Offshore tax evasion in the headlines

The issue of using offshore bank accounts to hide funds and income from the taxman has been back in the headlines, particularly in the UK. It is another example of how views on tax evasion have changed over recent years.
The reports accuse HSBC’s Swiss arm of actively helping wealthy clients conceal accounts from their tax authorities.

They relate to bank records stolen by one of the HSBC Geneva’s employees in 2007. The data included details of 100,000 clients and was initially given to French newspaper Le Monde. The then Finance Minister, Christine Lagarde, passed the information onto foreign tax authorities in 2010.

This was reported at the time, but the full evidence has only now been made public. Leaked HSBC files have been examined by the International Consortium of Investigative Journalists, The Guardian, BBC’s Panorama and 50 media outlets around the world, leading to claims of a persistent pattern of malpractice. The Guardian reports that at its height, HBSC’s Swiss operation hid assets worth £78bn. There have been several reports about how it helped clients evade tax.

Former tax inspector and author of the book The Great Tax Robbery, Richard Brooks, told BBC Panorama that the bank would have known full well that many of its customers were using it to dodge their tax liabilities. “There are very few reasons to have an offshore bank account, apart from just saving tax,” he explained.

HBSC says it acknowledges and is accountable for past compliance and control failures. It has since undergone a “radical transformation”. Many new initiatives have been implemented to prevent its banking services being used to evade taxes, and it is co-operating with authorities investigating tax matters.

On Sunday, February 15, HSBC issued a public apology, publishing a full page advert, in the form of a letter from the group Chief Exectutive, in several British newspapers.

It did not admit deliberately helping customers evade tax, but conceded that “the standards to which we operate today were not universally in place in our Swiss operation eight years ago”. It said the societies it serves expect more from them and so they “offer our sincerest apologies”.

Today the bank has “absolutely no appetite to do business with clients who are evading their taxes or who fail to meet our financial crime compliance standards”. It has cut the number of accounts by almost 70%.

The advert points out that many of the customers named by the media were only mentioned because they were well-known, and there is no allegation of wrong-doing against them.

In the UK, HMRC has come under fire for only prosecuting one of the thousands of UK account holders on the list.

In response it issued a statement outlining its actions against the HBSC customers. After obtaining the names in 2010, it set up Operation Solace to trace 3,600 account holders, 2,000 of which turned out to be tax compliant. It has collected £135m in unpaid tax, interest and fines from over 1,000 account holders.

HMRC sought to collect evidence for criminal prosecution in 150 cases, but only one was strong enough to be successfully prosecuted. Many cases could not be taken to court because stolen data is considered “dirty” and needs additional corroborating evidence. HMRC would have had to prove criminal intent.

This may put pressure on the government to introduce new legislation making it easier to prosecute taxpayers for offshore tax evasion. Last April it announced an intention to change the law so it only need demonstrate that the money was taxable and undeclared, rather than having to prove that someone deliberately evaded tax. It looked like this had been quietly dropped, but it would not be surprising if it was now resurrected.

With automatic exchange of information fast approaching – and Switzerland has signed up – HMRC and tax authorities here in Portugal will receive much more information about taxpayers who hold bank accounts and assets abroad.
There is nothing wrong in having an offshore bank account, whether in Switzerland or elsewhere. But it is an offence to not disclose your taxable income, so you need to ensure you are declaring everything correctly.

You should also consider whether offshore bank accounts are the best home for your money, considering they do not offer tax advantages – particularly here in Portugal where the tax rate on interest from the Isle of Man and Channel Islands is higher at 35% – and there may be more tax efficient arrangements for your savings, depending on your needs and aims. There are legitimate tax planning opportunities in Portugal, but you need to be sure you are up to date and get it right. Seek specialist advice.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, 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. | www.blevinsfranks.com

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