Havens set deadline for reporting investors’ tax details
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The British Virgin Islands, Liechtenstein and Jersey are among 44 countries that have set a deadline of September 2017 for reporting investors’ tax details to their home governments, under pioneer plans aimed at leaving “no hiding place for tax evasion”.
An “ambitious but realistic” timetable for automatic tax information exchange was unveiled by the countries that have pledged to become early adopters of the system.
The countries said the plan would “provide a step change in our ability to clamp down on tax evasion, which reduces public revenues and increases the burden on those who pay their taxes”.
The initiative includes the UK’s Crown Dependencies and overseas territories, along with much of Europe, India, Argentina and Colombia. Luxembourg did not appear on the latest statement, despite previously agreeing to be an early adopter of information exchange.
The inclusion of many once secretive offshore centres in the system will pave the way for pressure to be exerted on tax havens that resist signing up. In a joint statement, they said their decision to move quickly on tax transparency recognised “that only those financial centres which adopt the highest standards in tax transparency and work in close co-operation to tackle cross-border tax evasion will prosper in the future”.
The plan will require banks to put in place procedures to record new clients’ tax residence from January 2016. Procedures for identifying existing accounts will be needed by December 2016 for high value accounts or December 2017 for low-value accounts or those held through a company, trust or foundation.
The details to be reported include interest, dividends, account balance, income from certain insurance products, sales proceeds from financial assets and other income generated from assets held in the account.
The move to automatic information exchange between tax authorities will impose significant costs on financial institutions but will mark a step change in the information available to tax authorities, expanding the scope and cutting the costs of investigations.
Nearly all EU countries and some other countries exchange information about the interest earned on bank accounts but the new standard is much wider in scope and includes all types of investment income and capital gains.
The huge deficits that opened up following the global financial crisis and a series of evasion scandals have prompted governments to mount a concerted attack on evasion. Since 2009, tax authorities have been able to request information about offshore accounts but only in cases where they have grounds for suspicion.
The catalyst for the latest move to prise open secretive tax havens was US legislation known as the Foreign Account Tax Compliance Act (Fatca), passed in 2010 in the wake of a scandal involving UBS, the Swiss bank.
Last year European governments agreed to adopt their version of Fatca, and the UK secured similar agreements with its crown dependencies and overseas territories.
Credit: Financial Times