UK nationals and others hiding money in the Isle of Man have three years to declare it or face penalties of up to 200% on any unpaid tax after the Crown Dependency of the Isle of Man struck a deal with the UK mainland government to share information to fight tax evasion. Her Majesty’s (HM) UK Treasury has admitted the move is based upon the impending supranational Foreign Account Tax Compliance Act (FATCA) emanating from the US and other international moves to close down tax loopholes during a time of austerity.
The deal with the Isle of Man, which is likely to be followed by similar deals with other offshore UK tax havens in the English Channel and the Caribbean, was agreed late on Tuesday and automates the sharing of taxpayer information between the two representative governments. A disclosure element will allow account-holders on the island to come forward and settle outstanding tax bills, plus interest, before their details are passed to HM Revenue and Customs (HMRC), the UK tax authority.
The disclosure concession will start in April and run until September 2016. It will not be open to individuals already under investigation but will cover liabilities dating back to April 1999. The facility offers immunity from prosecution but, in most cases there will be a penalty charge of 10% on unpaid tax up to 2009 and 20% for later years. Any individual that does not come forward could face a fine of up to 200% on the unpaid tax, or possibly go to jail.
Information can be shared across borders under the new deal for the first time, aping the US FATCA stipulations, which many other nations are expected to follow in the fight against tax evasion. Specific company information is not yet available, but as with FATCA the closing down of loopholes surrounding tax havens may well have an impact on some tax ‘optimisation’ schemes operated by corporations.
Commenting on the deal, Andrew Watters, a director and tax specialist at UK law firm, Thomas Eggar, said: “The announcement is simply the latest example of the on-going determination of the UK authorities, in collaboration with the Organisation for Economic Co-operation and Development (OECD), to ensure they know about assets held abroad by UK residents. The Channel Islands, together with various other international financial centres, are under similar pressure. Having identified the persons concerned, the taxman will examine their affairs to see whether there is avoidance or evasion.
“Individuals who hold such offshore assets may wish to consider whether they are exposed to challenge. Some, including non-domiciled individuals, may have an over-optimistic view of their tax position. If there is an undisclosed liability, there are opportunities to gain advantageous terms by making a voluntary disclosure.
“The reference to having until 2016 to make a disclosure clearly links to the terms of the Liechtenstein Disclosure Facility which is open until 2016. However, for anyone who is thinking of waiting, the danger is that if their name comes to the attention of the UK authorities before they make a voluntary disclosure, then the option of such a disclosure disappears and they can face substantial civil penalties or even criminal prosecution.”
According to Jim Muir, director of financial data management firm, AutoRek, there is little doubt that the latest information-sharing agreement between the Isle of Man and HMRC is being driven by the realisation that hard-hitting regulations like FATCA can be costly and difficult. “In addition, large financial institutions, including big employers within the Isle of Man, are becoming increasingly aware of the reputational risk associated with regimes that are seen to be aiding and abetting tax evasion,” he adds. This goes for companies too, of course, just look at the recent Starbucks furore.
“It’s also important to remember that there are other economic factors in play with respect to the relationship between the Isle of Man and HMRC including the much publicised changes to the tax sharing agreements a couple of years ago,” continues Muir. “As big institutions pay more heed to the places in which they do business, the people with whom they do business and the type of business they do, there will be more focus on compliance and boosting transparency. As a result, organisations need to start to prepare people, processes and systems so that they can achieve, and demonstrate, a robust, single-view of customers and report on their clients and past activity when required.”
The US dollar and debt yields falling on the North Korea missile test, treasury being a top target for cyber criminals and why treasurers aren't into real-time payments all hit the latest headlines in the world of treasury this week. Don't miss our ten top news stories from around the world.
While corporates have more choice when it comes to choosing financial services, the core relationship between banks and businesses hasn't changed, argues Michael Cummins, head of treasury solutions at Citizens Bank.
A poll by MarketInvoice also found that relatively few business leaders would consider speaking directly to a bank.
Trade credit insurer Atradius expects the country to emerge from recession this year, but warns that weak confidence will continue to keep growth subdued.