It looks like more and more automatic exchange of information agreements will be signed over the coming years.
Following
on from the US’s revolutionary Foreign Account Tax Compliance Act, the
UK, France, Spain, Germany and Italy have announced that they will
develop and pilot a new multilateral tax information exchange agreement.
They
see this as an important, early step in a much wider move towards a new
international standard in automatic exchange of information; one that
will improve the ability of tax administrations to clamp down on tax
evasion.
Once in effect, a wide
range of financial information – on more than just bank deposits - will
be exchanged between the five countries.
In a statement, HM Revenue & Customs (HMRC) explained:
“This
will help catch and deter tax evaders as well as provide a template for
wider multilateral automatic tax information exchange.”
In Spain, the Ministry of the Treasury said that it considers such agreements to “represent an unprecedented step forward”.
It would enable checks on information related to assets and rights
held overseas, that should have been declared by residents by 30th April
this year.
The five Finance
Ministers formally advised EU Commissioner for Taxation, Algirdas
Šemeta, about their Action Plan in a letter dated 9th April 2013. The
letter makes it clear that this is just the start, and that the other EU
member states should be persuaded to sign up. They hope Europe will
take the lead in promoting a global system of automatic information
exchange to remove the hiding places for those who seek to evade paying
their taxes.
In a statement the
following day, Mr Šemeta said that automatic exchange of information is
the most effective means for countries to collect taxes due to them,
and that the EU needs it to be widely applied. He called for a “tough
common stance” against tax havens, including sanctions against those who
facilitate tax evaders.
The
multilateral exchange facility between the UK, France, Spain, Germany
and Italy will be based on the model intergovernmental agreements they
have signed with the US under its Foreign Account Tax Compliance Act
(FATCA).
This latest wave in
pushing for an automatic exchange of information (as opposed to
information supplied on request) on a broad range of financial
information started with the US’ FATCA.
FATCA
was signed into law by President Obama in 2010, and will largely come
into effect in January 2014. Its aim is to prevent Americans from
evading US taxes through the use of foreign bank accounts and other
financial instruments.
Foreign
financial institutions, based in countries all over the world, have to
enter into compliance agreements with the US Treasury to automatically
report on US clients. The US has found a strong incentive to make them
agree do so – if they refuse, they will suffer a withholding penalty of
30% of the payments made to them.
Offshore
centres like the Channel Islands and Isle of Man were keen to sign up
to avoid the penalties, which could damage their finance industry.
This
is considered a radical and controversial approach, and was very
unpopular when first unveiled. Some banks have been unwilling to have
American clients because of the amount of reporting work that would be
involved.
Nonetheless, it was
only a matter of time before other countries realised the benefits such
agreements could bring and began looking to set up similar arrangements.
France
introduced a ‘mini FATCA’ last year, whereby trusts and trustees have
to report to the French authorities where a trust has French assets,
beneficiaries or settlors.
The
Isle of Man, Jersey and Guernsey have recently agreed to report client
information to the UK authorities, along the lines of intergovernmental
agreements they are signing with the US.
Luxembourg,
which has so far continued to apply withholding tax under the EU
Savings Tax Directive rather than automatic exchange of information,
recently announced that it is preparing to ease its banking secrecy.
On 10th April, Prime Minister Jean-Claude Juncker told the country’s
parliament that this will start within two years.
It is interesting to note that he said that they had not changed their position because of European pressure, but rather “because the Americans do not leave us a choice”.
He explained that if Luxembourg refused to sign up to FATCA, there
would be no more financial business with the US, an inconceivable
prospect.
He stressed that the
Grand Duchy’s financial centre did not see black money and tax evasion,
so it could “safely apply” automatic exchange of information from 2015.
These
exchange of information agreements have implications beyond tax
compliance. As the Chief Executive of the Association of Life Offices,
Alan Morgan-Moodie, commented:
"It's actually all
about reporting, and tracking the wealth of the population, and where it
resides. And it is the end of any form of confidentiality, certainly
throughout Europe and the US, and I'm sure it will percolate into other
areas.”
(This information was written by the tax law firm Blevins Franks).
