In the same week that HMRC announced a new anti-avoidance campaign targeting those with hidden offshore income, the Organisation for Economic Co-operation and Development (OECD) has received endorsement from the G20 for a new single global standard for the automatic exchange of financial account information between international tax authorities.
Based on the US Foreign Account Tax Compliance Act (FATCA), the proposed new Common Reporting Standard (CRS) was unveiled at the G20 meeting held in Sydney on 22/23 February. A communique issued after the meeting announced that the finance ministers of all the G20 countries were in agreement that the new protocol on information exchange should be in place by the end of 2015, and they urged other jurisdictions to follow suit. The communique also made reference to ‘tougher incentives’ for those jurisdictions which failed their OECD tax transparency evaluations.
The CRS outlines the information that jurisdictions will be required to collect and exchange and the model competent authority agreement (CAA) provides further details on the rules for the exchange of information. This includes the type of financial institutions required to make a report and the type of account, the common due diligence procedures to be followed, and which taxpayers and what financial information are to be reported.
More than 40 countries have signed up for the early implementation of the CRS and the OECD hope this number will continue to rise.
Alongside these international developments, on 24 February 2014 HMRC published a new report under the heading ‘How we tackle offshore evasion’. This also signalled the launch of a new campaign targeting those with undeclared income or gains related to offshore assets. The campaign will run in national newspapers and various magazines and will warn those using offshore structures to hide their wealth that not only are they more likely than ever to be identified, but the penalties for continuing to avoid their UK tax obligations will be significant.
Current and future initiatives listed in the report include:
- Helping to drive the new global standard for the automatic exchange of information, recently agreed by the OECD.
- Deciphering large amounts of data on secret offshore business structures, in a joint operation with the Australian Taxation Office and the US Internal Revenue Service.
- Continuing to collect additional revenue through the Liechtenstein and Crown Dependencies disclosure facilities, as well as the Swiss/UK tax agreement – the report states that in excess of £1 billion has already been collected through these.
- Investing in specialist staff and cutting-edge technology to help reduce evasion – the data analysis system, Connect, has already made four billion connections across taxpayers’ records and other sources of information.
- Introducing increased penalties of up to 200 per cent of the undeclared tax together with a rise in criminal investigations and prosecutions and publishing the names of deliberate defaulters.
The message from HMRC is very clear to those hiding wealth overseas. The developments in relation to the automatic exchange of information are creating an environment in which it is becoming increasingly impossible to evade tax through offshore structures. Once identified, the potential measures to be taken against those who persist in failing to pay the UK tax due on their assets, will be severe, including stringent financial penalties and even possible imprisonment.
Should you have a query regarding these developments, or have an ongoing issue regarding a client with offshore assets related to undeclared income or gains, please contact the TaxDesk on 0845 4900 509 and ask for Isobel Clift.