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Common Reporting Standards Part 3

What action needs to be taken? Background to the Automatic Exchange of Information and the Common Reporting Standards (CRS)

Cracking down on tax evasion continues to be high on the UK Government’s agenda. In the 2015 Autumn Statement, we saw the Chancellor stand firm on the tougher measures announced previously. He will press ahead with the new ‘strict liability’ criminal offence which removes the need to prove ‘intent’ when prosecuting someone for failing to declare offshore income and gains. 

The Government also plans to run what it describes as a ‘final disclosure facility’, which is intended to be the last chance for people to come forward and declare any offshore income or gains which they have not previously declared before full implementation of the CRS. This new facility is expected to run from April 2016 to September 2018. It is likely to include tough penalties, in addition to reclaiming outstanding tax, and will not guarantee immunity from criminal prosecution. In a stark warning, HMRC has recently placed articles in the UK press, advertising the CRS, with a concluding remark that Her Majesty’s Treasury has also warned that anyone found evading tax with wealth in a country not subscribing to the CRS will be subject to even higher penalties, on the assumption that their choice of location would have been to circumvent the new rules.

Financial institutions will also be busy, ensuring they can comply in the prescribed manner by finalising their IT requirements, and internal procedures, and in some instances improving their account opening and KYC processes to ensure the declared tax residency of the client is accurate. The OECD has taken significant care to ensure there are no obvious failings to allow tax evasion to continue.

What do you and your clients need to do? 

It is extremely important when advising clients that they understand the consequences of failing to declare offshore income and gains, and, more importantly, to ensure clients are not in an arrangement which they think is legitimate when it isn’t. Disclosure is not a bad thing, and if clients have assets that they haven’t already declared, they need to act while they still can.

Offshore bonds in the majority of jurisdictions legitimately and legally provide gross roll up, tax deferral, and a number of flexible decumulation options where, with the benefit of quality advice, the burden of tax might be reduced. Anyone concerned about whether their income and gains need to be disclosed should take action, especially as this is the final chance to regularise affairs in the UK, and in numerous other countries offering their own disclosure facilities. The OECD and Governments around the world plan for this to be a game-changer, as soon there really will be nowhere left to hide.

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