Cyprus Mail

Offshore tax evasion in the headlines

By Lou Cunningham, Partner, Blevins Franks

THE ISSUE of using offshore bank accounts to hide funds and income from the taxman has been back in the headlines, particularly in the UK.

The reports have accused HSBC’s Swiss arm of actively helping wealthy clients to conceal their accounts from their tax authorities.

They relate to bank records of 100,000 clients stolen by one of the HSBC Geneva’s employees in 2007. The data was initially given to French newspaper Le Monde and France’s then Finance Minister Christine Lagarde passed the information onto foreign tax authorities in 2010.

This was reported at the time, but the full evidence was only made public last month. Leaked HSBC files have been examined by the International Consortium of Investigative Journalists, The Guardian, BBC’s Panorama and 50 media outlets around the world, leading to claims of a persistent pattern of malpractice.

The Guardian reports that at its height, HBSC’s Swiss operation hid assets worth £78bn, belonging to clients from over the world. There have been several reports about how the bank helped its clients evade tax.

HBSC says it acknowledges and is accountable for past compliance and control failures, explaining that the Swiss arm had not been fully integrated after it was purchased in 1999, enabling significantly lower standards of compliance to persist. Since then it has undergone a “radical transformation”.

On February 15, HSBC issued a public apology, publishing a full page advert, in the form of a letter from the group Chief Executive, in several British newspapers.

It did not admit deliberately helping customers evade tax, but conceded that “the standards to which we operate today were not universally in place in our Swiss operation eight years ago”. It said the societies it serves expect more from them, and so they “offer our sincerest apologies”.

Today the bank has “absolutely no appetite to do business with clients who are evading their taxes or who fail to meet our financial crime compliance standards”. It has cut the number of accounts by almost 70 per cent.

The advert also points out that many of the customers named by the media were only mentioned because they were well-known, and there is no allegation of wrong-doing against them.

In the UK, HMRC has come under fire for only prosecuting one out of the thousands of UK account holders on the list.

In response it issued a statement outlining its actions against the HBSC customers. After obtaining the names in 2010, it traced 3,600 account holders, 2,000 of which turned out to be tax compliant. It has collected £135m in unpaid tax, interest and fines from more than 1,000 account holders.

The tax authority sought to collect evidence for criminal prosecution in 150 cases, but most could not be taken to court because stolen data is considered “dirty” and needs additional corroborating evidence. HMRC would have had to prove criminal intent. This may put pressure on the government to introduce new legislation making it easier to prosecute taxpayers for offshore tax evasion. It had previously considered changing the law so it only need demonstrate that the money was taxable and undeclared, rather than having to prove that someone deliberately evaded tax.

With automatic exchange of information fast approaching – and Switzerland has also signed up – HMRC and tax authorities here in Cyprus will receive much more information about taxpayers who hold bank accounts and assets abroad.

There is of course nothing wrong in having an offshore bank account. But it is an offence to not disclose your taxable income, so you need to ensure you are declaring everything correctly.

You should also consider whether offshore bank accounts are the best home for your money, considering they do not offer tax advantages, and there may be more tax efficient arrangements for your savings. This will depend on your needs and aims. There are legitimate tax planning opportunities here in Cyprus but you need to make sure you are up to date and get it right. Seek specialist advice.

Learn more about Blevins Franks

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