The Isle of Man has become the first British dependent territory to sign an agreement with the UK Government that extends the automatic disclosure of tax information. Under the accord, the two Governments have agreed to start exchanging information from 2016 on residents’ tax issues. This new deal will extend the current agreement which sees the Isle of Man already sharing information on personal savings income with the UK and other European Union countries.
Allen Bell, the Manx Chief Minister said: “In signing this historic agreement with the United Kingdom we are underlining the message to our neighbours and the wider world that our Island is a responsible centre for top quality international business”. He added: “Today’s signing is a significant step towards that global standard and further proof that the tax haven moniker in relation to the Isle of Man is well and truly dead”.
The UK Government is also seeking to agree a similar deal with the two other dependent territories of Guernsey and Jersey, although at the time of writing, neither has confirmed participation.
Regardless whether or not the term “Tax Haven” is fair, it is clear that many countries are stepping up efforts to force jurisdictions to reveal information on clients suspected of tax abuse. Earlier this year, The Financial Times reported that France has stepped up its assault on tax havens by blacklisting Bermuda, British Virgin Islands and Jersey, in a move that will impose heavy penalties on thousands of French individuals and businesses. The three offshore centres have been added to a list of “non-co-operative jurisdictions”, triggering punitive withholding taxes of up to 75 per cent on payments from France.
Why do these agreements matter?
So what is driving the many recent international efforts in curbing tax evasion? It is hard to quantify the impact of tax evasion on a country’s wealth but, given the estimates shown in the chart below, it is clear that fixing this problem would go a long way in helping to assuage the current austerity measures imposed by many governments to help see them through the most severe recession since WWII.
The Guardian recently published an article stating that the amount of tax lost within the UK through non-payment and avoidance increased last year to £35bn, (according to official figures released in October). What is even more shocking is a statement taken from www.taxresearch.org.uk – that tax evasion is costing the world $3.1 trillion a year – more than 5% of world GDP. The chart below is taken from the tax justice networks research into tax evasion, showing the top ten countries that were affected in 2011.
Challenging times ahead
With tax avoidance schemes so widespread and disconnected, it is going to be years, maybe decades, before we can see a clear benefit to the new processes and laws that foster increased co-operation. But it seems things are moving in the right direction.
In a previous blog post – regarding the G20 sharing information Martin Sobotka discussed the huge data volumes that will need be processed and analysed. Technologies such as SAP HANA can help to consolidate huge amounts of information from many different sources, and the connectivity across both analytical and transactional systems can help to remove barriers and provide Governments with a key advantage in identifying data inconsistencies when analysing external tax information.
Martin Sobotka is an expert in Tax & Revenue Management solutions across all continents. For several years, Martin worked for SAP Consulting introducing SAP products to City Councils, Federal States and Government Authorities. He is a well-respected expert and focuses on the functional implementation of new SAP technology in this area.
To find out more on this subject you can contact Martin directly.