The UK’s tax authorities, HM Revenue & Customs are at great pains to re-assure investors that there is absolutely nothing wrong in having sa...

The UK’s tax authorities, HM Revenue & Customs are at great pains to re-assure investors that there is absolutely nothing wrong in having savings in an offshore account. Indeed if an individual is resident, but not domiciled, in the UK, he or she can, by keeping the interest abroad, increase the return on the investment by up to 40 per cent. So what is behind the recently widely reported successes achieved by HMRC in four separate applications to a Special Commissioner and what are the implications for the future?

The success of the Serious Civil Investigations unit of HMRC in these latest cases is part of the anti-money laundering drive inspired by the Organisation for Economic Cooperation and Development. This was given focus at the meeting of G7 Finance Ministers at Gleneagles in 1998 which led to moves to outlaw bank secrecy, to require financial institutions to be more punctilious in knowing the source, and the identity of the beneficial owners, of funds deposited with them and to encourage fiscal authorities to exchange information with each other.

Readers will recognise the coming to fruition of these initiatives in the “know your client” requirements to which banks and other professionals must now adhere, the prohibition on the use of numbered bank accounts and the implementation on 1 July 2005 of the European Union Savings Tax Directive.

The fact that there is still some way to go in achieving universal compliance in implementing these measures is high-lighted in a recently published survey by the OECD entitled “Tax cooperation: towards a level playing field”.

A further step in the cementing of international co-operation in the drive against avoidance and evasion took place in April 2004 with the signature of a memorandum of understanding by Australia, Canada, the USA and the UK establishing the Joint International Tax Shelter Information Centre.

The stated purpose of JITSIC is to:

· Provide support to the parties through the identification and understanding of abusive tax schemes and those who promote them.
· Share expertise, best practices and experience in tax administration to combat abusive schemes.
· Exchange information on abusive tax schemes, in general, and on specific schemes, their promoters, and investors consistent with the provisions of bilateral tax conventions.
· Enable the parties to better address abusive tax schemes promoted by firms and individuals who operate without regard to national borders.

The participating countries have each appointed trained and experienced personnel to the HQ in Washington DC and an Executive Steering group meets periodically to oversee and evaluate the work of JITSIC.

Yet another international initiative to combat avoidance/evasion is the Tax Haven Working Group comprising the JITSIC countries along with Japan, France and Germany. This forum aims to improve the capacity of each country to deal with the risks posed to their tax systems by tax havens. Members bilaterally exchange information, share research and information on schemes encountered and strategies adopted and conduct joint training sessions.

The group also seeks to deal with offshore compliance issues arising from the use of tax havens and issues occasional international alerts on areas which might give rise to problems, such as:
- E-commerce;
- Credit /debit cards;
- Captive insurance;
- Offshore trusts and partnerships;
- Withholding tax.

Further evidence on the theme of international cooperation is the meeting of tax inspectors from around the globe in Auckland over three days in April 2004 to share strategies and experiences in tackling international tax evasion and avoidance schemes.

The meeting was organised by the OECD and hosted by New Zealand’s Inland Revenue Department. More than 60 international tax specialists from 27 OECD and major non-OECD economies with expertise in the areas of international compliance, exchange of information and international tax audits, participated in the meeting.

The increasing use of cross-border tax evasion and avoidance schemes was identified as a major challenge for all tax administrations. Such practices, it is believed, can be detected and deterred through effective exchange of information between tax authorities.

Participants examined the legal mechanisms that facilitate such co-operation and shared practical experiences through a discussion of a series of case studies illustrating how international co-operation between treaty partners has assisted national tax administrations in the detection and counteraction of tax evasion and avoidance schemes.

The Auckland Tax Inspectors’ meeting underlines the importance to fiscal authorities of this work and reinforced the commitment of both OECD and non-OECD economies to the strengthening of international co-operation in the fight against fiscal fraud and evasion.

It would appear that offshore investors should anticipate a continuing tightening of the fiscal regime. And the recently reported spectacular success of the Irish Revenue Commissioners in tackling abuse through the use of single premium insurance policies almost certainly heralds similar action by HMRC.