Tougher disclosure rules for offshore accounts held by ‘non-doms’ once single tax reporting standard in force
Financial institutions based in certain British Overseas Territories (BOTs) and Crown Dependencies (CDs) will be subject to stricter reporting requirements covering accounts held with them by UK resident non-UK domiciled taxpayers from 2016 if specific “carve outs” are not negotiated, an expert has said.31 Oct 2014
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Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, was commenting as 51 countries signed an agreement that will activate the Common Reporting Standard (CRS) for automatic exchange of financial account information in tax matters, created by the Organisation for Economic Cooperation and Development (OECD). From 2017, ‘early adopters’ of the CRS will begin automatically exchanging information with each other in respect of data collected from 31 December 2015.
57 countries, including the UK, have agreed to be early adopters. A further 34 countries, including Hong Kong, Switzerland, Singapore and United Arab Emirates have now said that they will start reporting in 2018, one year later than the early adopters.
All the BOTs with significant financial centres and the CDs have already committed to information-sharing arrangements with the UK under separate agreements. These agreements apply to calendar years 2014 and 2015, before these jurisdictions drop the UK scheme and fall into the CRS scheme. However, Collins said that this meant that from 2016, special provisions currently applicable to UK resident non-UK domiciled individuals would end.
“Under the so-called ‘alternative reporting regime’, UK resident non-doms with bank accounts, investments, private trusts and companies in the Channel Islands, Isle of Man, Gibraltar, British Virgin Islands, Cayman and Bermuda, can elect that only income or gains ‘remitted’ to the UK are reported rather than their entire net wealth, on the basis that only remitted amounts are UK taxable,” Collins said.
“The alternative reporting regime as it stands is not available under CRS. This means that offshore banks and trustees in these jurisdictions looking after wealthy foreigners living in the UK will, from 2016 onwards, have to report on the entirety of the assets they hold for that person, even though this information is not needed for UK tax purposes. It is a huge invasion of privacy, as well as a data protection risk,” he said.
“The problem will also extend to wealthy individuals with assets in the early adopter countries (such as Liechtenstein, Malta and Luxembourg) from 2016 and the other major financial centres Switzerland, Singapore and the UAE from 2017 as these countries begin reporting on the CRS”
Collins said that unless the issue is raised quickly with HM Revenue and Customs (HMRC), the chances of the industry successfully pushing for a “carve out” from the CRS terms quickly recedes.
“However, not many in the offshore financial services industry are yet alive to this issue, so little lobbying has been done,” he said.
Developed by the OECD at the request of the G20 group of the world’s largest economies, the CRS will require financial institutions and brokers to report information to authorities in their own jurisdictions which will then be passed on to other participating countries automatically. Financial account information covered by the standard includes balances, interest, dividends and sales proceeds from financial assets, and it will apply to accounts held by both individuals and entities, including trusts and foundations.
Participating jurisdictions are also encouraging developing countries to join the move towards automatic exchange of information, and a series of pilot projects will offer them technical assistance to put the necessary mechanisms in place. A new ‘African Initiative’, led by African members of the OECD, is to operate in order to increase awareness of the merits of tax transparency in Africa.
“We are making concrete progress towards the G20 objective of winning the fight against tax evasion,” said Angel Gurria, the OECD’s secretary-general. “The fact that so many jurisdictions have agreed today to automatically exchange financial account information shows the significant change that can occur when the international community works together in a focused and ambitious manner.”
