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UK signs automatic tax information-sharing agreements with Jersey and Guernsey

Financial information on UK taxpayers holding accounts in Jersey and Guernsey will be automatically provided to HM Revenue and Customs (HMRC) under tax information sharing agreements from next year.

Exchequer Secretary David Gauke signed inter-governmental agreements (IGA) with representatives from Jersey and Guernsey this week. Earlier this month the UK finalised a similar agreement with the Isle of Man, meaning that each of the Crown Dependencies (CDs) have entered into automatic tax information sharing arrangements with the UK. All three states have also agreed to be part of a multi-lateral information sharing pilot with the G5 countries.

"The UK has been leading the way in pressing for a new global standard of tax transparency and automatic tax information sharing," said George Osborne, Chancellor of the Exchequer. "These agreements build on the progress already made and send a clear signal to anyone thinking they can evade their responsibilities: the opportunities to hide your money offshore are disappearing and the net is closing in."

"We welcome these agreements with Guernsey and Jersey which demonstrate our shared commitment to tackling tax evasion. The agreements will enable HMRC to clamp down further on those individuals who seek to hide their assets offshore," he said.

The Government planned to finalise similar agreements with other jurisdictions "as soon as possible", and is currently in discussions with the British Overseas Territories (BOTs), he said. The Government announced in May that all BOTs and CDs with significant financial centres had committed to the introduction of information-sharing arrangements. The participating overseas territories are Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands.

The IGAs are modelled on similar agreements being entered into with the US under its Foreign Account Tax Compliance Act (FATCA), designed to prevent tax evasion by US citizens using offshore banking facilities. FATCA introduces a reporting requirement for foreign financial institutions (FFIs) with respect to accounts held by US residents. The IGA between the US and UK in respect of FATCA allows UK FFIs to disclose information about US residents to HMRC rather than the US Internal Revenue Service, and it is on this agreement that the IGAs with Jersey and Guernsey are based.

Holding an offshore bank account is not illegal and can be used for legitimate tax planning, especially by non-domiciled individuals. However, taxpayers are obliged to disclose funds held in offshore accounts that are subject to UK tax to HMRC. Certain information is already exchanged between Jersey, Guernsey and the UK under EU Savings Directive-equivalent measures.

"The new reporting requirements are very broadly drawn and will require financial institutions in the Channel Islands to automatically report information to HMRC regarding offshore investments in existence on or after 30 June 2014 which are held by UK-resident individuals, partnerships and companies," said tax expert Reg Day of Pinsent Masons, the law firm behind Out-Law.com. "The rules will also apply to offshore trusts and companies to the extent that there are UK resident settlors, beneficiaries or beneficial owners."

"The exchange of information in respect of the calendar years 2014 and 2015 must be completed by 30 September 2016 and it is anticipated that HMRC will receive a mountain of information which will inevitably lead to some criminal prosecutions and numerous civil investigations. In advance of the exchange of information, HMRC has announced Guernsey and Jersey tax disclosure facilities to encourage those with undisclosed tax liabilities to come forward and make voluntary disclosures in a relatively benign environment and on beneficial terms," he said.

Day said that the disclosure facilities were to be made available until 30 September 2016, after which HMRC would "move into top gear and commence intrusive tax investigations looking back up to 20 years". The new rules would also contain "anti-avoidance provisions to counteract any practices intended to circumvent the reporting requirements", meaning that those who intended to terminate their investments before the new regime came into force to avoid reporting may not be able to do so, he said.

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