Offshorecash.net

The Government is set to announce within weeks an amnesty scheme for tax evaders who have stashed money in offshore bank accounts. Her Majesty’s Revenue & Customs (HMRC) has contacted a number of banks and accountancy firms to outline the new scheme and, in a parallel move, has stepped up its efforts to compel high street banks to hand over customers’ offshore account details.

The formal amnesty scheme requires government clearance, but could be finalized as early as mid-January when HMRC is also set to announce its massive clampdown on offshore accounts.

A Government source said: “There is a discussion going on with the banks and the accountants as to what sort of process we might use to encourage people to come forward.”

“We are working in the background on ways of encouraging them to do just that,” she added.

While it is perfectly legal to hold money in offshore bank accounts it is illegal to conceal interest earned on it. HMRC estimates that failure to declare interest on offshore accounts has cost it billions.

The snowballing campaign, which is being run by the Offshore Fraud Project Group, had a massive boost back in May when HMRC won a landmark legal victory against Barclays Bank.

The Special Commissioner’s ruling gave the Revenue power to force Barclays to hand over details of thousands of customers’ offshore bank account details.

HMRC estimated at the time that access to the records would allow it recover around £1.5bn in unpaid tax from Barclays customers.

It is thought the Revenue is close to winning further legal cases which will force other high street banks to hand over customer information in a controversial move that will outrage many in the financial community.

To sweeten the pill the Revenue looks set to offer a partial amnesty for minor offenders that will cap fines and back taxes at between 10 per cent and 25 per cent of their maximum level. Fines for non-payment of taxes can currently be set at 100 per cent of the unpaid amount and tax evaders will also be liable for the back tax, plus interest.

HMRC is thought to believe more than £180bn is held in offshore accounts by UK nationals, with the Channel islands – particularly Jersey – a favourite desination for British cash. The Revenue has been battling with the high street banks for nearly 20 years to get access to information on offshore accounts. Its first big victory was against Ulster bank in 2000.

HMRC has had few high-profile victories on personal tax avoidance in recent years. Its most notable success was probably against former jockey Lester Piggot who was sent to prison for tax evasion. The former champion jockey was jailed by an Ipswich court for three years in 1998 after pleading guilty to a tax fraud that cost the Revenue £3.25.

In many cases, foreign workers in Saudi Arabia find that they’re able, for the first time, to save part of their income for the future. You should therefore investigate the best ways to obtain (safe) returns on the money invested and (legal) ways to avoid tax. Before leaving your home country, declare your trip to your home tax authorities. Provided you establish non-resident status in the Gulf country in which you’re working, you will normally be outside the remit of your home country’s tax regulations and will therefore minimize (or avoid altogether) tax penalties. If you keep your home bank account open in order to pay expenses (e.g. related to a property), the money that you remit to this account should be kept to a minimum. If you’re also earning income in your home country (e.g. from property rental), you may be liable for tax on this and you should check with your home tax office or a financial adviser. US citizens must also pay home tax on their overseas earnings.

An offshore bank account may be advantageous if you want to earn interest while keeping funds reasonably fluid in the short to mid-term. An offshore account can be used as a central source from which to send funds to other locations, including an account in your home country. Other attractions are that money can be deposited (and maintained) in a wide range of currencies, customers are usually guaranteed anonymity, there are no double taxation agreements, no withholding tax is payable and interest is paid tax-free.

There are over 50 official ‘tax havens’ offering offshore banking, including the Channel Islands (Jersey and Guernsey), the Isle of Man, Gibraltar and the Virgin Islands. A large number of American, British and other European banks and financial institutions provide offshore banking facilities in one or more locations. Most expatriate financial publications, such as Resident Abroad, carry advertisements for offshore banks and their services.

Most institutions offer high interest deposit accounts for long and mid-term savings and a variety of investment plans. Accounts have minimum deposit levels that usually start at around $1,500 (£1,000), with an upper limit of around $150,000 (£100,000), above which you may be able to negotiate a special interest rate. The major disadvantage of offshore accounts is that there are usually stringent conditions relating to withdrawal periods and penalties for early withdrawals. You can deposit funds with instant access or for a fixed period, for example from 30, 60 or 90 days up to a year or more. Interest is usually paid monthly but can be paid annually, in which case interest payments are slightly higher. There are usually no charges if you maintain the minimum balance in the account. Some accounts offer a check book but are likely to impose a limit on the number of checks that you can issue in any year, after which you must pay charges. Cash or credit cards are frequently offered, usually underwritten by Visa or Mastercard, and these can be used in ATMs worldwide.

When reviewing financial institutions and offshore banking centers, your first consideration should be the security of your money. Offshore branches of larger companies are in most cases separately formed companies, with rules and regulations applying to the countries in which they’re formed and operate within. In the event of any difficulties, the parent company is likely to bail out its subsidiary, but might not be legally required to do so. Nevertheless, big is generally best when it comes to selecting a home for your money. The major international banks are hardly likely to fold and you might feel more comfortable with those that you already know. If you’re offered unrealistically high terms of interest, the chances are that they’re just that – unrealistic. However, some of the northern European banks, e.g. those in Finland, offer much higher rates than average, presumably to attract funds, and they’ve been operating safely for a number of years.

Many banking centers offer a protection system whereby a percentage of bank deposits up to a maximum sum is guaranteed in the event of a financial institution becoming insolvent (Guernsey, Jersey, the Isle of Man and other offshore centers operate such a protection scheme). You can check the level of deposit insurance offered by the various financial institutions with Moody’s Investor Service or via your financial adviser; you can also verify their credit ratings. All banks have a credit rating, from the highest of triple ‘A’ downwards, and most are happy to tell you about it, particularly if they have a high rating. Ratings just below ‘AAA’ don’t necessarily mean that the financial institution’s status is doubtful.

Some people regard savings and deposit accounts as attractive only to the smaller investor. Those with larger amounts to invest, who are seeking greater returns, might consider other types of investment.

The Conservative government, having just shut down one costly tax avoidance scheme, income trusts, now has another in its sights, offshore tax havens.

”There’s some significant tax avoidance there,” Finance Minister Jim Flaherty said, after revealing to the Commons finance committee that the government is reviewing the use of offshore tax havens to avoid paying tax.

Using offshore tax havens to avoid tax, just as corporations were using income trusts to do so, is not illegal but is costly to the government, he said.

Last year, Statistics Canada revealed Canadian direct investment in offshore financial centers, including ”tax havens,” had soared eight-fold since 1990 to $88 billion in 2003.

”Canadian enterprises invested substantial and growing amounts in countries known as ‘Offshore Financial Centers’, many of them in the Caribbean,” it said. ”These centers include countries that are often referred to as ‘tax havens’, as well as those which have important financial sectors, such as Switzerland, but also Ireland,” it said.

The largest increases went into Barbados, Bermuda, the Cayman Islands, the Bahamas and Ireland, the five countries being among the 11 nations with the most Canadian assets.

Auditor General Sheila Fraser has charged that multinational companies operating in Canada have avoided ”hundreds of millions” of dollars in taxes over the past decade through the use of tax havens, while one university study put the tax savings to Canadian banks alone at $10 billion over that period.

Flaherty later introduced a motion in the Commons to amend the Income Tax Act to prevent ”non-resident trusts and foreign investment entities” from using offshore tax havens to avoid tax.

”The motion will amend existing income tax rules to help ensure that income earned by Canadians through foreign jurisdictions, including tax havens, is subject to tax as if it had been earned in Canada,” he said in introducing the motion.

However, he said the amendments are separate from the overall review of income trust funds which is still underway.

The amendments mainly deal with the taxation of income earned through the use of non-resident trusts and foreign investment entities, the department said. They carry through on long-standing proposals that were first announced in the 1999 budget but whose implementation has been delayed by repeated proposals for changes.

Meanwhile, Flaherty continued to defend his decision to break an election promise not to tax income trusts, saying they were being used as a tax avoidance scheme by some corporations and that they threatened to push the government back into a deficit.

The loss in revenues resulting from the escalating number and size of corporations that were converting into trusts would have eventually pushed the federal government back into a deficit, he told the committee.

”The alternative would have been to impose a heavier tax burden on individual Canadians and their families and that’s not fair and we did not want to go there,” he told reporters later.

However, Liberal finance critic John McCallum argued that the government could have given investors a 10-year grace period before imposing the tax as the Americans did when they shut that tax loophole, rather than the four it did.

‘You would have the same long-run consequences but you would have very substantially reduced the meltdown which all sorts of Canadians who invested in good faith suffered,” McCallum said.

Flaherty responded that the Australians only gave investors a three-year grace period when it took such action, suggesting that is the model he followed.

Meanwhile, the Conservative government’s decision to tax income trusts faces a legal challenge from Democracy Watch. Duff Conacher head of the government accountability advocacy organization refused to reveal the grounds for the court challenge before today but it’s likely related to the breaking of a written commitment in the Conservatives election platform to not tax on trusts.

Source: Montreal Gazette