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Clear mind: international tax transparency agenda is growing

Private clients will want reassurance that their personal data and information exchanged will be kept secure and protected

16 May 2014

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Private client work has evolved. Practitioners must be more international in their focus as the world becomes seemingly smaller and clients spread their wealth across different countries. This means they need advice on the ownership of assets, tax liabilities and succession planning across multiple jurisdictions.

And there lies the problem. In the wake of the global financial crisis, many cash-strapped western governments, encouraged by the media and a public tired of austerity measures, have intensified their search for tax avoidance and evasion while also considering new ways to pursue high net worth individuals across borders.

Spain introduced a wealth tax in 2011. President Hollande in France declared plans to tax companies 75 per cent on salaries over €1m in 2013. Barack Obama, the US president, called on republicans to remove “special tax breaks and loopholes so millionaires and billionaires do their fair share to cut the deficit” in his 2014 budget.

Meanwhile, here in the UK, we have seen a government impose tax on certain companies that own residential properties valued over £2m.

Undeclared assets

HMRC and many of its counterparts worldwide are placing tax transparency at the top of their agendas and the search for undeclared assets, incomes and gains is increasing.

David Cameron, the prime
minister, is strongly supportive of
a centralised company register open
for public access. He believes this is crucial to meeting the challenges of
tax evasion and recently stated his
desire for the UK to become a world leader in tax transparency.

In an open letter to the UK’s crown dependencies, and overseas territories including the British Virgin Islands, the Cayman Islands and Bermuda, he said: “It will shed light on those who have provided false information, helping to tackle crime where it occurs and deterring people from providing this false information in the first place.

“And it will help reduce the cost of investigations for tax and law enforcement authorities here and overseas, particularly in developing countries, by making information more easily available to them at the very start of an investigation.”

Switzerland, the world’s largest offshore financial centre, has now pledged to automatically hand over the details of foreign bank accounts to other countries, which some have described as one of the most significant and surprising breakthroughs in this worldwide crackdown on tax evasion.

It agreed to sign up to a new global standard on automatic information exchange at a ministerial meeting in Paris, joining an ever-growing list of other jurisdictions that have signed the agreement, including other members of the Organisation for Economic Co-operation and Development, the G20 group of leading countries as well
as international finance centres, such as the Cayman Islands and Jersey.

With US$2.2trn of offshore assets
in its jurisdiction, Swiss cooperation is seen as pivotal in the battle for transparency and looking inside the hidden accounts of many of the
world’s wealthiest individuals.

It is a big step forward for governments looking to recover tax in the wake of the global financial crisis.

The Swiss government said the OECD agreement underscores its commitment to tackling tax fraud
and evasion: “Switzerland supports
the OECD ministers’ declaration concerning the development of a new automatic exchange of information (AEOI) standard in tax matters.”

And a statement from the Swiss Bankers Association advised: “The banks in Switzerland are willing to adopt the automatic exchange of information along with other financial centres, provided that the exchanged information is only applied for tax purposes.”

Wide-ranging impact

Speaking at Jersey Finance’s annual private client conference in May, Richard Hay, tax partner at Stikeman Elliott and counsel to the IFC Forum, said that the transparency agenda would have a wide-ranging impact on all private client advisers. “Governments will be pushed to use their tools to raise money for the benefit of those that favour redistribution.”

On the news that Switzerland had agreed to join the global standard of transparency, Hay said: “Switzerland came late to the transparency party yet Swiss compliance with the information exchange agenda now surpasses that
of the larger countries to which it
will be providing data.

“The Swiss move on automatic information exchange will refresh its proposition in the modern era for international private banking.”

He added: “Switzerland offers multicurrency and multilingual banking services and offers unrivalled client service. When a Swiss banker provides an assurance that ‘the money will be there by 5 o’clock’, it be there by 5 o’clock.”

While the global standard is welcomed by many, there are still reservations about its potential impact. Campaign group Tax Justice Network recently stated that this was “the first big step in putting together the nuts and bolts of real change”.

However, the group raised concerns that those countries in the developing world would not be able to fully participate because of the cost of implementing the agreement. It said that “the need for assistance to be provided to developing countries so that they may be able to reap the benefits of this form of cooperation”.

It has also been suggested that any tax transparency, enforced by the UK government would be in conflict with article 8 of the European Convention on Human Rights, which offers protection for a person’s private and family life, home and correspondence from arbitrary interference by the state.

Many practitioners may consider there should be a balance between providing transparency and having
a legitimate right to confidentiality.

Private clients will need
reassurance that the more personal
data and information exchanged
between them and various national
law enforcement and tax authorities
will be kept secure and protected.

Report by John van der Luit-Drummond, legal reporter for Solicitors Journal

Categorised in:

Tax & Wealth structuring