The OECD advance group of 44 countries and territories, including the UK, Spain, Portugal and Gibraltar, is adopting “an ambitious but realistic timetable” to implement common reporting standards for the automatic exchange of tax information

The first annual exchange of personal information will affect tax years beginning on or after 01 July and for companies it is in respect of reporting periods from the start of this year. The move involves all financial institutions with personal accounts and investments, including certain insurance companies.

But Chris White, head of tax for Hassans law firm, told Gibraltar International in mid-April: “No mechanics have yet been arranged on how to transfer information to the Government, although from July we have to send information about residents of EU Member States, including income from employment, directors’ fees, life insurance policies, pensions and ownership of and income from immovable property.

“This is in addition to bank interest, which has been in place for some time.” Nor has there been clarification yet on what the UK position is regarding proposals for public disclosure of beneficial ownership on central registers that also may include trusts. The European Parliament has voted in favour, but some countries including the UK, are still uncertain.

White, a former head of the UK Revenue specialist investigations unit including overseas interests, declared: “Any list of beneficial ownership will be treated as a target list for tax inspectors with nothing being done by way of any research, and so embracing many people who otherwise would not be investigated.

Spain seeks data

“Instead of guessing, authorities will be able to go down a list, tick some names and start off issuing investigation notices”, he observed, adding: “At the end of the day we have no choice, but have to make the best of what we have got.”

While the current state on both tax moves has created a degree of uncertainty, there is “a certain inevitably about this and reinforces what people deep down already know but don’t want to admit to. There’s always been a lot of burying heads in the sand.” And he revealed that there had been “30-40 [tax] information requests from Spain and a couple from the UK – these are the ones we know about and I suspect there are many more”.

Information notices were now being issued “as a first resort rather than a last resort” and whereas under Tax Information Exchange Agreements (TIEAs) – of which Gibraltar has 27 – the requests had to be taxpayer-specific, “under the new information exchange process that Gibraltar signed up to in November, information exchange is automatic from 1st July and information for 2014 has to be passed on at the latest by 2016”. It is the same for all of Britain’s Overseas Territories, he said.

Political reality

An OECD advance Group statement maintained: “Tax evasion is a global problem and requires a global solution. This will provide a step change in our ability to clamp down on tax evasion, which reduces public revenues and increases the burden on those who pay their taxes.”

An advertisement in the Sunday Times newspaper late in March – under the heading: “Hiding undeclared income Offshore?” – appeared with the strapline: “We are closing in on you” over a world map and eyes peeping through it.

A packed briefing seminar organised by Hassans and attended by 120 people, heard that although some Gibraltar practitioners may regard the new tax approach to be invasive, there was now no other course – “it’s a political reality”.

Existing EU arrangements and through inter-government Tax Information Exchange Agreements (TIEAs) meant that some countries – principally the UK and Spain – had begun requesting information about individuals claiming to be resident in Gibraltar, but they could not conduct “fishing” expeditions.

However, as White reasoned: “The jurisdiction that has issued the [information] notice clearly has not done so for fun and Gibraltar’s Tax Commissioner is not going to ignore it. The enquiring country first needs to know the identity of whom they are investigating and that is going to get easier as we have FATCA, an automatic release of information from July on foreign residents who have sources of income in Gibraltar.”

Residence information

Richard Morley, a BDO tax investigations practitioner specialising in dealing with Britain’s HMRC, explained: “The Revenue gets its information not just from third party practitioners and banks, but most will come from existing risk review process, from tax returns and informers – there is a heck of a lot of information sent in from aggrieved
persons, most of which the Revenue treats with a pinch of salt, but they are duty bound to follow up on most of it.”

But increasingly, information comes from information notices, affecting clients and third parties, trustees, practitioners, agents, etc. “The notices are being issued as a first resort, rather than a last resort”, he noted, and “I am aware of UK Revenue sending information notices to Spanish counterparties in respect of residence, which can be equally with Gibraltar, particularly given the new UK residence rules that are being closely examined.”

Nicholas Jordan, a Clifford Chance partner specialising in tax litigation, said the original US FATCA was “a bit of a gamble, but it seems to have passed the critical mass test and spawned a worldwide panacea for these things. How it will work out in practice is very difficult to say, but I don’t think the structure is going to go away.”

One-way exchange

And he added: “Anyone who thinks American banks are going to take part can think again; they have made it very clear that in no way are they going to spend vast sums of their own money to become outreach departments for the tax authorities of the UK, Ireland, Spain or anywhere else.

“They have taken a more political stance than our own banks, so there are no obligations on the American end; it will be one-way so far as the US is concerned, but not so far as the rest of the world is concerned”, Jordan advised.