Expats hoping to avoid taxes need to take account of new European laws designed to lift the veil of secrecy on their financial affairs.
Tax experts are warning European Union countries are ready to roll out new laws for sharing financial information from banks and financial institutions.
The law is expected to follow the same principles as the US Foreign Tax Compliance Act (FATCA) and the British tax information sharing agreements with former tax havens in Crown Dependencies and Territories, like Gibraltar and the Isle of Man.
The European Commission has already started work on the proposals, which will allow the automatic exchange of financial information between tax authorities.
So, expats in Spain earning interest on money in an Isle of Man bank account will automatically have the details of their accounts routed through the UK and on to Spain under the new rules. If that income is not declared on a tax return, then the Spanish tax authorities will compare the data with the return and query why no declaration was made.
European tax reference
At the heart of the move is a general acceptance by the European Union that freedom of movement and residence within the union means people can disappear from sight – along with the tax they should pay.
The first step in changing the system to automatic reporting will be to give every European citizen a unique tax reference that follows them as they move between countries.
This tag will have to be given to banks and financial institutions by customers and reported on tax returns, so tax authorities can easily tally interest, dividends, gains and earnings against those declared by the taxpayer.
The EU Savings Tax Directive will include this auto information exchange.
“Tax authorities will have the information they need to calculate and enforce collection of any taxes due,” said the Commissioner for Taxation, Algirdas Šemeta.
“This is a powerful method for controlling tax evasion and will set an example to the rest of the world and lead the way in the move towards better tax governance.”
Expat tax planning is already complicated.
Tax residence is the key to successful financial planning for expats, but this can be complex as the rules of residence vary between countries.
This is even more complicated when expats have assets, like homes or pensions, in more than one country.
Inheritance tax also throws up problems as this is based on domicile rather than residence.