Tuesday, December 11, 2012
The UK and the Isle of Man are developing a package of measures designed to combat tax evasion which includes an enhanced tax information exchange agreement (TIEA).
The deal will mean that a range of additional information about potentially taxable income held in Isle of Man bank accounts will become available to the UK government. Under the agreement, the UK and Isle of Man will automatically exchange a wide range of information on tax residents, on a reciprocal basis.
The new TIEA will follow, as closely as practicable, the "UK-US Agreement to Improve International Tax Compliance and to Implement FATCA," signed in September. It will be concluded to the same timetable as the agreement currently being negotiated between the Isle of Man and the US.
FATCA was enacted by the US Congress in March, 2010. It is intended to ensure that the US tax authorities obtain information on financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, at Foreign Financial Institutions (FFIs) including banks, investment funds, insurance companies, foreign trusts and foreign corporations.
FFIs are required to enter into agreements with the US Internal Revenue Service and Treasury, to provide such details. Failure by an FFI to disclose information would result in a requirement to withhold 30% tax on US-source income.
The Isle of Man TIEA comes as the UK seeks to up the ante in its crackdown on tax evasion. The Chief Ministers of Jersey and Guernsey last week confirmed that negotiations are to proceed between the Crown Dependencies and the UK with the aim of creating a similar framework envisaged by the US version of FATCA.
An exploratory meeting was held with HM Treasury officials, with the ministers signaling their "common commitment to combat tax evasion and to participate generally in international efforts to combat financial and other crime including fiscal crime."
HM Revenue and Customs (HMRC) is also set to receive GBP77m in new funding from the Treasury to help it crack down on offshore evasion and avoidance by wealthy individuals and by multinationals.
According to the Treasury, this should result in an additional GBP2bn per year in tax that it says would have otherwise gone unpaid. Additional staff and legal support will be given to HMRC to speed up its work in identifying and challenging multinationals’ transfer pricing arrangements, and to further strengthen HMRC's risk assessment capability across the large business sector. The aim is to ensure that multinationals do not shift profits out of the UK and therefore pay the tax due in accordance with UK tax law.
Exchequer Secretary to the Treasury, David Gauke said of the TIEA: “This agreement will significantly boost the UK’s ability to tackle cross-border tax evasion. Automatic information exchange is an important tool in boosting HMRC's ability to clamp down on those who seek to hide their money overseas. Our ground breaking agreement with the US sets a new standard in international tax transparency and [the] agreement between the UK and Isle of Man to move to much greater levels of automatic exchange is the next step in this process.
“For years people said this couldn’t be done, so I welcome the progress we have made so far with the Isle of Man. We are looking to reach similar agreements with other jurisdictions and are in discussions with Jersey and Guernsey about enhanced information exchange as part of our common commitment to combat tax evasion," Gauke added.
Isle of Man Chief Minister Allan Bell said: "As a small International Business Centre, the Isle of Man seeks to work in partnership with our key economic allies to compete for global business. It is therefore essential that we also work together to achieve international standards of regulation. By clarifying our intentions, we can give business confidence about our direction of travel, so that together we can build a sustainable future for the Island’s economy."
"We will be working closely with our Isle of Man-based businesses and the UK government to ensure measured and cost-effective implementation of this agreement. I look forward to announcing further details of how we are achieving this over the coming weeks," Bell added.