Editorial
Over the last few years, we have slowly reduced and altered the editorial cover we give to offshore tax planning. As recently as a decade ago, we dedicated a considerable amount of space to the then perfectly legal ways in which UK residents could use offshore financial centres as part of their onshore tax planning. Gradually, however, it became clear that there were really only two ‘safe’ offshore subjects. The first is the legitimate role that such centres can play in tax planning for expatriates, non-residents and resident non-domiciliaries. The second is advice to anyone who has established an offshore structure or opened an offshore account and now, for whatever reason, is concerned about the onshore ramifications.
These onshore ramifications have become increasingly serious. So-called tax havens have come under increasing amounts of pressure since the 1980s. Bit by bit, a raft legislation aimed at curtailing offshore tax planning has been introduced. Initially, the casualties were relatively light – offshore centres survived the loss of discretionary trusts or tighter controls on transfer pricing almost unscathed. They even managed to absorb new ‘know your customer’ rules and a growing insistence on exchange of information. Now, however, the attack has intensified and it seems increasingly unlikely that the offshore financial planning sector will survive in anything like its existing form.
The reason for the current assault is the state of the global economy. The biggest and most powerful governments in the world have found themselves facing a severe shortage of tax revenue and this has given them the excuse they need to make a concerted and coordinated attempt to put the offshore centres out of business. The members of the G20 may not be able to agree on much, but they can agree that international tax planning is a bad thing.
The most interesting aspect of this is that the offshore centres themselves seem to have lost a great deal of their fight. Switzerland has agreed to amend its rigid banking secrecy laws. In other centres, regulators and legislators are falling over themselves to cooperate. Only in the Middle East does there seem to be any real resistance.
It is tempting, of course, to enter into a discussion about why it is both hypocritical and unfair of the developed nations to be savaging the offshore financial centres in this way. After all, the UK and US are playing the same game themselves, and calls by offshore governments for a level playing field have been entirely ignored. However, there is no point in bemoaning the situation. The only thing to do is to consider what to do next and, for those with an interest, to plan for it.
What are the objectives for the governments that are behind all this? And how realistic are they?
Their main objective is to clamp down on multinationals shifting profits around to reduce corporate tax and on investment managers shielding gains by locating in a low- or no-tax financial centre. Whatever one’s political views, multinationals’ clipping their fiscal wings – even if it can be managed – won’t be good for the global economy. By their very nature, these businesses can choose where they locate and how they invest their capital. There may be some short-term gains for some of the G20 countries but – despite what they believe – over the medium to long term hounding these businesses probably won’t bring in much tax revenue. Anyway, the G20 countries are competing with each other, so stopping the fiscal advantages offered by places such as the Bahamas may not make that much difference.
The second objective is to stop private individuals from using offshore financial centres and, in particular, to reap a one-off tax windfall by catching those who might have evaded (as opposed to avoided) tax by this means. We have seen a few casualties here in the UK already with the disclosure (not always voluntary) of information held by financial institutions in jurisdictions such as the Channel Islands and Lichtenstein leading to investigations and prosecution. It is clear we can expect a lot more of the same.
For many years, our consistent advice to any UK resident with offshore financial arrangements has been to assume that sooner, or later, your details will end up in the hands of HMRC. If you know that you have evaded tax, the chances are that by coming forward and making a full declaration you will end up paying less in penalties and interest than if you wait for the tax authorities to seek you out. If you don’t believe you have evaded tax but suspect that HMRC might see it differently, then you shouldn’t delay in taking professional advice. Either way, do remember that professional advisers based in the UK have to inform the authorities immediately if they believe one of their clients has been involved in evasion, as it is a crime. Therefore, you need to think your approach out carefully before coming forward or before taking advice. Do remember, our panel of experts will be pleased to offer free, confidential assistance.
