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Automatic exchange of information and closure of LDF

Automatic exchange of information and closure of LDF

As we enter the final six months of 2015 we do so in the knowledge that tax authorities throughout the world remain under continued pressure to increase tax receipts and to that end their focus is aided by a number of national and international agreements which will see the automatic exchange of financial information between revenue authorities.

Domestically, the UK’s Intergovernmental Agreement with the Crown Dependencies of Jersey, Guernsey and the Isle of Man together with the Cayman Isles, British Virgin Isles, Gibraltar, Turks and Caicos, Monserrat and Anguilla (UK FATCA) is already in force with reporting between the participants due to commence in October 2016.

The UK FATCA reports will cover all financial flows from 1 July 2014 for personal bank accounts, trusts, companies and other structures where there is a UK beneficial owner, beneficiary or settlor involved; reporting won’t be restricted to the financial transactions between these individuals and the offshore structure. HM Revenue & Customs are allocating significant additional resources to new specialist teams set up to gather and interrogate the FATCA reports and as a result there will be a significant increase in tax investigations and, possibly, criminal prosecutions for tax offences.

Internationally, the OECD’s Multilateral Competent Authority Agreement which introduces common reporting standards now has sixty-one signatories with fifty due to commence reporting in September 2017 and the balance in September 2018.

In advance of this greater transparency we have seen the availability of various tax disclosure facilities designed to provide individuals, trusts, companies and partnerships with the impetus to review their tax affairs and, where necessary, make a voluntary disclosure to regularise them.

At the forefront of these facilities in the UK has been the ground breaking Liechtenstein Disclosure Facility (LDF) introduced in September 2009.

But not for much longer. The LDF will be withdrawn on 31st December 2015 and it has already been announced that its advantageous terms will not be repeated. Instead, a more limited disclosure facility will replace the LDF, with significantly higher tax penalties. Therefore, as we enter the final months of 2015 clients and advisors have one last opportunity to take advantage of a facility that guarantees freedom from criminal prosecution, potentially significant inheritance tax savings, low penalty rates and the option of a composite rate of tax in respect of assets held anywhere outside the UK.

Since the LDF’s introduction in 2009 Trident Tax has successfully handled a substantial case load of LDF disclosures and has built the necessary expertise and contacts to ensure that assets held outside of Liechtenstein can be brought safely and cost effectively into a LDF disclosure. Trident has also developed a very successful process which allows advisors to assess the liability or otherwise of a client and which maintains client anonymity up to and including the moment Trident is engaged to act for the client. This evaluation process is undertaken free of charge by Trident.

To conclude, it is worth making one very important point and repeating one that has already been made.

The UK has one of the most complicated and extensive tax codes in the world. It recognises trusts, partnerships and companies as well as individuals and each of these has its own specific tax legislation which in turn interacts with all the others. It is very easy to make a mistake or to overlook or even forget to do something which will come to HMRC’s attention at some point in view of the forthcoming exchange of financial information.

Many of the LDF disclosures that Trident has undertaken arose as a result of mistake, oversight, forgetfulness or an unknown change in circumstances which materially altered the original planning. In other cases there have been other totally understandable reasons why returns have not been filed. In summary, it is essential that all clients understand the UK tax position in relation to offshore investments or structures in which they have an interest, in advance of information being reported about them.

The next few months are advisor last opportunity to ensure that their clients’ personal and business affairs are in order and where necessary use the LDF to regularise them ahead of financial information exchange.

If you would like to discuss how Trident Tax can help your organisation ensure their clients are in a protected position or if you have a specific query we would be delighted to talk to you.