The political tide runs in just one direction
IT IS becoming increasingly clear that the era of tax transparency is here.
IT IS becoming increasingly clear that the era of tax transparency is here.
News broke over the weekend that the UK government plans to introduce measures targeted solely at its Crown Dependencies and offshore territories demanding automatic exchange of tax information – along similar lines to moves already made by the US.
And in the background moves are being considered in Europe about redefining what a tax haven is and the measures that can be taken against non-compliant jurisdictions.
The national media bandwagon is also in full swing as The Guardian does its own week-long series on offshore secrecy and its role in tax avoidance.
The International Consortium of Investigative Journalists, which the paper is working with, says it will for the next year identify thousands of true owners of offshore companies.
Reports on the UK government's position to target the islands were based on a leaked document which came just days after it had said it was against introducing measures such as the US's Fatca.
In that denial the government had responded to an International Development Select Committee report, which recommended that the government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act, requiring tax authorities automatically to exchange information relating to UK citizens or corporations.
As a side note, which is worth exploring further in the future, the committee also recommended that the Treasury should press Crown Dependencies to require the filing of public statutory accounts.
Reading between the lines, it seems the government had given itself room for manoeuvre on a Fatca-style clampdown.
'Fatca is unilateral and extraterritorial in its approach and has created significant difficulties for the US as well as affected countries in its implementation. The UK approach is to work in partnership with other governments, including those in developing countries, to increase tax transparency and exchange of information.'
So while it ruled out measures that would impact other countries, it could argue that its unique constitutional relationship with the Crown Dependencies sets them apart.
The islands will find it hard to swim against what appears to be a political tide that is going in only one direction – while some argue there are legitimate reasons for secrecy, there are also cases where it leads to unfair loss of
tax revenue for governments and criminal activities.
Constitutionally, it is another sign of hostility to the islands from this government – it follows the low value consignment relief crackdown that targeted only the Channel Islands.
That policy-makers here read about it first in media reports speaks volumes.
The UK may use the lever of not passing the islands' US-related legislation unless they agree to similar measures for UK citizens to force this through.
Will the islands speak as one on this?
Perhaps not.
Jersey has shown it is more willing to act as the aggressor in the past and is already still holding out on signing up to the European Savings Directive, which Guernsey and the Isle of Man have both acted on.
According to reports, the draft agreement drawn up by Treasury will require the automatic exchange of information revealing full details of all account holders, including those whose identities might otherwise be hidden by trusts or companies.
Moves in Europe aimed at protecting tax take in member States will also be watched keenly by Guernsey.
The commission has published a communication which gives an indication as to the direction it is now heading, a direction likely to be firmed up next month.
Called concrete ways to reinforce the fight against tax fraud and tax evasion including in relation to third countries, it too talks about Facta as opening 'new perspectives for strengthening automatic information exchange between member states and third countries, thus improving transparency at a global level.'
It then moves on to indicate a toughening of its stance against tax havens, including another layer to how they are defined – adding a key European principle of promoting fair tax competition.
The Crown Dependencies have already jumped through hoops to meet the requirements of the EU code of conduct on business taxation, changing the zero-10 regimes to comply with the fair tax requirement.
The Financial Times has reported that the commission is recommending that member states adopt a common, tougher definition of what constitutes a tax haven and then scrap or suspend existing double taxation agreements with such countries, meaning that companies would no longer be able to use them to avoid taxes. It states that the tougher definition is based on the EU's code of conduct for business taxation.
Whether it is the US, UK or Europe, everyone is looking to transparency as they try to protect their economies. It has swiftly become the norm.
So far Guernsey has complied with every demand made of it – to not do so risks not only reputational damage but also its access to key markets that the finance industry relies on.
How it emerges from the headlines this week will be a key test of how effective the measures it has already enacted are and how well it can sell its message of cooperation.
But there is much more to come, including that potential of more unilateral action by the UK which, whatever the rights or wrongs of the argument, will again smack of Big Brother.
