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May 15, 2014updated 11 Jan 2016 1:04pm

US tax authorities find new ways to bully the world

By Spear's


The pragmatic bullying of the United States has reached a new level of sophistication. FATCA, which comes into force this summer, was designed to get foreign financial institutions to disclose information about all account holders with US connections, with penalties for non-co-operation.

But national data protection laws often barred countries from handing over these details, so now they have come up with a way of getting around these.

This takes the form of a network of inter-governmental agreements between the US and other countries. These agreements either force banks to disclose the information to national bodies (for example HM Revenue & Customs), who can then tell the IRS
in America, or allow banks to tell the IRS directly.

Things have gone a step further, however. Instead of these requests, countries now want automatic information exchange. No more would they have to go cap in hand to another country if they thought that there was some information they needed, as ‘fishing expeditions’ are banned under the usual terms of double taxation treaties.

The UK has been leading the charge with France, Germany, Italy and Spain — the same five countries that started the discussion with the US that led to the concept of the inter-governmental agreements.

This initiative has now mushroomed through the OECD into a common reporting standard of automatic exchange of information, which was endorsed by the G20 leaders at a recent meeting in Sydney. Indeed, 42 countries, including most of the offshore financial centres, have given it their support.

Over the next few months, those involved in pressing this forward will be working on the practical implementation issues with a view to bringing the matter back to the agenda of the next G20 meeting this autumn.

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In tandem, the European Parliament has just approved the setting-up of a registration system of information about the beneficial ownership of companies. By this is meant not just the names on the share register but also the real economic benefit holders, whose identity may be masked by nominees, or agents. David Cameron firmly supports this ‘transparency’ initiative and led the approval of it at the G8 summit in Northern Ireland in June last year.

Property damage

Now we hear there may be a very unpleasant side effect for Britons. The European Parliament wants to extend this transparency to trusts in order to disclose their ‘beneficial owners’, but continental European legal systems look on trusts differently from common-law systems like Britain’s. This may have far-reaching consequences.

Europe’s legal systems do not, largely, recognise trusts under the civil law codes, so there is a fundamental difference in the meaning of the word ‘property’ which is basic to any legal system. In civil law systems, any property interest is registrable, so if it is not registered, it does not exist.

For the common law system, which has used the trust as a common vehicle for many hundreds of years, a registration system of trusts would need to include every house purchase which is in the joint names of, for example, husband and wife. That joint ownership is a trust.

So far, the British government has not shown its hand as to whether it will oppose the public registration of trusts, although the Treasury minister David Gauke has confirmed that there is an awareness that there are difficulties in applying the company register to trusts.

Public interest

What is not clear is how ‘public’ this registration of trusts would be. How does this square with the principle of the European Convention on Human Rights that individuals are entitled to privacy as to their personal affairs?

And if we go back to automatic exchange of information, although the OECD has a short paragraph acknowledging that systems must be in place to confine the information to fiscal authorities, many share my deep concern that, if information is held by a tax agency in virtually any country, there is no confidence that it could not be transferred to a different agency of that country.

Who is going to stand up to defend the rights of the individual and ensure that rights are respected? Governments have little interest in tying their own hands, and the media has a vested interest in obtaining information which gives storylines.

What appears to be a development in line with current public sentiment comes with a hidden price which must be considered vigilantly. These developments are insidious.

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