Time is up for wealthy people with undeclared cash and investments hidden in offshore accounts to avoid tax.
The first reporting date for financial institutions around the world to swap data under automatic exchange of tax information passes at the end of the month (May 31).
Then, much debated tax avoidance information held by banks and other financial institutions will be passed to tax authorities.
The tax agreements
The information includes that held under:
- The Foreign Account Tax Compliance Act (FATCA) – American legislation demanding foreign financial institutions pass data about accounts and investments controlled by US taxpayers to the IRS
- The Crown Dependencies and Overseas Territories (CDOT) – Financial institutions from financial centres such as the British Virgin Islands, Cayman Islands, Gibraltar, Isle of Man and the Channel Islands to the UK’s HM Revenue and Customs (HMRC)
- Common Reporting Standard (CRS) – Reciprocal returns between more than 50 tax authorities worldwide with information about money and investments held by their taxpayers in offshore accounts
Automatic exchange severely restricts the ability of taxpayers to hide their wealth offshore as almost every leading financial centre is taking part in swapping financial data.
Taxpayers do not have any extra burden under automatic exchange.
How automatic exchange works
However, the data collected will be compared with tax returns to make sure offshore account holders have paid the correct amount of tax.
The deadline is the first time data is collected under the CDOT and CRS agreements – and an extra 50 countries are expected to report under CRS in 2018.
The global networks will then cover more than 100 countries.
The report will cover accounts and investments held offshore by banks, building societies, investment houses, trusts and charities in the year to December 31, 2016.
“If you have a UK account provider they will send the information to HMRC, who will share the information with the relevant tax authority if the account is held by one of their tax residents,” says HMRC.
“If you are a UK tax resident with an account outside the UK, HMRC will receive information from the relevant tax authority.”