Tightened net on offshore tax evaders, the remaining offshore financial centres, such as Hong Kong and Singapore, are expected to come under pressure to join in the new global standard on automatic information exchange for tax purposes.
Source: Financial Times Global News
Switzerland, the world’s largest offshore financial centre, has pledged automatically to hand the details of foreign bank accounts to other countries in one of the most significant breakthroughs in the global crackdown on evasion.
At a ministerial meeting in Paris on Tuesday, Switzerland agreed to sign up to a new global standard on automatic information exchange, representing a decisive break with its centuries-old commitment to protecting the privacy of banking clients.
The move is a big step forward for governments that have mounted a concerted attack on evasion in the wake of the global financial crisis and a series of tax scandals.
Swiss co-operation is pivotal to the struggle to prise open taxpayers’ hidden accounts because of its long tradition of bank secrecy and its dominant wealth management sector, which has $2.2tn of offshore assets.
The declaration, which was signed at the Organisation for Economic Co-operation and Development in Paris, requires countries to collect and exchange information on bank accounts and the beneficial ownership of companies and other legal structures such as trusts.
The Swiss government said the agreement underscored its commitment to tackling tax fraud and evasion. It said: “Switzerland supports the OECD ministers’ declaration concerning the development of a new automatic exchange of information (AEOI) standard in tax matters”. The Swiss Bankers Association said: “The banks in Switzerland are willing to adopt the automatic exchange of information along with other financial centres, provided that the exchanged information is only applied for tax purposes.”
Switzerland is joining at least 44 countries in signing the agreement, which includes other members of the OECD, the G20 group of leading countries and offshore centres such as the Cayman Islands and Jersey. The global standard has been developed by the OECD and endorsed by the G20.
The remaining offshore centres are expected to come under pressure to join in, as G20 countries have expressed a willingness to impose sanctions on jurisdictions that refuse to share information. A blacklist of uncooperative countries that do not sign up to transparency measures is likely to be drawn up by the OECD later in the year.
Some offshore account holders are reported to have moved their money to the handful of centres, such as Panama and Dubai, that have held back from the transparency drive. Asian centres such as Hong Kong and Singapore, which mainly draw clients from Asia-Pacific and the Middle East, have so far been less affected by calls for greater transparency but Singapore has already signalled its willingness to help other governments clamp down on tax evasion.
The Swiss government also highlighted the lack of transparency concerning the ownership of US companies, which are subject to limited disclosure rules. “Switzerland also expects the special provisions that apply in the United States regarding the transparency of beneficial owners to be of a temporary nature,” it said.
European governments expect billions of euros to be repatriated as a result of the evasion crackdown. Governments are considering offering special mechanisms to make it easier for non-compliant taxpayers to “solve the past”, similar to a disclosure facility the UK government agreed with Liechtenstein. It offered reduced penalties for offshore account holders who came forward, and has collected about £1bn in tax revenues from them.
The Swiss Bankers Association said implementing automatic information exchange would require “fair solutions” to deal with past non-compliance, as well as reciprocal information exchange. It said: “Reciprocity should apply and structures like trusts be part of information exchange. Furthermore the banks expect fair solutions for untaxed assets of the past in order to implement the standard with each country.”
The latest declaration does not stipulate a deadline for information exchange. However, in March nearly all the countries that have pledged to be early adopters of information exchange set a deadline of September 2017 for reporting investors’ tax details to their home governments – which would be collected from 31 December 2015. Luxembourg, which has agreed to be an early adopter, held back from specifying a date, saying: “Short of the formal adoption of the new global standard and short of a clear picture of the level playing field created by the adoption of the CRS, the case for the urgency of implementation remains to be made.”
Last week, at a G5 finance ministers meeting in Paris, the UK, France, Germany, Italy and Spain announced they would sign the new global standard of automatic exchange of tax information in October at a Berlin meeting, along with other jurisdictions committed to its early adoption.
This group of five European countries played a role in extending the global reach of the transparency crackdown that originated in US legislation known as the Foreign Account Tax Compliance Act (Fatca), which was passed in 2010 in the wake of a scandal involving UBS, the Swiss bank.
The US used a threat of heavy withholding taxes to force overseas banks to hand over information on their clients, opening the door to similar exchanges with other countries. Last year the G5 group of European governments agreed to adopt their own version of Fatca, and the UK secured similar agreements with its crown dependencies and overseas territories.
The Tax Justice Network, a campaign group, has welcomed the global standard as “the first big step in putting together the nuts and bolts of real change” but has raised fears that developing countries would not be able to participate because of the cost of implementing the regime. The OECD declaration signed on Tuesday underlined “the need for assistance to be provided to developing countries so that they may be able to reap the benefits of this form of co-operation.”
In February the Tax Justice Network also raised concerns over certain loopholes, the exclusion of safe deposit boxes from the plan and the willingness of some countries to sell residency rights to wealthy individuals wanting to circumvent the crackdown.
Switzerland had already signalled it was moving towards transparency by joining a multilateral convention on mutual administrative assistance in tax matters last October. This convention, which had already been signed by Luxembourg and Singapore, includes a pledge to co-operate with cross border requests for information, help with tax audits and enforcing tax claims.