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Europe liberal with amnesty schemes

T.C.A.RAMANUJAM | Updated on: Oct 02, 2011

Pressure from the OECD countries has yielded results with tax havens forced to make disclosures on secret banking accounts.

The countries covered by the OECD group (the Organisation for Economic Co-operation and Development) have taken to amnesty schemes in a free and fair manner over the last three years. The schemes are mainly aimed at foreign moneys stashed away in Switzerland and other tax havens. These tax havens are called tax-opaque jurisdictions with very little information forthcoming from them about depositors, deposit amounts, and the sources. A lot of prodding is required to ferret out information about account holders from these foreign banks. It is only by negotiating tax exchange information with them that the banks concerned can be coaxed into furnishing information. While the US threatened the Swiss banks with dire consequences for failure to divulge, Great Britain took a different approach.

THE BRITISH AMNESTY SCHEME

A leading tax administrator in Great Britain observed that every crackdown on tax evasion should be preceded by an amnesty or, at least, a half-way house deal with the secretive Swiss tax authorities. International tax agreements are shaping up in the way the British Revenue administration judges tax payers' affairs. The UK Treasury entered into a deal. For the price of a compulsory 50 per cent levy on assets and a retrospective fee on unpaid tax, British citizens could legitimise their Swiss accounts.

Switzerland has been the last bastion of confidentiality. Thanks to the OECD and the recent efforts of the G-20 countries, Switzerland and other tax havens have been pressured into giving information about account holders and the amounts involved.

Britain believes that attempts to deal with specific individuals may not be as successful as would agreements with the banks and tax havens. Recovering a few 100,000 pounds from a super wealthy individual would not take them far. Bulk deals would have to be struck.

It was with this in view that the UK Government entered into an agreement with Swiss authorities, whereby Switzerland would tax the Swiss bank accounts of UK citizens and transfer this money to the British Exchequer. The names of the account holders would not be disclosed. British tax authorities hope to gain anything between £3 billion and and £9 billion a year.

Her Majesty's Government has introduced 200 per cent penalty for offshore tax evasion, to punish the use of jurisdictions that do not share tax information with the UK on request. Before the introduction of these penalties, the British Exchequer announced an amnesty for undisclosed earnings in foreign bank accounts. This sort of amnesty approach has had its own success.

Recently, the British Government also resorted to a profession-by-profession approach to amnesties. An offer to plumbers — the Plumbers Tax Safe Plan — invited them to disclose undisclosed earnings to avoid paying a penalty up to 100 per cent over and above the tax they already owed. Though directed at plumbers, the scheme can be availed of by anyone who wants to make a declaration. They can meet their job descriptions fit the criteria.

THE FRENCH INITIATIVE

The French Government believes that all is fair in the war against tax evasion. It obtained data from the offshore banking headquarters of HSBC in Geneva from a former employee of the bank, who had stolen the data and fled to France. The French officials searched his home at the request of Switzerland and obtained the stolen data. It agreed to return the client data to Switzerland but said it would continue to make use of the data. This let to a diplomatic tussle and Switzerland delayed Parliamentary approval for a pending protocol to the France-Switzerland tax treaty.

The news that the French Government had obtained information about the secret foreign accounts of its citizens naturally provoked fear. The French Amnesty was made use of by such foreign account holders. The tax declaration initiative of the French Government resulted in additional tax revenue of £500 million from the approximately £3 billion repatriated to France.

THE ITALIAN TAX AMNESTY

Italian tax payers have disclosed £95 billion in previously undeclared assets under the country's latest tax amnesty schemes. More than 98 per cent of the amount was to be repatriated from offshore. The assets repatriated include works of art, sculptures, jewellery, cars and berths. In eight years, the Italians have launched three amnesty schemes, with the tax rate varying between 5 and 7 per cent on the total value of assets. While declaring the source of funds was not necessary, the Government made it clear that those were the last definitive amnesty schemes and would not be repeated again. Such an announcement is expected to net a further £30 billion by way of extra tax revenue. Moneys repatriated from Switzerland stand at about £40 billion.

The Dutch Ministry of Finance announced a voluntary disclosure initiative for individuals with undisclosed foreign savings accounts. This netted disclosure of £1 billion of hidden assets.

(The author is a former Chief Commissioner of Income-Tax.)

Published on October 02, 2011
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