Taxing times for wealth management industry

In June, 47 countries sealed an accord that will see the sharing of tax information of suspected cheats occur automatically once a year. The information to be exchanged will include bank balances, interest income, dividends and proceeds of sales, all of which can be used to establish capital-gains tax balances.

As things stand, the deal will not come into force until 2017, with tax authorities and governments keen for non-compliant taxpayers to bring money home sooner (under less punitive penalty regimes) than later, with the hope of boosting lagging tax revenues.

The significance of this deal is hard to overstate. For the first time, the world’s largest international offshore centres, including the UK (as well as its protectorates Jersey and the Cayman Islands), Switzerland and Singapore have come to the party and the promise of an annual exchange of data will doubtless bring many a sleepless night to advisers.

While international co-operation on information exchange is, to an extent, to be welcomed, there are a couple of reasons for concern around such a proposal.

The first is that it is an indictment of current political and public discourse around the matter of tax. The failure to grasp basic concepts from a legalistic perspective around the differentiation between tax evasion and tax avoidance means the wealth planning segment of the industry is permanently embattled.

It does not help matters when schemes previously considered legal (according to tax officials) are revisited and retrospectively declared against the spirit of the tax code.

The second concern relates to whether tax officials are capable of assimilating all this information into their systems. Particularly from a British perspective, HMRC (Her Majesty’s Revenue and Customs) does not have the best of reputations when it comes to data management.

The sheer volume of data due when the agreement kicks in will doubtless require significant technology upgrades and data processing capabilities.

Of course none of this would have been possible without the Foreign Account Tax Compliance Act (FATCA), which has seen the US strike deals with a number of countries across the world, forcing some institutions to bankruptcy, and the inevitable tarnishing of brands which comes with that. That Singapore has come on board shows their eagerness not to draw the ire of Washington.

Still, there are notable absentees from the agreement including Dubai and Panama. As a result of their being missing in action, it serves as a ready-made excuse for some more recalcitrant signatories to procrastinate.

Taxmen around the world are increasing the size of their arsenal, particularly on the legislative front. Wealth planners are running out of hiding places. But the demand to mitigate against tax risk will remain, while jurisdictions pursue individual tax-codes lacking in coherence and simplicity.   

James Horrax is a senior associate  at wealth management think-tank Scorpio Partnership