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Offshore Financial Centres under scrutiny again


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Bill Blevins is 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 ARGUMENT over offshore tax havens and the pursuit of tax transparency never dies down for long. Outcry flared-up again when Offshore Financial Centres (OFCs) were thrust back into the spotlight after the Liechtenstein scandal in February, when a former employee of a Liechtenstein bank sold stolen data containing the names of hundreds of possible tax evaders.

Germany and the UK were among the first to buy the information. Germany offered to share the data, resulting in investigations in Spain, France, Italy, the US, Canada, Australia, New Zealand, Sweden, Finland, the Czech Republic and Greece.

Liechtenstein has also been in the news after agreeing to a request from a Spanish judge to block bank accounts located in the jurisdiction belonging to suspected members of ETA, the Basque separatist group. Liechtenstein also agreed to a request for information regarding the opening of the bank accounts, transactions, and amounts transferred in from Spain and France.

Under the terms of the European Savings Tax Directive (STD), Liechtenstein applies a withholding tax to EU citizens on interest earned from bank accounts instead of automatic exchange of information. Austria, Belgium, Luxembourg, Jersey, Guernsey, Isle of Man, Switzerland, Andorra, Liechtenstein, Monaco and San Marino also apply a withholding tax to EU citizens instead of automatic exchange of information.

However, these countries have agreed to supply information on request by tax authorities in criminal and civil cases of tax fraud by relevant account holders.

On July 1 the withholding tax rate increased from 15 per cent to 20 per cent. From July 1, 2011 onwards this will jump to a punitive 35 per cent.

The EU Commission is considering how to tighten up the STD and clamp down harder on tax evasion. It is looking how to widen the scope of legislation on tax evasion, automatic exchange of information and transparency throughout the EU.

The Commission also wants to include countries outside of Europe, in particular the rapidly developing OFCs in Asia, such as Hong Kong, Macau and Singapore.

EU countries claim to lose billions in lost revenue due to tax evasion. Germany alone maintains revenue is down by around 30 billion euros a year and the UK estimates its annual losses at 23 billion pounds sterling.


Some EU countries are fiercely protective of their banking confidentiality rules. Luxembourg is a respected financial centre where banking confidentiality is one of its main attractions. Finance Minister, Jean-Claude Juncker, said he was open to discussion on beefing up the rules, but indicated that he was in no rush to agree to a tougher regime. “I look forward to many years of fascinating and fundamental discussions,” he commented.

Austria’s Finance Minister, Wilhelm Molterer, insisted that his country’s “banking secrecy is not negotiable”.

Switzerland was also against adopting exchange of information for tax purposes. Finance Minister, Hans Rudolf Merz, stressed that a paying agent tax, as opposed to automatic exchange of information, was the only means to accomplish the EU’s goal of taxing capital yields.

Switzerland is currently under attack by the US.  American federal investigators have sought legal assistance from Switzerland’s Federal Office of Justice in an investigation into tax evasion through offshore bank accounts at UBS.  They believe clients may have used these accounts to hide up to 20 billion US dollars in assets from the Internal Revenue Service, thereby evading at least 30 billion US dollars in federal income taxes.

A former UBS executive has been charged with conspiring to defraud the US by helping wealthy clients hide their assets.  Another senior manager was also briefly detained and it has been reported that UBS in the US told some of its clients to travel to Switzerland if they wish to talk to their advisers since the bank was concerned the advisers may be arrested if they visited the US.

The EU Commission is expected to produce a report on new proposals to the STD at the end of September. Any amendments to the STD legislation must have unanimous agreement by all 27 Member States of the EU.

In the UK, the House of Commons Treasury Committee is undertaking an inquiry into OFCs and their impact on global business and investment, and the international fight against money laundering.

The inquiry forms part of the Committee’s ongoing work into Financial Stability and Transparency. It invited interested parties to submit evidence to the investigation relating to the following questions:

• To what extent, and why, are Offshore Financial Centres important to worldwide financial markets?

• To what extent does the use of OFCs threaten financial stability?

• How transparent are OFCs, the UK’s tax authorities and financial regulators?

• To what extent does the growth in complex financial instruments rely on OFCs?

• How important have the levels of transparency and taxation in OFCs been in explaining their current position in worldwide financial markets?

• How do the taxation policies of OFCs impact on UK tax revenue and policy?

• Are British Overseas Territories and Crown Dependencies well-regarded as OFCs, both in comparison to their peers and by international standards?

• To what extent have OFCs ensured that they cannot be used in terrorist financing?

• What are the implications for the policies of HM Treasury arising from OFCs?

• What has been and is the extent and effect of double taxation treaty abuse within OFCs?

• To what extent do OFCs investigate businesses and individuals that appear to be evading UK taxation?