Posted by James Pearson on 29 Nov 2012
Ian Gorst, Jersey’s chief minster has recently announced that Channel Island Authorities are currently in discussion with the UK government about a wide-ranging information-sharing agreement that is set to be announced in next week’s Chancellor’s Autumn Statement. It is anticipated that this new agreement will come into force in 2014 and will extend beyond the Channel Islands to include the BVI, the Cayman Islands and other territories for which the UK is ultimately responsible.
This new agreement is rumoured to be based on the Foreign Account Tax Compliance Act (FATCA) that is being promoted by the US and is part of a wider attempt to increase the flow of information from those territories that are historically perceived to be less transparent.
You might think that tax advisers would be opposed to this kind of an attack on “tax havens”, but it might be the case that this new rule could help clear up some misconceptions that confuse legitimate tax planning with fraudulent and illegal behaviour. The key point to be made is that, despite the impression you may get from recent media reporting there is nothing illegal about having assets held in “tax havens”, the question is how those assets got to those territories and whether the correct amount of tax has been paid.
At one extreme we have a business man, taking untaxed cash and piling it in to a suit case for a flight to Jersey. This cash has not been reported in the UK and has been taken overseas where it can be kept hidden from the authorities behind a veil of secrecy. This is criminal behaviour. At the other extreme we have an individual, planning to retire overseas who pays his taxed UK income into a Jersey pension scheme, ensuring that all UK tax is paid as required by law. As Jersey is a territory with a low rate of tax his pension scheme can make investments that can grow as intended by UK law and international tax treaty ready for his future retirement overseas. This man has broken no laws. Likewise, it should be noted that non-domiciled UK resident individuals who receive income and capital gains in such territories may legitimately avoid UK tax if no remittances are made to the UK.
The new UK version of FATCA may well prevent the illegal actions of the first man, but would have no impact on the second who is legitimately making use of tax law and international agreements while keeping the relevant authorities informed.
There is nothing illegal about holding assets in low-tax territories, providing that the relevant authorities have been informed and the correct tax has been paid.
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