Places for people and businesses to hide their financial assets are quickly disappearing with the introduction of treaties, exchange agreements and new technology.
There is now a massive database being pieced together which will pinpoint where the wealthy hide their offshore cash and assets to avoid the taxman.
Those countries that were renowned as tax havens and which made their money from banking secrecy and exploiting legal loopholes are changing their approach to taxation by stepping in to the light.
A point which has been underlined when Switzerland paid out £540 million to the UK after a new tax treaty came into effect.
In addition, the Organisation for Economic Co-operation and Development (OECD) has a ‘flying squad’ of tax inspectors ready to jet in to countries to help bolster their tax laws and the way they administrate their tax collection systems.
UK’s son of FATCA
However, many would point to the introduction of America’s Foreign Account Tax Compliance Act (FATCA) as being the nudge towards a global system of exchanging information.
Under FATCA, a foreign financial institution (FFI) would have to report to the Internal Revenue Service (IRS) the assets of its US taxpaying clients.
Failure to do would see a 30% withholding tax being imposed by US authorities on transactions between the FFI and the US.
FATCA has also seen other countries introduce their own versions of the law – most notable the UK with its ‘Son of FATCA’ legislation which would compel all financial institution in its dependencies and territories having to reveal details of who is holding assets with them.
This law would mean that the Channel Islands and the Isle of Man, leading offshore tax havens for the world’s rich, would have to reveal who their clients are and what assets they hold.
Veil of secrecy
Around 50 countries have now signed up to FATCA – or through their own Intergovernmental Agreements (IGA) which redefine how their own double-taxation agreements with the US will work.
This growing harmonisation of taxes and stripping of bank secrecy for offshore havens means it is increasingly difficult for the wealthy to hide their assets.
The new agreements do not, however, just apply to banks with many other institutions such as brokers, insurers and clearing organisations, all having to reveal who their clients are.
The Isle of Man’s chief minister, Allan Bell, said: “We have to accept that the nature of tax co-operation between countries is changing and the global standard will be the automatic exchange of information.
“We already exchange some information under the EU’s Savings Directive and it’s a logical step for us to embrace new forms off tax co-operation with our biggest trading partner, which is the UK.”