Taxing times for offshore assets

In the past, ‘the taxman’ was often viewed as a faceless spectre who lurks silently waiting to pounce on its victims.

But all that is changing, fast. If the fall of Wegelin last month has proved anything, it is that the taxman is a reality and he is hot on the heels of those with offshore assets. Wegelin’s closure is the most concrete sign to date that change is necessary in the cross-border space, and should focus the mind of an industry that has been slow to act.

The global trend toward transparency will only accelerate from here, and the Swiss and others operating across borders, will have to quickly refocus their propositions to highlight service and expertise if they hope to keep their businesses viable.

As institutions succumb to this pressure, clients need to make sure they are on the right side of any applicable laws as well.

And it is not just the US that is in ‘track and hunt ’mode. The UK is also shifting into a proactive high-gear of activity. Clamping down on tax avoidance was a major theme in March’s UK budget, and the UK’s fiscal authority, HMRC, also announced an aggressive new tax initiative which aims to chase those believed to have undisclosed offshore accounts.

The Contractual Disclosure Facility (CDF) will give a taxpayer 60 days to enter a ‘contract’ with HMRC. If the agreement is signed and a complete disclosure is made, they will not be investigated criminally. But if the request is declined, is ignored or fails, HMRC will initiate a criminal enquiry which could lead to a fine and unlimited prison sentence.

Ultimately, many consider the best route to be voluntary declaration of offshore assets, made possible through the Liechtenstein Disclosure Facility (LDF). This agreement allows UK tax payers to regularise their affairs by creating a footprint in Liechtenstein. Clearly, HMRC still feels this is a relevant solution, deciding recently to extend the deadline for its usage from March 2015 to April 2016.

But clearly, the LDF initiative has also taken on board lessons from regulators on the other side of the pond. Specifically, that pushing for transparency in tax dealings has to be a global effort.

The US Internal Revenue Service has announced the launch of yet another agreement with France, Germany, Italy, Spain and the UK to simplify the collection of tax information for the Foreign Account Tax Compliance Act (FATCA).

US regulators have worked hard to create an international network where information about suspected tax evaders can be easily exchanged. For the IRS the view seems to be that FATCA will be the gift that keeps on giving. To the industry this is a debatable point and for some it is the big end of the originally thin wedge.

And, it appears that the LDF is also trying to cast the net wider. At an event in late February, Philip Marcovici, board member at European wealth manager Kaiser Partner and one of those involved in creating the disclosure programme, explained the importance of global transparency to the Singaporean banking community.

Mr Marcovici described a “global sea change” in attitudes to undeclared funds, noting how Singapore’s moves to “all crimes” anti-money laundering legislation is one of many developments pushing the industry and its clients to take a hold on tax compliance issues.

We will see if clients will flirt with the idea of voluntary disclosure or whether they will play hard to get when it comes to tax compliance. But one thing is for certain – the taxman is out there and he is ready to hunt.

Bill Yelverton is executive director at wealth management think-tank Scorpio Partnership