June 2006 Top Story:
***MLI ARCHIVE***
Barclays ruling puts UK banks on alert:
London: The UK tax authorities have strengthened their hand in fighting tax evasion by winning a court order to obtain details of offshore bank accounts.
It is believed the Special Commissioners’ decision to approve Inland Revenue request to gain access to details of customers’ offshore accounts at Barclays Bank will affect more than 110,000 UK residents.
It is estimated that the investigation at Barclays could yield £1.5bn
in unpaid tax. The penalty for non-declaration is the tax due, plus interest,
plus the penalty, which can be up to 100 per cent again of the tax due.
But reductions in the penalty can be negotiated depending on the level
of disclosure and co-operation with the Revenue.
The Inland Revenue will also inquire about the origins of the money in
these offshore accounts.
Barclays argued it did not have access to customers’ offshore accounts as these were held outside the UK. But the Special Commissioners overruled this as a couple of employees had the necessary passwords to access details.
The IR is expected to expand its investigation to other offshore banks, private banks and trust companies. The extension of treaty agreements should enable the IR to gain client details at offshore banks without a presence in the UK.
The Special Commissioners have also granted a disclosure order against an unnamed bank to reveal identities of investors using it to settle share deals made through an offshore company to evade tax.
“This is the most significant attack in many years, and possibly ever, on perceived tax evasion in the City,” said Steve Besford, director of tax investigations at consultants Chiltern.
“There are hundreds of thousands of UK taxpayers with offshore accounts and it is obvious why so many are coming forward now,” said Jeanette Harwood, head of regulatory services at solicitors Walker Morris.
“If your UK bank has any record of your offshore dealings, pretty soon those records will be in the hands of the Revenue.”
The number of secret tax havens has diminished as a result of money laundering regulations, an initiative by the OECD and the European Union savings directive, which came into effect last July.
The directive requires most member states to exchange information. But it is not watertight because Austria, Luxembourg and Belgium – along with many of the best known tax havens – have opted to apply a withholding tax instead. Where this is done, account details are not passed to local tax authorities.
Under the ruling, individuals with savings accounts in these jurisdictions may be able to be tracked down, provided data relating to these accounts is held by a UK-based banking institution.
Earlier this year, the IR won the power to require financial institutions to hand over customers’ credit cards details to help them find undeclared income from offshore saving accounts.
Targeting credit card records is a valuable tool to the IR because many credit and debit cards are processed onshore in the UK, allowing it to sidestep the difficulty of obtaining information from offshore banks.
The Revenue has had trouble when taxpayers have money in institutions in countries where there is no arrangement for mutual exchange of information. In a case involving Ulster Bank, it became suspicious that these accounts had become a popular way of sending money offshore without leaving a paper trail.
After a legal battle, the bank eventually disclosed financial information about customers.
DelMonte Publications June 2006
