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Be honest about overseas earning

It pays to come clean now, or you'll face a huge penalty later, says Bill Blevins of Blevins Franks financial group

France has turned out to be one of the leading crusaders against tax evasion and time is running out for those French residents, including foreigners living in France, who have failed to declare any of their income and wealth, including that generated or held offshore.

In March, France signed Tax Information Exchange Agreements with Jersey, Guernsey and the Isle of Man, which means they can now routinely obtain information on bank accounts held in the UK offshore islands if a French resident is suspected of evading tax in France.

In June, a new measure was announced to require all French banks to disclose information regarding their links to offshore centres. Credit institutions in France are now legally obliged to publish information in their accounts regarding their activities in jurisdictions regarded as tax havens.

Then, at the end of August, Economy Minister Christine Lagarde met Swiss President Hans-Rudolf Merz to amend the double taxation agreement the two countries share in order to provide for greater transparency and the exchange of information in tax matters in line with the Organisation for Economic Co-operation and Development’s internationally agreed standard.

This revised agreement allows French authorities to conduct investigations into bank accounts in Switzerland by its residents who they suspect are guilty of tax evasion. Or, in other words, Swiss banking secrecy no longer exists for those French residents whom the authorities believe have not declared, or may have under-declared, income and capital held in Switzerland.

Just three days later, the French government announced that it had obtained a list of 3,000 suspected tax evaders holding around €3 billion in Swiss bank accounts.

Budget Ministry chief of staff Sébastien Proto warned: “This is not an empty threat. We are getting more and more information and protection is falling. Bank secrecy is being rolled back.”

Budget Minister Eric Woerth said the government would pursue the account holders if necessary to force them to pay up. If they do not come forward and get their affairs in order, the authorities will “bring them to justice”.

According to the government, it received much of the information on the 3,000 Swiss accounts from two banks operating in France which had volunteered the information. The rest came from its own tax investigation.

Woerth explained that France was now “in the process of constructing a post-crisis capitalism” and said that banks were “an essential link in this change”. He said he would be summoning banks to a meeting with himself and Lagarde, to ask them to hand over information on clients who had transferred or received funds to or from countries regarded as tax havens.

There is popular pressure in France for the government to clampdown on financial misbehaviour by the wealthy. Besides the tax evasion crackdown, Nicolas Sarkozy also intends to curb the bonus culture in banks.

While it is good news that France was one of the first countries to technically come out of recession, it is not out of the woods yet. The government faces a growing deficit because of spending measures aimed at combating the crisis, at the same time as falling tax receipts.

For example, the corporation tax receipts for the first half of the year were a mere 20% of the revenue received over the same period the year before. The total received for this tax in 2008 was e49.2 billion, but this year the government only expects to receive around €20-€25 billion.

At the end of June, the national deficit was €86.6 billion, compared with €32.8 billion in 2008. Sarkozy is in a difficult position because while he needs to increase tax revenue, during his election campaign he pledged not to raise taxes. He therefore needs to find other measures and with the crackdown on tax evasion he can also prove that he is serious about curbing the excesses of the wealthy.

He is of course aided by the growing international campaign for increased tax transparency, and there is increasing support from the public for tax evaders to be made to pay their share.

Speaking to the OECD Global Forum on Transparency and Exchange of Information at the beginning of September, the organisation’s secretary-general Angel Gurria said that almost 100 new Tax Information Exchange Agreements and double taxation conventions had been signed since April.

“What we are witnessing is nothing short of a revolution”, he said. “By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign.

“With the crisis, [the] global public’s expectations are high, their tolerance of non-compliance is zero and we must deliver.”

Here in France, the government’s crusade against tax evaders is going to increase significantly and the investigation into Swiss bank accounts is just the start of a campaign that will eventually uncover many tax evaders who have no connection with Switzerland at all.

The net is tightening, and not only around the very wealthy. Anyone who has failed to declare all their income and wealth could find themselves in trouble, and now is the time to ensure your affairs are fully in order to avoid the fines, penalties and possibly more serious punishments that follow discovery.

When it comes to using offshore bank accounts in centres such as Switzerland and the Isle of Man (and paying the withholding tax but ‘forgetting’ to declare the income in France), the irony is that it is often possible to pay less tax using legitimate arrangements than you do in withholding taxes. At the same time you may also be able to lower your wealth and succession tax liabilities if needed.

You can save yourself a lot of worry by using such legitimate structures, but always seek advice from an experienced and qualified tax and financial adviser to ensure you get it right and that the arrangement is suitable for you.

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