalties are reduced to between 10% and 40%, compared to the normal range of 20% to 200%.

The disclosure facilities are available until September 2016.

New Portugal/Spain agreement

In October, Portugal and Spain signed agreements to improve automatic exchange of information and mutual assistance on tax matters.

They target tax evasion and fraud, and focus on fictitious tax residency in Spain (Portuguese citizens with tax residency in Spain, usually at third party offices set up in order to avoid paying tax in Portugal and in Spain), and self-employed who are resident for tax purposes in Spain, but work in Portugal and receive income from a Portuguese source which is not being taxed in Spain. For corporations they cover “phantom” entities in Spain (companies with tax residency in Spain, with Portuguese shareholders and board members but with no activity or employees).

A protocol amending the tax treaty between Portugal and Switzerland also entered into force in October. Besides double taxation issues, a new article on exchange of information was added.

International tax planning is becoming increasingly complex. It is essential to keep up to date and only use approved and legitimate tax planning arrangements. To avoid being caught out, and ensure your assets are in the right place, seek specialist professional advice.

By Gavin Scott
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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.