Out-Law News | 02 May 2013 | 3:28 pm | 2 min. read
Earlier this week, the Cayman Islands announced that it was joining the pilot information exchange, set up by the G5 group of leading European economies at the beginning of April. Anguilla, Bermuda, the British Virgin Islands, Montserrat and the Turks and Caicos Islands have now agreed to join the pilot.
The Isle of Man, which already has information-sharing measures in place with the UK, will also participate; as will Gibraltar, which shares information with the EU under its transparency directives.
"This represents a significant step forward in tackling illicit finance and sets the global standard in the fight against tax evasion," said George Osborne, the UK's Chancellor of the Exchequer. "I now hope others follow these governments' lead and enter into similar commitments to this new level of transparency, removing the hiding places for those who seek to evade tax and hide their assets."
Under the agreement, countries involved will automatically receive greater levels of information about bank accounts held by their taxpayers in other jurisdictions involved in the pilot. This will include names, addresses and dates of birth; account numbers and balances and details of payments made into those accounts. It will also include information on certain accounts held by entities, such as offshore trusts.
Jurisdictions involved in the pilot have also committed to greater transparency in relation to company ownership.
The pilot information exchange arrangement is based on the model agreement to implement the Foreign Accounts Tax Compliance Act (FATCA) with the US; published in July 2012 by the G5: the UK, France, Germany, Italy and Spain. FATCA is a US law designed to prevent tax evasion by US citizens using offshore banking facilities. It introduces reporting requirements for foreign financial institutions (FFIs) with respect to accounts held by national residents overseas, irrespective of the privacy laws applicable to those countries.
Tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement was a "significant escalation of the fight against global tax evasion".
"Taxpayers are entitled to hold bank accounts offshore, or to have structures overseas, providing the necessary disclosure is made to HM Revenue and Customs," he said. "This addition of another batch of jurisdictions that are moving to transparency means that taxpayers who do not wish to comply with their reporting obligations will ultimately have to move their funds to less secure financial centres."
He added that taxpayers with historic tax irregularities connected to accounts in the Overseas Territories should "obtain advice about their options", which in most cases would include the Liechtenstein Disclosure Facility (LDF). This "highly beneficial" arrangement gives taxpayers who disclose UK tax irregularities connected to a bank account, investment or structure in Liechtenstein immunity from prosecution for tax offences and leniency in relation to penalties. Those with tax irregularities elsewhere may be able to bring themselves within the LDF by acquiring a bank account in Liechtenstein.
The Financial Times has reported that a Cayman Islands-based provider of 'fiduciary services' to hedge funds is suing the Cayman regulator to prevent it from "taking any decision" on transparency reforms. The company, DMS Management, allows hedge funds to hire independent directors to sit on their boards who may already be sitting on many other company boards. There is currently no requirement for hedge funds to file publicly accessible information on their operations, according to the Financial Times.