Expect More Tax Crackdown Talk, FATCA-Style Moves In UK Budget - Jersey Finance

Tom Burroughes

18 March 2013

UK overseas territories and affiliated jurisdictions may sign up to “FATCA-style” information disclosure pacts in the hunt for potential tax evaders, and more tax avoidance crackdowns are likely to be announced this week by the UK government, Geoff Cook chief executive of Jersey Finance, has said.

Writing in a blog, Cook warned that constant attacks on firms and individuals for legal mitigation schemes (as in the recent Starbucks case), and other measures, should be seen more as attempts by policymakers to give the impression of doing something rather than making radical reforms to boost growth.

Jersey Finance is the promotional agency for Jersey’s financial services sector. The organisation has been shortlisted for an award at the WealthBriefing Awards 2013 event, where winners will be announced on 2 May in London.

The US FATCA Act, which seeks to stop US expat citizens evading tax, is a controversial measure as it requires any foreign financial institution that deals with the US to provide details to the US authorities or pay a 30 per cent withholding tax. To reduce the potential compliance costs, several nations, such as the UK, have inked agreements with the US to simplify reporting requirements.

Cook, meanwhile, cautioned that measures to go after tax dodgers, while they generate headlines, might produce relatively meagre returns in terms of revenue.

“Whilst tax evaders should be pursued vigorously, tax evasion initiatives have shown relatively modest returns. Tax planning and tax avoidance are in the dock. Other than a few symbolic scalps, with appeals to ‘wake up and smell the coffee’, little has been done nor can it be without G20 backing,” Cook wrote on his weblog.

“Putting business in the firing line for claiming legitimate allowances, offsetting interest payments, or charging for intellectual property, will only create a climate of uncertainty that will deter investment,” he continued.

UK budget

Cook wrote ahead of the 20 March budget statement to be delivered in the UK parliament by finance minister George Osborne. The UK has recently lost its AAA credit rating amid fears about heavy public debt and deficits.

“The transparency drive is seeing pressure from the UK to encourage others to enter into FATCA-style agreements and champion these as the global standard. This may result in the British overseas centres signing up, but is unlikely to go much further,” Cook said, referring to the US legislation designed to go after tax evading expat US citizens.

“The risks for the UK are considerable if this signalling of an increasing intrusiveness is not matched elsewhere. Does this really matter to Jersey? We have had all crimes legislation in Jersey since 1999 making tax evasion a crime and a reportable offence. With more suspicious transaction reports filed every month than the City of London, it is very unlikely that we would have much by way of undisclosed business as a consequence,” Cook wrote.

“Provided an agreement goes no further than the UK tax system demands of its own residents, we would not see this as having too much impact, other than the cost of absorbing this reporting regime, principally for the benefit of the UK,” he said.