In a recent decision, the Swiss Federal court upheld a request for information from the US tax authorities that sought to obtain information in relation to accounts held by US taxpayers, whether directly or indirectly (ie through offshore companies, trusts, foundations etc).
What is striking about the decision is that the US request for information did not contain any reference to specific taxpayers. Instead, it was a ‘group request’ that was aimed at uncovering anonymous accounts.
This is not the first time that the tax authorities of a G8 country have obtained an order enabling them to obtain information in relation to unknown bank accounts. This happened in the UK in 2007, when HMRC secured orders against a number of high street banks with offshore branches.
But this is not the end. From 2015, the EU will operate a system of automatic exchange of information in relation to five categories of income (employment, directors’ fees, life insurance products, pensions and immoveable property) and a number of offshore jurisdictions have announced that they will automatically exchange certain bank information with the UK.
This will be of little comfort to Mr Larsen, the Norwegian who lost the first-ever case brought by a foreign tax authority under a Tax Information Exchange Agreement signed by Jersey. In addition, from 2014 Belgian and Italian taxpayers will have to deal with new tax disclosure rules in relation to offshore trusts and foundations.
Stick and carrot approach
Unsurprisingly, over the past few years, a number of tax authorities have introduced tax amnesties and voluntary disclosure programmes to induce recalcitrant taxpayers to come clean.
In some cases, the terms were very benign (Italian taxpayers who took part in the last tax amnesty programme were offered a one-off opportunity to wipe the slate clean with a penalty equal to 5% of undeclared assets), but what about the UK?
Making sense of the offering in the UK – before it’s too late
It is a well known fact that the UK taxman likes his acronyms (the latest addition to HMRC’s glossary are GAAR, ATED which of course replaced ARPT and most readers will be familiar with the LDF, which came hot on the heels of the ODF and the NDO).
Now, HMRC has announced the signing of more MOUs (which of course stands for Memoranda of Understanding) with Jersey, Guernsey and the Isle of Man. Swiss accounts are now covered by the Swiss-UK Cooperation Agreement that came into effect on 1 January of this year.
Will the litany of acronyms and offshore disclosure facilities go on forever? A close look at the new rules suggests that this time things are likely to be different and that those who are still waiting out in the cold should feel a sense of urgency.
In the beginning was the LDF…
Most readers will have heard of the Liechtenstein Disclosure Facility under which a taxpayer with undisclosed assets may clean up his/her act by paying the tax and interest due and all capped penalties (10% to 2008/09, 20%/30% thereafter), and with shorter limitation periods (10 instead of 20 years), protection from criminal liability and the ability to wipe out any outstanding inheritance tax liability.
Readers should take notice that the LDF will expire on 5 April 2016 before reading the rest of this note.
Then along came the Crown Dependencies with their facilities – more of the same?
Jersey, Guernsey and the Isle of Man have decided to get on the voluntary disclosure bandwagon and signed parallel agreements with the UK introducing broadly similar voluntary disclosure facilities. Interestingly, these facilities are open until 30 September 2016, i.e. shortly after the LDF is due to expire.
Accessing the new voluntary disclosure facilities is relatively easy, although a taxpayer does need to show that he/she has relevant property in one of the jurisdictions affected. It will, however, be possible to establish a nominal ‘footprint’ (e.g. a small bank account) in one of the Crown Dependencies, which is a far cry from the Liechtenstein rules (the requirement there now is for 20% of the undeclared bankable assets or CHF 3 million – whichever is the lesser – to be transferred to a Liechtenstein Financial Institution).
Nevertheless, the ability to establish a nominal footprint in Jersey, Guernsey or the Isle of Man will expire at the end of 2013. Therefore, individuals wishing to take advantage of the new facilities should get their ducks in a row and open bank accounts in one of the Crown Dependencies – or should they?
The problem with the new disclosure facilities is that there is no protection from criminal prosecution. In addition, it is not possible to wipe out outstanding inheritance tax liabilities under these programmes. Furthermore, penalties are only capped at 10% until 2007/08 and thereafter increase to 20%, 30% or 40% depending on the category of country in which the income/gain arose.
The new disclosure facilities are not necessarily as attractive as the LDF, but, if the LDF is not available, they are realistic alternatives.
At Withers, we have substantial experience in dealing with offshore disclosure facilities and, with offices in six jurisdictions (the US, the UK, Switzerland, Italy, the BVI, Singapore and Hong Kong), we have been at the forefront of anticipating international tax developments. As regulated solicitors, we benefit from professional privilege, which means that taxpayers who want to clean up their affairs can do so in confidence.
 This acronym stands for ‘General Anti-Avoidance Rule’
 Annual Tax on ‘Enveloped Dwellings’
 Annual Residential Property Tax
 Offshore Disclosure Facility – expired in 2007
 New Disclosure Opportunity – expired in 2009, ie in the same year the LDF was announced