Are banks able to keep secrets?

Banking secrecy has always been considered a natural precept of the bank-client relationship. This is now up for debate

15 January 2014
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BANKING secrecy has always been considered a normal, natural precept of the bank-client relationship. However, this has now changed irrevocably.

We have seen continued political support in France this year for an increase in automatic exchange of information at an international level.

Various multilateral initiatives are being developed, and in September the G20 announced plans to introduce automatic exchange of information as a global standard.

Tax authorities everywhere, including here in France, have continued to explore more ways to co-operate and prevent their taxpayers hiding
assets and income overseas.

In August, France surprised Jersey, Bermuda and the British Virgin Islands by adding them to its blacklist of uncooperative tax jurisdictions.

Companies operating out of such territories pay higher tax rates in France, and stronger antiabuse measures may include extra paperwork.

Jersey pointed out that it has a tax information exchange agreement with France and has confirmed it will move to automatic exchange of information under the EU Savings Tax Directive, and signed up to various other international initiatives.

In June, the French tax authorities announced a new voluntary disclosure procedure for French residents who hold assets abroad.

Taxpayersshould disclose all undeclared foreign assets and
the corresponding income and/or gains.
It affects taxes due on income since 2006, as well as wealth and inheritance tax since 2007.

Penalties will be reduced from the normal rate of 40%, to 30% or 15% depending on whether the offenders are “active” or “passive”.
Fines are reduced from 5% of the value of the asset to 3% or 1.5%, unless the assets do not have a legitimate and proven source, in which case they can be as high as 60%. Late payment interest is 4.8% per annum.

The following month the government unveiled a raft of new plans to clamp down on tax evasion through the use of offshore bank accounts, trusts and companies.

The legislation governing trusts will be reviewed, as will the Central Public Registry for Companies.
The legislation governing tax evasion, fraud and money laundering is being revised. Severe penalties on undeclared bank accounts, trusts and company structures held abroad will be introduced.
These include a seven year prison sentence and a fine of up to a €2 million. Tax authorities will have greater powers to enable them to conduct more in-depth investigations.

France has committed to sharing information with other jurisdictions. Besides being part of the G20, back in April, as part of the G5, it announced plans to develop a new multilateral tax information exchange agreement.

All the new international exchange of information agreements will enable the French tax authorities to check all the data supplied by taxpayers, both in relation to their income and wealth tax returns, and for voluntary disclosures.

Governments around the globe and their respective tax authorities will start to receive much more information than ever before in respect of their taxpayers’ financial affairs.

In 2009, triggered by the financial crisis, the group of 20 wealthy nations declared that the “era of banking secrecy is over”.
During the
following four years, 119 jurisdictions have committed to the global standard for transparency and exchange of information for tax purposes developed by the Organisation for Economic Cooperation and Development (OECD), and around 1,100 new bilateral agreements had been signed.
This is a stunning, remarkable achievement in record time.

Activity escalated significantly this year, with the EU, G5, G8 and UK offshore centres all making significant new announcements of a reduction or removal of banking secrecy.
Even Swiss bankers have suggested that it is time to change direction, initially by dropping banking secrecy for EU residents as part of the EU Savings Tax Directive.

Tax evasion is a global issue. As a consequence, a universal model for automatic exchange of information needs to be developed to be effective worldwide to prevent people moving their money elsewhere.

At the latest G20 Summit, world leaders committed to automatic exchange of
information as the new global standard.

They “fully endorse the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information” and will work together to present a new single standard and finalise the technical aspects by mid-2014.

Their aim is to have all G20 members automatically exchanging information on tax matters by the end of 2015, and they called on all other jurisdictions to join them at the earliest possible date.

The G20’s latest commitment will provide authorities with much more power to track down tax evaders and assets hidden overseas.

We need to wait for details of the information to be exchanged and how, but looking at other multilateral agreement proposals I fully expect it to include all or many of the following: name and address of owner, account numbers, name of financial institution, account balances and details of payments made into the account such as interest and other income generated with respect to the assets.
This is likely to include accounts held by entities such as trusts, offshore companies and similar legal entities.

The days of financial privacy are long gone. It is, however, still possible to take advantage of tax compliant opportunities to protect your assets from various French taxes.

This column is by Bill Blevins of Blevins Franks financial advice group (www.blevinsfranks.com) who also writes for the Sunday Times on overseas finance.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices, which are subject to change.

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