UK Attempts to Catch Tax Evaders

It is said that the British tax office, HM Revenue & Customs, is tightening its regulations in order to find and catch tax evaders with offshore bank accounts.

Revenue & Customs has called for an exploratory meeting with the 170 largest banks in the UK, so see what can be done to prevent tax evasion and to tighten regulations on offshore money storage. The Revenue & Customs booked an earlier success when five of the banks most involved in offshore banking opened up some of the secret accounts held at these banks. Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB agreed with Revenue and Customs to provide more openness about their clients.

By gathering information from previously undisclosed bank accounts, the Revenue hopes to create enough grounds for obtaining legal rulings that would force banks to disclose customer information. In an investigation among banks, which includes the filling out of a questionnaire, the Revenue wants to explore the willingness of banks to cooperate. It is not certain whether the Revenue will be able to legislate stricter rules with regard to offshore bank accounts, though.

The European Union, of which the United Kingdom is a prominent member state, has a common approach towards taxation of its residents when they invest outside of their country of residence, an approach that also involves offshore bank accounts. This approach is legally laid out in the European Union Savings & Tax Directive. The European Union Savings & Tax Directive contains a withholding tax, imposed on residents from the European Union when they invest in EU member states other than their own.

The EU withholding tax also applies to most offshore banking centres. Most offshore jurisdictions cooperate with the EU withholding tax. The UK falls under this directive as well, which makes it questionable whether the UK Revenue & Customs can make rules of their own to disclose offshore bank accounts. In its handling of offshore bank accounts, the EU withholding tax is based on the cooperation with offshore banks and it can only obtain anonymous information from the cooperating banks.

This means that the bank secret, which makes offshore banking so attractive for many investors, is still largely intact, and not likely to become subject to British regulations. The European Union Tax Directive/ the European Union withholding tax came into force in 2005.