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CRS impact on offshore bank accounts & Requirement to Correct

CRS impact on offshore bank accounts & Requirement to Correct

In this short article, we discuss the impact of CRS tax reporting on the use of offshore bank accounts, recent changes and how we help our clients to stay compliant and on the right side of the law.

A recent survey for the Financial Times by Wealth-X has found that UK wealth managers are quietly scaling back access to offshore accounts for their clients as the global crackdown on tax avoidance gathers pace. The survey showed that services dropped by 20% in 2016 compared to the previous year.

It is thought the reduction is partly due to the rules surrounding the exchange of information between tax jurisdictions changing in recent years.

Since the United States introduced the Foreign Account Tax Compliance Act in 2010, tax authorities in more than one hundred jurisdictions have followed suit, promising to exchange information about their residents’ overseas assets and structures through the system known as the Common Reporting Standard (CRS).

Under CRS, information will be automatically exchanged between participating countries. Previously, tax authorities had to show good cause to request tax information from other governments either under tax treaty provisions or, in recent years, via Tax Information Exchange Agreements

There has been an appreciable shift in public attitude to those who use offshore accounts and structures; even where their use is entirely legitimate this is often misreported. The increasing public disdain for those using offshore accounts and structures and the potential for negative publicity was seen very clearly by the response of the media to the publication of the Panama Papers.

Unsurprisingly, the change in public sentiment appears to have had a significant effect on the number of offshore accounts being opened. Our view is that UK residents and their professional advisors have nothing to fear from the exchange of information that will arise as a result of the implementation of CRS, provided that those responsible have filed timely and accurate tax returns.

Requirement to Correct

However, as the UK has one of the most complex tax codes in the world we know from experience that mistakes can and do occur. Legislation proposed in the UK – known as “Requirement to Correct” – will place a legal obligation on UK residents with interests in offshore assets and structures to correct any understatements of UK tax liabilities by 30 September 2018. The same requirement to report UK tax liabilities by 30 September 2018 applies to directors and trustees of overseas entities.

It is no coincidence that 30 September 2018 is the date by which all participating states will have an obligation to report information under CRS. Any undeclared tax liabilities arising in relation to overseas assets and structures that are not reported to HM Revenue & Customs by 30 September 2018 will attract a starting penalty of 200% – this is known as “Failure to Correct” and neatly summarises the tax authority’s attitude to those who don’t take action to ensure they are fully tax compliant.

What should be done?

Service providers and clients must take steps to ensure that all UK tax reporting requirements have been made correctly and, if not, to correct this before 30 September 2018.

We specialise in reviewing offshore assets and structures to determine whether the structures and their beneficiaries have been fully compliant with UK tax requirements.

If you would like to know more about how we can help please contact us.

This article was published via Trident Tax’s Linkedin page – follow us to stay connected.