I would like to start off by saying Happy New Year to all my readers! May 2017 be a happy, healthy and prosperous one!
Last week I met Josh for a cup of coffee. He wanted to know what information about his sensitive financial information would be exchanged as from next year. He has an account in Switzerland, held by a Swiss Private Bank – would this bank be disclosing his account details to the tax authorities of his home country? The answer is YES.
In order to tackle offshore tax evasion and other forms of non-compliance, OECD countries will as from 2017 be introducing a Common Standard of Reporting. Josh and his family are and have always been fully tax compliant, they are however worried as to the confidentiality of their financial information. If it starts being exchanged globally in whose hands will it end up?
Under domestic Swiss legislation the Swiss Private Bank will need to report on Josh’s account; balance and payments made or credited to the Swiss tax authorities. These will then be automatically exchanged with the tax authorities of the country of Josh’s residence.
Josh asked what address will Swiss Private Bank use as his residence? He has been moving quite a bit over the past few years. I said that it would use the address it had on file for its anti-money laundering purposes or it may ask him to self-certify if unsure or it would do some research. This did not give Josh much reassurance. He has been living in Brazil, Dubai and Nigeria in recent years, and is now living in the UK.
He asked if he would be less exposed as a beneficiary of a trust. His uncle had set up a trust for Josh and his family more than a decade ago. The Trustee is a professional trust company in Cayman which I will call Trustee Co. its money is managed by Swiss Private Bank, and Josh’s father Randip is the Protector. Josh’s uncle died some years ago.
In short, if Josh is a discretionary beneficiary of a trust, he is less exposed, but the people who are ‘in control’ of the trust are more exposed. Those ‘in control’ of the trust for CRS purposes include the settlor, the protector, the fixed interest beneficiaries and others deemed to be in control.
Josh wanted to know which entities would be reporting what, to whom and when in 2017.
In this situation the ‘Reportable Financial Institution’ is the Swiss Private Bank. Trustee Co is a ‘passive Non-Financial Entity’.
The details of the Report to be made by the Swiss Private Bank – to be made to the Swiss tax authorities, which must include the details of the account to the tax authorities of the countries in which the following are resident, the
· Settlor, Josh’s uncle – regardless as to whether he is alive or dead, date of birth, and death, address and tax identification number
· Trustee – and if there was more than one then each and every one – name and address
· names and details of any fixed interest beneficiaries,
· names and address of any Protector Randip, Josh’s father and any other Controlling person.
Josh is named as a beneficiary, but does not have a fixed interest. Whether the Swiss Private Bank will need to report the details of Josh and his family will depend upon whether the Swiss Private Bank has an agreement in place with Trustee Co as to whether it will be informed of any distribution made to Josh or anyone else in any one year. If no distributions are to be made, Josh and his family can keep private their connection with the trust fund.
Although Josh and his family can in this situation remain relatively private, the details of the account balance and payments made will be reported to the tax authorities of the country of residence of each ‘Controlling Person; settlor, trustee, fixed interest beneficiary and Protector. Some such ‘Controlling Persons’ may feel somewhat uncomfortable about this information being presented to the tax authorities in which they live, especially if their ‘control’ is more illusory than real.
Josh asked what safeguards there were as to the confidentiality of this information.
The ‘confidentiality of taxpayer information is a fundamental cornerstone to tax information exchange. …. Tax payers have a legal right to expect that sensitive financial information remains confidential’ so the OECD handbook states.
‘The systems and procedures should include appropriate policies in relation to employees (such as background checks and training), restricting access to sensitive documents, systems to protect the data (such as identifying those with access and having audit trails to monitor access), restrictions on transmitting the data and appropriate information disposal policies. Regular risk assessments should also be completed and confidentiality policies updated as necessary.’
Provisions are also included such that if one authority has reason to believe that there has been a breach of its safeguards, it must immediately notify its partner and if it fails to comply or is lax in its safeguard provisions, it can be suspended from further exchanges of information. There is no mention however, of any right of compensation to those people who may be adversely affected, no right of appeal, and no right to be notified!
Josh’s family had to flee a country with 100 days’ notice when he was young. He is therefore uncomfortable with sensitive financial information circumnavigating the globe. Because of Josh’s experience, he may be in the minority. Other tax compliant families may be less fearful; if they have nothing to hide, what was there to worry about?
Privacy is however for many little to do with tax compliance, it is a fear of what people could do with sensitive private financial information. Josh like many others are willing to pay a relatively small fee to keep their offshore assets off the reporting radar. It is a price worth paying to enable him, his family and trusted advisers to sleep easily at night.
Please let me know your views, do you think Josh is overreacting, or do you think that today, Governments can be trusted to keep your sensitive financial information private and confidential.
Ifyou would like to know more or to book an appointment with Caroline or one of her team, please contact Svetlana on svetlana@garnhamfos.com or on 020 3740 7422.