Jason Porter, director at the international tax and wealth management firm, said the automatic exchange agreement between an initial 58 countries will leave serial avoiders with few options as their international financial data becomes readily available to national tax authorities.
“I think there will be a significant increase in the numbers of people caught with undeclared offshore assets, maybe as soon as the year following the introduction of CRS,” he said.
“Whereas before a tax authority such as the UK’s HM Revenue & Customs would have to have suspicions about an individual to request information from another country, this information will now be automatically available.
“For tax evaders this is the endgame. I think it will get to the point where the only way you can pay lower taxes is by actually living in a tax haven.”
The CRS sets out the financial account information to be exchanged between governments, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as the common due diligence procedures to be followed by financial institutions.
The information likely to be exchanged includes account balances, interest, dividends, and sales proceeds from financial assets.
Early adopters
58 “early adopter” jurisdictions have already signed up to start collecting information in 2016 ready for first transmission in 2017, including the UK, Spain, France, Portugal, Malta, the Isle of Man, Jersey, Guernsey, Gibraltar, Cayman Islands, and the British Virgin Islands.
A further 35 jurisdictions have pledged to start in 2018, including Australia, Hong Kong, Monaco, Qatar, Singapore, United Arab Emirates, and Switzerland.
Porter said the delay in many jurisdictions can be put down to financial institutions and governments having to update computer systems to be able to gather the information the CRS will require.
“A lot of banks and governments will have to get their systems in order,” he said. “They may have to look at how they can technically gather the mass of information required to participate in CRS.”
He added that the CRS agreement has been designed to transfer information that for many years has been collected by financial institutions about customers anyway, meaning it will not be a “huge jump” for the banks in many countries.
“Rather than just gathering the information, and providing it on selected taxpayers when requested, now [financial institutions] will be required to automatically provide it” he said. “The common OECD automatic exchange of information model, is a result of the pressure countries around the world are under, from reduced tax revenues and an increasing social burden as a result of the global financial crisis. Hunting down offshore tax evaders is one of the many tools to try an increase the tax take.”
