Tuesday, May 22, 2007

Offshore Disclosure Facility - is it abuse?

We have, obviously, been reading lots about the 'Offshore Disclosure Facility' being offered by the UK revenue services. Basically it means that if you have undeclared income from savings or investments offshore then you can declare it, pay the back taxes and and a 10% fine and you will be OK.

Personally we think this is a good deal for those who did not plan their tax situation correctly in the first place. It is a clean start from which you should take proper advice and structure your tax affairs in the right way (erhmmm...give us a call) as there are many ways to legitimately plan your offshore tax strategy.

However, the issue that we have is this situation is is far more serious:

When the EU savings directive was brought in we were told that there would be no disclosure involved. This meant that banks in other EU jurisdictions (and in Switzerland) would withhold tax on savings and repatriate a percentage of the tax to the domicile of the account holder...Okay Dokey, all well and good. In fact here is the Wikipedia explanation of how it would work...

"The European Union withholding tax is a withholding tax which is deducted from interest earned by European Union residents on their investments made in another member state. Its aim is to ensure that citizens of one member state do not avoid taxation by depositing funds outside the jurisdiction of residence. The rate of tax is currently at 15% of the interest earned. The tax is withheld at source and passed on to the EU Country of residence without any disclosure as to who was actually the recipient of the interest concerned."

And this is a quote from a major accountancy firm on the new situation:

"KPMG believes that the announcement of the Offshore Disclosure Facility is a response by HMRC to deal with the mountain of information it has received about the holders of offshore bank accounts and structures, and from exchange of information with overseas tax authorities under the European Union Savings Directive in a quick and cost efficient way."

Unless we are much mistaken (it happens!) this is a clear and blatant abuse of information and we hate to say "I told you so." Some time ago we issued notes to clients explaining that although the Savings Directive was supposed to be anonymous we could not believe, in this day and age, that this information would not be usurped by governments looking to raise ever more revenue to cling onto power for as long as they could. We suggested setting up correct tax structures that effectively 'wrap' offshore investment to take them out of the scope of the directive. Many people did, some didn't, and those letters about disclosure are going out now.

We understand that tax evasion is bad, not only bad but pretty stupid. As we have said there are many ways to legitimately plan for tax and either reduce or defer its impact, but this abhorant abuse of power is one step too far in our opinion and brings into question many privacy issues that we have been previously in favour of, DNA database, identity cards etc. Now we are not so sure.

When Europe can create a directive that promises anonymity but then uses that information to create revenue and what will amount to criminal cases, in some circumstances, and does not even give a thought to its original purpose, then that, dear reader, is a dictatorial power in all its glory and we cannot be sure that other such 'information' gathering exercises will not be abused.

The guy in the street doesn't care because the spin will be that the government are after multi millionaires stashing their 'ill gotten gains' in offshore accounts, but what the guy in street probably doesn't realise is that if the government can use information to get at those who have the means to defend themselves what chance does the guy have who can't?

No comments: