July 9th, 2020 / Insight posted in Articles

Details of millions of accounts shared internationally to combat tax evasion

On 30 June 2020, the OECD announced that details of 84 million accounts containing assets worth €10 trillion were automatically exchanged between almost 100 countries in 2019, using the Common Reporting Standard (CRS).

The CRS allows cooperating jurisdictions to automatically exchange information from financial institutions in a common format. The aim is to improve transparency and minimise the risk of assets held in overseas financial institutions being hidden from tax authorities to evade tax.

Launched by the Organisation for Economic Co-operation and Development (OECD) in 2016, the CRS includes details of the account holder, their tax identification number, the account balance or value at the end of the calendar year, transactions, interest and capital gains.

The data is provided to the relevant tax authority in a standard format so that it can be interrogated to identify whether the tax resident may not have disclosed the assets. HMRC has a dedicated team of investigators to identify tax evasion and uses its data-mining software called Connect to sift through the information in its data warehouse to create a spider’s web of connections.

This unprecedented level of transparency has led to HMRC opening investigations for serious tax fraud under Code of Practice 9 (the Contractual Disclosure Facility) and Code of Practice 8 for complex cases. In cases where there is a risk of overseas assets not having been disclosed, HMRC has used so called ‘nudge’ letters to prompt taxpayers into reviewing their tax affairs.

The letters state that HMRC holds information that the recipient has overseas property or has received interest or gains that may be subject to UK tax. Attached to the letter is a request that the recipient confirms that either their tax affairs are in order or they need to make a disclosure.

Anyone in receipt of a nudge letter should seek advice straight away. Careful consideration should be given as to whether to respond to the request or to instruct a tax professional to respond on their behalf. There might be a myriad of reasons why the individual has assets overseas and caution should be taken to properly explain the source of the funds and the reason for the overseas assets.

Moore Kingston Smith specialist tax dispute resolution team assists clients with complex affairs and resolving tax disputes with HMRC. If you have any questions concerning the automatic exchange of information or have received a letter from HMRC, please do not hesitate to contact us.