In 1998 the UK pioneered the protection of privacy. Personal data stored on computers, it said, needed to be protected from falling into the wrong hands and individuals were given rights to enforce the law. Now most OECD countries have similar protections for those resident in their country.
The type of data which is considered personal is pay records, bank statements, and medical history. There is even greater protection for religious, ethnic and sexual data. An organisation which holds such information must not allow it to be sent outside the EU unless adequate care is taken as to its protection and it is not to be held for longer than is necessary.
There are however, some situations where an organisation is permitted to withhold information – organisations which are responsible for the assessment or collection of tax are outside the scope of Data Protection!
The OECD initiative for the automatic exchange of information under the Common Standard of Reporting, however takes a diametrically opposed view when it comes to assessing and collecting tax. This initiative applies to all financial institutions which have financial accounts belonging to an individual who is resident in another country.
Idris is a non UK domiciled person resident in the UK who has a bank account in Switzerland. Under the CRS rules the bank will need to report to the Swiss authorities that Idris has an account in Switzerland, the amount in the bank account and any transactions made during the year. The Swiss authorities will then automatically exchange this information with the UK authorities which can then match it up with what they know about Idris and undertake such investigations as it considers necessary.
Given that the Data Protection Act does not apply to the collection or assessment of tax, what protection does Idris have if the information exchanged by the Swiss authorities with the UK authorities is incorrect? What can he do about it? I he suffers a loss as a result what right of compensation does he have?
Nothing!
Let’s assume that the information stored by the bank in Switzerland was collected for money laundering purposes, not for the purpose of exchange of information. This is not only permitted under the CRS but is encouraged. However, the purpose of collecting information for anti-money laundering purposes is very different from the information which may be required by the taxing authorities. Let’s assume that at Idris’s bank, the source of funds is stated as being income from a mining operation in Africa. However, in fact it is from the sale of a mining business in Africa, which was sold before Idris became resident in the UK.
Idris has therefore been treating this money as clean capital and has not declared it as income when he has transferred payments to his bank account in London.
On receipt of information about the bank account of Idris from the Swiss authorities, HMRC matches it against what has been declared by Idris. It notes the discrepancy between and payments the Swiss bank says have been made and the taxable receipts declared by Idris so it starts an investigation. This investigation is likely to take years to resolve involving Idris in expensive professional fees; accountants and legal opinions, not to mention his own time, effort and effect on his health.
Let’s assume, after a full investigation costing Idris over £400,000 HMRC is satisfied that Idris is not liable to tax. Under the Taxpayer’s Charter however, he has no right of appeal and no right of compensation.
By comparison with other countries, however, the UK is considered safe. However, there are residents of other countries where mistake and error is the least of their concerns. They are more worried about rogue employees within the tax offices which have access to this information, hackers breaking into insecure computers and abuse by Government officials.
For residents of these countries what can they do? Some are already making plans to move their residence to a country with safer tax authorities, others are moving their accounts to more secure financial institutions and some are moving their trusts to different jurisdictions. Already professionals around the world are researching where people, their monies and their trusts could go, to protect their safety and their assets.
GFOS is pioneering this research and is in daily contact with representatives from across the globe exploring what can be done by those concerned about protecting their privacy.
If you would like to book an appointment with Caroline or one of her team on what options you may have to protect your privacy, which does not impact on your investment flexibility, increase your tax exposure or impact on your security, call Svetlana on 020 3740 7423 or email svetlana@garnhamfos.com.