Financial advisers are finally waking up to the notion that tax management laws rolled out by governments across the world are aimed at them and not taxpayers.
The Oslo Dialogue Agreement signed by the 34 member states of the Organisation of Economic Cooperation and Development in March 2011 is the key date.
Under the agreement, each country signed up to swop information about financial institutions, advisers and taxpayers involved in cross border tax management.
Since then, lawmakers have worked on putting the agreement in to practise – and the result is the US Foreign Account Tax Compliance Act (FATCA) and the latest announcements about curbing advisers and companies selling ‘aggressive tax avoidance schemes’ by Exchequer secretary David Gauke.
The coin has dropped with some advisers – it’s easier for the Inland revenue Service (IRS) in the US and HM Revenue & Customs in the UK to control a limited number of financial institutions and advisers than it is to chase down millions of taxpayers and their financial affairs.
The tax authorities are now working together rather than as individuals – the new FATCA management initiative between the US, UK, France, Spain, Germany and Italy includes an information swapping clause that lets each government tip off the others about individuals involved in cross border tax management.
The costs of implementing FATCA may also drive some wealth manager and fund managers out of business, according to research by consultancy firm PricewaterhouseCoopers (PwC).
PwC tax partner Teresa Owusu-Adjei suggests the burden of the work will largely fall on fund distributors and financial advisers, who will have to put in place processes to be able to identify their US clients – and even if they have none, they still need to have the same processes in place to confirm that.
“The entire funds industry will go out to IFAs and distributors and ask them their status under FATCA,” she said.
“Many advisers don’t know this deluge will hit them and they are ill-prepared. The advice business is clearly already under a lot of strain and cost; it could put smaller advisers out of business.”
PwC reckons the annual bill for FATCA reporting will cost between £20 and £70 per investor for the largest firms and possibly double for smaller advisers.