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G5 To Develop And Pilot Multinational Tax Info Exchange

Friday, April 12, 2013

The UK, France, Germany, Italy, and Spain have agreed to develop and pilot a major new multilateral tax information exchange program, intended to tackle international tax evasion in a way that minimizes costs for both businesses and governments.

The initiative is outlined in a joint letter to the European Union's (EU's) Tax Commissioner Algirdas Šemeta, signed by the G5's finance ministers. In it, the ministers point to the anti-evasion agendas of both the European Union and the US as key steps forward. In December, Šemeta tabled an Action Plan containing two recommendations designed to foster a stronger EU stance against so-called tax havens and combat aggressive tax planning. The US's Foreign Account Tax Compliance Act (FATCA) legislation is intended to ensure that the Internal Revenue Service (IRS) obtains information on financial accounts held by US taxpayers with foreign financial institutions (FFIs). The Commission supported the G5 in discussions with the US Government on a possible intergovernmental approach to FATCA. A model agreement was developed and published last July.

It is on this model that the pilot will be based. Once it is up and running, a wide range of financial information will be automatically exchanged between the G5. According to the letter, the aim of the pilot is that it "will not only help in catching and deterring tax evaders but will also provide a template as to the wider multilateral agreement we hope to see in due course." Other EU member states will be invited to join the scheme, with the "hope that Europe can take a lead in promoting a global system of automatic information exchange, removing the hiding places for those who would seek to evade paying their taxes."

Commenting on the news, Sophie Dworetzsky, wealth planning partner at Withers, said: "For UK taxpayers this makes good the promise set out in the Budget two weeks ago, when HM Revenue and Customs (HMRC) promised to crack down ever harder on offshore evasion, which it estimates costs it up to GBP4bn (USD6.1bn) a year in lost revenues. How accurate this is is anyone's guess, but certainly taxpayers can assume that anything other than full compliance is now no longer an option. No doubt HMRC will also make good use of this information through their powerful new joined up technology."

Dworetzsky did nonetheless sound a note of caution: "Let's hope that the fully compliant are not subjected to fishing expedition type investigations simply because they hold, for entirely legitimate reasons, accounts or other structures outside the UK. It is important to remember that simply having money and or trusts etc. offshore often has nothing to do with tax and everything to do with family succession and preferable legal systems."