British efforts to banish tax evasion from offshore financial centres moved a step closer with the signing of the first tax treaty.
Dubbed son-of-FATCA, the British tax treaty network embraces former tax havens like the Channel Islands, Cayman Islands and British Virgin Islands.
These financial centres are all British Crown Territories or Dependencies.
Inspired by FATCA, the US Foreign Account Tax Compliance Act, the British financial jurisdiction network will see the automatic exchange of information between financial institutions and tax authorities.
The Isle of Man has already signed the first treaty – described as a huge step towards international tax transparency by Chancellor George Osborne.
“We are closing in on anyone trying to hide the money and assets offshore,” he said.
“This treaty is part of an international agenda to make tax transparency clearer. The Isle of Man should be praised as the first financial centre to sign a treaty with Britain.”
The treaty ensures a two-way exchange of financial information between HM Revenue & Customs and the Manx tax authority revealing the income and assets of taxpayers in each jurisdiction to the other.
Similar agreements are also in the pipeline for other offshore financial centres, like Jersey and Guernsey.
On signing the treaty, Isle of Man chief minister Allan Bell said: “We want to show the world that the Isle of Man is a responsible financial centre.
“We are committed to joining a new global standard in the automatic exchange of financial information.”
The Isle of Man is also due to sign a FATCA treaty with the US – and would have done so already if the federal government had not closed the government for business.
Not only has the federal shutdown impacted on US government services, FATCA negotiations with around 50 nations have been suspended.
However, during the forced break, financiers across the world have started to realise the full extent of the law.
FATCA demands any financial institution with US taxpayers as clients must report details of their earnings and assets annually – providing they meet the $50,000 holding threshold. Failing to make the report leads to sanctions like withholding taxes in the US.
But US financial institutions are coming to realise FATCA also has implications for them, as they must identify and report financial information about their clients who are taxpayers of FATCA-compliant nations.
FATCA is due to start on January 2014, with further measures coming into effect from June 2014.