The Rule That Will Put an End to Expats’ Tax Evading Days
In a year’s time, expats who have enjoyed not paying taxes may have to move to another location to buy more time or face the punishment every tax dodging individual deserves. New rules on transparency will soon put a damper on their evasion days, and, in two years, they would have to face justice, unless they change their ways.
Many tax evaders these days, the rich and wealthy enough to pay taxes in particular, open bank accounts or invest in countries where their financial documents are protected by the host countries. Luxembourg, for example, is a favourite destination because of its banking culture that operates with secrecy. But some expats not only live in another country, but also use it as a base to make money without reporting to HM Revenue & Customs (HMRC). Unless the agency would probe deeper, expats can get away with tax evasion.
This is especially true with the recent process where tax authorities would still need to make a request to have access to financial records of someone suspected of tax evasion. Some governments could take time to grant a request, while others might have little control over what documents the banks wish to provide. They are likely to protect their clients than anything else.
But this is about to change with the new rules that allow tax authorities to exchange information automatically. Tax manager at the Fry Group, Adam Thompson, calls it “a fundamental change in how information is shared between tax authorities”. Every year, everyone’s account balances, sales proceeds from financial assets, interest, dividends and other sources of income will be collected and exchanged between governments. This gives transparency a new meaning. The first collection is set to begin next year that will be handled by bank, and certain collective insurance and investment firms. By 2017, the first exchange will happen.
58 jurisdictions are the first to participate in the process, including the Isle of Man, Channel Islands and countries across EU. Other countries that will also take part are Argentina, Bermuda, Cayman Islands, Liechtenstein and South Africa, among others. An additional 35 countries will join by 2018, such as China, Australia, Monaco, Switzerland, Qatar, Singapore and Canada. A total of 93 countries exchanging financial information are sure to help track and crack down cases of tax evasion.
So beware expats who has been dodging their responsibilities. “If expats do have unreported assets or income, then now is a good time to disclose it before the automatic regime starts from 2017”, Thompson suggests.
With the automatic exchange of information, someone who may look too ordinary to have undeclared assets and income will be put in the spotlight, scrutinised for their dodgy ways and duly punished, when proven that they tried to deceive everyone, including tax authorities. And it doesn’t even matter if you are under suspicion of tax dodging or not.
“In the past, it would have required evidence or suspicion for one state to ask another state for any financial information it may have on an individual”, said Jason Porter, director at Blevins Franks. But not anymore.
The only people who will survive when the new rules are fully in effect are those who are completely transparent with their taxes. We can only hope that the guilty would be punished to the full extent of the law.
Photo by Trent Erwin on Unsplash