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Taxmen after offshore accounts to beat tax evasion worldwide; LEGAL &FINANCE.

Byline: By John Cranage Business Staff

Tax authorities throughout the world are stepping up attempts to access offshore bank accounts as part of an aggressive drive against tax evasion, business and financial advisers Grant Thornton has warned.

The move, which follows the recent investigation into accounts held in Liechtenstein, is likely to affect individuals with assets held offshore.

Grant Thornton said this week that the purchase of confidential details of wealthy Liechtenstein bank account-holders by UK and German tax authorities has raised interest in the use of offshore accounts and here in the UK, HM Revenue & Customs (HMRC) is understood to be launching a new investigation by sending out disclosure requests to 25 foreign banks to provide details of UK account-holders.

Other measures in the drive to clamp down on perceived tax evasion that will have individuals thinking twice about sending money offshore include a recent tax treaty between Germany, Britain's EU partner, and Switzerland to enable a "back-door" route into Swiss bank accounts and last year's offshore disclosure initiative which netted pounds 400 million.

Gary Ashford, a tax investigations director at Grant Thornton, said: "The Treasury has been progressively tightening the net on offshore accounts for some time and it is now getting to a point that those with money held offshore, whether acting rightly or wrongly, are likely to feel some heat from HMRC in the near future.

"HMRC is using any means possible to get hold of information on offshore accounts.

Whether it be paying for information, pressuring private banks to hand over details or teaming up with other tax authorities and information sharing, HMRC is determined to gain access to these accounts.

"It is looking increasingly likely that HMRC will consider introducing another facility for those holding untaxed offshore assets, particularly in offshore bank accounts, to disclose these to HMRC and pay any tax owed."

According to Mr Ashford, HMRC is continuing to develop its approach of selecting taxpayers for investigation on a "risk score" basis and it is important to appreciate how any offshore arrangements impact on an individual's overall risk score.

"HMRC clearly sees anything involving offshore arrangements as increasing your risk score. However, if an individual is aware of this they can then set about ensuring any offshore arrangements are fully tax-compliant.

"If problems are identified in the robustness of any arrangements they should be disclosed to HMRC at the earliest opportunity as HMRC has stated it will look to prosecute cases that have not been disclosed." Eric Williams, a partner in Grant Thornton's private client team, believes that while HMRC is justified in its pursuit of tax evaders, its push into offshore jurisdictions has the potential to strip offshore banking facilities of their ability to operate on a level playing field in respect of legitimate account holders.

"To be clear, it is perfectly legitimate for a UK taxpayer to have a bank account outside the UK. At its most basic a UK domiciled and resident citizen may for example have an offshore account simply to facilitate the paying of expenses of a holiday home abroad.

"Those individuals should have the same tax liability on interest from money held in a UK as in a foreign bank account and that then should not influence an individual's choice in whether to use an offshore account or not."

With non-UK domiciled but resident individuals, the legitimate benefits of banking offshore are more marked and that has not changed despite the recent modifications to the taxation of non-UK domiciled individuals (non-doms).

However, Mr Williams says the agreements between various tax authorities and the constant changes to the rules governing offshore funds, and more recently those affecting nondoms, means that "the waters are being muddied as to what remains legal and it can be perceived that 'offshore' automatically means 'tax evasion'".

He added: "As has been the case in the past, the stampede to catch tax evaders is invariably going to catch legitimate account holders in the crossfire. Having to deal with an HMRC enquiry costs time and money and can be daunting when you are on the receiving end and when you believe you have done nothing wrong. Hopefully HMRC will keep balancing the need for safeguards for those who are not tax evaders as it pursues missing tax revenues." Mr Williams says bank accounts aside, there are other offshore investment vehicles which are legitimate for UK-domiciled, non-doms and high-net-worth investors to use in their global investment plans. These include offshore investment funds that are for the most part structured in much the same way as their onshore equivalent. The key difference, however, is that the offshore funds are usually tax resident in tax neutral jurisdictions and hence the funds themselves do not pay tax.

This sounds like an attractive proposition initially as one might think that returns can be rolled up in an investment offshore without paying UK tax until the investment is sold.

However the tax rules can be complex and this need not be the case. It is therefore important that an investor is aware of the tax implications. An investor cannot for example assume that they will get the benefit of capital gains tax (CGT) treatment (e.g.the annual CGT exemption).

A hedge funds generally pursues far more active strategies to achieve an absolute return.

The stampede to catch tax evaders is invariably going to catch legitimate account holders in the crossfire.

Eric Williams
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Aug 22, 2008
Words:903
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