UK FATCA may be on the way

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Chancellor George Osborne seems to have no plans for a wealth tax for Britain’s richest earners – but may consider a UK FATCA along the lines of the tax crackdown in the US.

Deputy Prime Minister Nick Clegg had called for the government to make the rich pay more tax, but Osborne gave the idea a lukewarm reception.

Osborne said: “I am clear that the wealthy should pay more, which is why in the recent budget I increased the tax on very expensive property transactions. We also have to be careful as a country we don’t drive away the wealth creators and the businesses that are going to lead our economic recovery.”

Meanwhile, research by the cross-party International Development Committee of MPs reckons  international tax evasion could be reduced by imposing laws similar to the US Foreign Account Tax Compliance Act (FATCA).

Capital flight costs $1 trillion

FATCA demands all foreign financial institutions deliver information about US taxpayers controlling offshore accounts to the Internal Revenue Service.

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The controversial legislation that starts in January 2013 will lift the veil of secrecy some financial centres try to draw over the financial transactions of their wealthy customers.

The act also stops wealthy taxpayers from hiding offshore earnings and assets from the IRS.

The UK report warns ‘capital flight’ – removing assets from a developed country to another country with laxer tax laws – was a “serious problem” costing developed countries around $1 trillion a year in tax.

The committee called for the UK government to simplify tax treaties to make the exchange of data between governments more efficient and to involve less red tape.

The MPS reported the UK government “claims to support automatic exchange of information in principle”, but has concerns about the possible administrative burden on businesses and financial institutions, as well as worries about taxpayer confidentiality.

Aim is to help developing countries

However,  the committee spoke to  several large businesses who expressed no opposition to introducing a FATCA-style law.

Committee chairman Sir Malcolm Bruce explained the main aim of the report was to help developing countries move away from reliance on overseas aid – and the MPs saw tougher laws as one way of making wealthy individuals and companies pay their tax in the country where it was due instead of allowing them to shift their assets and earnings elsewhere.

“The government is committed to supporting economic growth in developing countries to reduce their dependency on aid. While this is clearly the right thing to do, it would be deeply unfortunate if the government’s efforts were undermined by its own tax rules,” said Bruce.

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