Expats in the United Arab Emirates could find information about their financial affairs turned over to tax authorities in other countries if a new law change goes through.
Dubai was criticised for a lack of transparency when exchanging tax information with other countries after a probe by the Organisation of Economic Cooperation and Development (OECD).
The OECD issued a report urging the country to give other tax authorities more information about their taxpayers accounts and assets in Dubai.
Now, the Dubai Financial Services Authority (DFSA) is consulting on proposed changes that will bring tax information agreements with other nations in to line with OECD models.
The stumbling block is what the United Arab Emirate’s Ministry of Finance calls an ‘urgent, minor amendment’ to the definition of a privileged communication.
Lawyers to lose privilege
If the DFSA asks a lawyer to give information, produce a document or answer a question, and the response would make the lawyer breach a privileged communication, the lawyer can refuse to comply.
A privileged communication arises from giving legal advice to clients and is protected by law, barring lawyers from opening their files to respond to questions about a client’s financial affairs.
The DFSA says the scope of legal privilege is wider than the international standard and can stop the effective exchange of tax information between nations.
The proposal will change the wording of the definition to remove the privilege lawyers have.
Once the change is ratified, the DFSA, Dubai International Finance Centre and the UAE will meet the information exchange standards set by the OECD. The new definition is expected to be introduced from September 23, 2012.
Model tax agreements
The OECD has 34 member countries comprising of many of the world’s leading economies, and has led a campaign about tax secrecy across the world.
The OECD’s global tax forum writes template tax information exchange agreements (TIEA) and double taxation treaties (DTA) for member countries.
For expats, salaries are paid tax-free in Dubai – for Brits or US expats who are not listed as non-residents in their home nation, this could mean HM Revenue & Customs or the Internal Revenue Service being spoon-fed details of earnings to match up with income declared on tax returns.
TIEA would let tax authorities outside the UAE request financial information about an expat’s finances in Dubai or Abu Dhabi.