|New regulations on exchange of information and offshore jurisdictions|
All of us have probably noticed tax regulations are becoming tighter and more controlled by the government. There are several reasons behind the austerity measures and we would like to explore to a certain extent what measures have been implemented so far by the UK government. There are three ways how governments exchange information between each other: upon request, spontaneous exchange and automatic exchange of information, which is becoming more common today. The UK has a good number of double treaty agreements (DTA) all around the world and mainly those treaties are in line with the Organisation for Economic Cooperation and Development’s (OECD) model treaty and contain Article 26 which obliges competent authoritys to assist each other with regards to collection of tax and exchange of information. There are certain sovereign rights of states which cannot be breached. So states are trying to sign up DTA and other agreements in order to pass information to the competent authority of another state. We should bear in mind that UK is a member of EU and has to comply with various Directives (mutual assistance directives etc).
From the common practice of exchange of information upon request in the past, we are moving towards the automatic exchange of information procedures, which might be used by certain aggressive states as a sort of fishing expeditions. UK tries to find a right balance on this matter.
Back in 2009 at G20 summit Gordon Brown, made a speech on tax heavens and the necessity to implement a proper mechanism of exchange of information.
At that point ten countries that offer legal shelter from high taxes were backing an agreement to disclose information about those suspected of criminal tax evasion.
They included Switzerland, Liechtenstein, Luxembourg, Monaco, Austria and Andorra. It marked a major shift in focus for the G20 meeting, with proposals for another huge injection of money into the world economy effectively forced off the agenda.
At the last G20 in 2013 ministers welcomed a new global standard to automatic tax information exchange and called on the governments of financial centres to sign up to new international tax information sharing agreements. Further to that the UK Chancellor of the Exchequer George Osborne has launched a new campaign targeting taxpayers with money hidden in offshore accounts.
Historically, UK has a vast number of overseas territories and crown dependencies which are offshore jurisdictions. So one of the practical steps UK took along with some other major world economies was to agree to those tax heaven states joining the multilateral convention on sharing of tax information. Today there is only a very limited possibility to set up an offshore entity without disclosing relevant information about the beneficial owners etc. Most tax heavens have to make sure that information provided by clients would be available to the relevant competent authorities. Joining the Multilateral Convention will allow more countries to quickly benefit from greater levels of tax information exchange. This will be particularly beneficial for developing countries as it allows them to sign up to one multilateral treaty rather than several bilateral arrangements. The action plans on beneficial ownership they have committed to produce will ensure much greater clarity about who really owns, controls, and benefits from companies.
The above measures would bring transparency on the company ownership, it will make it harder to launder money, evade tax, finance terrorism, bribe officials, hide stolen assets and evade financial sanctions. Together, these commitments represent the biggest ever step change in the level of tax transparency of the Crown Dependencies and Overseas Territories and will make it much harder for people to escape paying taxes by hiding their money overseas.
Last year the UK along with France, Germany, Italy and Spain joined another initative on the new global standard on multilateral basis of exchange of information between member states. UK tax authorities also implemented general anti abuse rules which are considered to be anti avoidance rules and there is a public perception that tax avoidance is not a question of law but question of morality and public duty. The UK position as a generator of comprehensive and rather aggressive tax planning has changed dramatically and the spirit of the law is having a new turn in its history.
The G20 finance ministers also restated their commitment to fighting profit shifting by multinational corporations to avoid paying tax. They said that they look forward to progress in the OECD’s base erosion and profit shifting (BEPS) project to reform the global tax rules and tackle profit-shifting by multinational companies as set out in the agreed timetable. Within EU there is a discussion about implementation of common consolidated corporation tax base (CCCTB) for group companies which would allow them to avoid rather complicated transfer pricing rules and allocation of profits amongst member states based on number of employees, asset and sales contributions.
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