Retiring overseas is now within the grasp of many people, but new arrivals in sunnier European climes are often unaware of the tax declaration requirements in their new country.
In particular, they are often influenced by the experiences of other long-standing UK expatriates.
In the past, some EU states have not been particularly diligent in investigating these individuals, which in turn has instilled a pervasive view among UK expatriates that non-declaration of income and assets was tacitly acceptable.
Spain is a good example of how things have changed across Europe over the past ten years.
To date, there have been 29,000 investigations of non-declaration of overseas pension income. Also, when collecting wealth tax, the Spanish tax authorities now diligently compare the declaration of an individual’s worldwide assets across different government returns.
Governments previously had to rely upon separate agreements with other nations as their main means of exchanging information on individuals they considered to be avoiding tax. Wide-ranging “fishing expeditions” were not allowed – the request for information had to be backed up with a strong, fact-based argument.
Nonetheless, it remained quite possible for a UK expatriate who quietly went about his life, with a minimal public profile, to exist for decades without declaring his true wealth.
The crash
It was the economic downturn of 2008 which drove many countries to do more to ensure all their resident taxpayers were declaring their full income and gains, and paying their taxes accordingly.
The 2003 EU Savings Directive, the first multinational automatic exchange of information (AEOI) programme, was followed by the USA’s 2010 Foreign Account Tax Compliance Act (FATCA). The latter gave real political momentum to a global AEOI standard.
In 2012 the five major EU nations (UK, France, Spain, Italy and Germany) agreed a reciprocal exchange of FATCA information with the USA.
In September 2013, the G20, feeling the pain of high social costs, low tax revenues, and noting a shift in the public’s moral line in the sand on tax avoidance, formally asked the OECD to develop a common reporting standard (CRS).
By 2014, there were 94 states committed to implementing the CRS by 2017 or 2018. The difference compared to the previous system is that information would now be exchanged automatically as a matter of course.
The CRS provides financial account information for AEOI. The information to be exchanged includes:
- Account balances
- Interest
- Dividends
- Sales proceeds from financial assets
By the 2017/18 deadline, financial institutions will have to determine the residence of each customer and collect data on their assets and income. This will then be forwarded to the tax authorities in the account holder’s country of residence.
By comparing the data received with what the taxpayer declares, the authorities will be able to detect whether the income or the underlying asset has been accounted for.
The first transmission of information will take place in 2017, but it is important to note that this will affect those accounts in existence in 2016. In fact, all accounts open at midnight on 31 December 2015 will be reported.
So, for those people who have perhaps chosen to exist under the taxation radar, and maybe thought they had until 2017 to move accounts and assets to other “friendlier” jurisdictions – it is already too late.
Nowhere to hide
Virtually all of the traditional tax havens have signed up to this initiative which means there is really nowhere, of any international financial repute, to hide one’s money or assets.
The so-called “early adopters” include the EU, Isle of Man, Jersey, Guernsey, Gibraltar, Bermuda, Cayman Islands, BVI, Ireland, Iceland, Liechtenstein, Luxembourg, San Marino, Seychelles, Argentina and South Africa.
A further 35 jurisdictions have pledged to join in 2018. These include Australia, Austria, Bahamas, Brazil, Brunei, Canada, China, Hong Kong, Monaco, Qatar, Russia, Singapore, UAE and, significantly, Switzerland.
The OECD is actively encouraging all nations to sign up, so exchange of information is effectively implemented across the world.
So, if you are considering retiring to mainland Europe in the future, you are recommended to ignore any golf club ‘hearsay’ of how easy it is to avoid declaring income or hold your assets secretly offshore.
Those days are long gone, and your local tax authority will eventually utilise the information it receives automatically to investigate your tax affairs.
It is, therefore, more important than ever to obtain quality, tailored tax and financial planning advice, to satisfy the dual requirements of the correct domestic tax declaration, but also to avoid paying any more tax than is actually due.
Jason Porter is director at Blevins Franks
The post Retiring abroad: Information exchange and the end of financial privacy appeared first on Retirement Planner.