|
by Bill Blevins, Financial Correspondent
Tax
has formed part of our society for the last two millennia.
Ancient Rome had a sophisticated tax system in place by the 4th
century BC, including sales, inheritance and import and export taxes. The first tax haven was also established
then. The first documented use of imprisonment for
tax evasion was in 306AD. The first
recorded income tax was in 1404 BC in England - it was so hated that Parliament later had all records of it burned.
Tax
is no more popular today. For many
people “all tax is theft” and schemes have always existed to help people lower their tax bills (often
illegally). Today, however, tax
collectors are in their best position ever to successfully counter tax evasion
and ensure they receive all taxes due to them.
Let’s look at the recent developments.
The
late 1950s and 1960s saw the emergence of
offshore financial centres (OFCs) - originally known as “tax havens” -
like Jersey, Guernsey, Monaco, Switzerland, Cayman Islands and
Bermuda. Their business grew
significantly with the lifting of exchange control regulations in the
late
1970s and 1980s, which meant money could move freely round the
world. People quickly found new, tax friendly, homes for their
money. Initially many governments did not tax foreign
sourced income, and they soon realised that the removal of the
regulations resulted
in the loss of tax revenue from the money which had left the
country. They changed their laws to make this income taxable, but
the lack of any exchange of information treaties meant that, although
this money should be declared, the taxman actually
had no way of finding out about it.
Tax
authorities around the world have since made it their mission to recoup these
lost billions in tax revenues and shut down systems that enable people to evade
taxes. This is particularly important
today, when governments are under pressure to cut taxes at the same time as provide for ageing populations.
Increasingly
sophisticated technology and improved cooperation between nations resulted in
governments the world over working together to this
end. The Organisation for Economic
Cooperation and Development (OECD) starting talking about “harmful tax
competition” and pressurising OFCs to hand over information on bank
accounts. It produced a black list of
tax havens with the aim of “shaming” them into complying. The G7 group and the Financial Action Task
Force (FATF) put pressure on countries all over the world to improve banking
regulations so that banks must get more information on client identity and the
nature of banking transactions.
Following
the terrorist attacks on the US in September 2001, banking transparency
became an even bigger issue. The US government wanted full access
to global banking information and entity
ownership. Countries the world over became increasingly willing
to share information, and this includes details
which may be of interest to the taxman.
It
is likely that you have already noticed some of the resultant
changes.
Phrases like “know your customer” and “source of funds” have become
common and mean that financial companies and bank need much more
information on your identity and money than they did in the
past. You may now need to provide details on
where money you are depositing has come from and what you need it
for.
In many countries banks are duty bound to report any suspicious
transactions,
including those relating to tax evasion.
They are legally prevented from telling you when they file a
report.
The
fight against tax evasion continues to strengthen. Here in
Europe the Savings Tax Directive comes into force on 1 July 2005. This
will result in European tax authorities
having much increased access to personal information on bank savings
accounts
and other interest bearing investments. Although it is an
EU law, pressure on
countries with associated territories means that places like the
Channel Islands
are also complying – as is Switzerland and other key non-EU financial
centres.
What
is unique about these new regulations is that information (on your identity,
bank accounts, amount of interest earned etc) will be exchanged automatically, and not only when tax
evasion is already suspected. Once a
year, the tax authorities in the country where you have your savings will
correspond with the authorities in your country of residence, to pass on
information about your finances.
In
the early years of implementation of this new law certain countries and
jurisdictions have been granted a “transitional” exception and may levy a
withholding tax rather than exchange information. But this will only be for another six years
or so, and, in any case, these centres will exchange information in cases of
fraud or similar misbehaviour.
Across
the world, the OECD and G20 group of industrialised nations are setting
up
systems for tax authorities to exchange information on request and for
easier
access to banking information and asset ownership. The OECD is
now paying specific attention to
Asian and Middle Eastern jurisdictions, and the FATF has formed a new
body to combat terrorist financing and money laundering (which
includes tax evasion) in North Africa and the Middle East.
The
UK, US, Australian and Canada have also set up a joint task-force to address
cross border tax evasion and exchange information on tax avoidance arrangements.
There
is no doubt that today tax collectors have more power and access to information
than ever before and there is evidence that global collaboration on the issue
is already yielding results.
Last
November, a Private Client Legal Forum brought together many of the world’s
leading private clients. The delegates
identified the main treats to high net worth individuals today as the erosion
of privacy and confidentiality and the increasing level of cooperation and
information sharing between global tax authorities. The biggest single problem is the
increasingly aggressive attitude of these tax authorities.
The taxman cometh, have no doubt about that. Tax evasion by
non-declaration is now a
high risk strategy and legitimate tax planning requires great
care. This does not mean, however, that it cannot still be
achieved, but it must involve
legal structures. The use of certain
investment vehicles like insurance bonds and trusts still
allow for significant and entirely legitimate reduction in income,
capital gains and inheritance taxes.
Possibly the most beneficial thing you can do to
seek advice from an international wealth management tax expert. In today’s world the rules are so complex
that you are likely to fall foul of the law – in such complicated matters
professional advice is not a choice, its essential.
© Bill Blevins
Blevins Franks International Limited
 |
Finance and Banking 
Subscribe to this comment's feed
Show/Hide comments
Show/Hide comment form