Privacy gives way to information exchange

OPINION: You may have missed a recent article in The Southland Times that UBS Investment Bank (a Swiss bank) will give United States authorities the names of 5000 wealthy US citizens suspected of using UBS to evade US income taxes, writes Murray McClennan in this week's Taxing Times.

This represents a major change to the usual practice of strict privacy by Swiss banks.

This is not an isolated development. Many tax havens and offshore financial centres have come under pressure to supply information to tax authorities in other jurisdictions – a point reiterated at the G20 meeting.

There has been a recent flurry of Tax and Information Exchange Agreements signings internationally. That is because low-tax offshore financial centres seek to achieve a sufficient number of TIEAs to allow them to be seen as meeting the OECD's standards for information exchange. The alternative is that the banks in these countries will be required to deduct tax at 35 per cent on all interest for account holders living in many European countries.

New Zealand has signed TIEAs with Guernsey, Jersey, the Cayman Islands, the British Virgin Islands, the Cook Islands, the Isle of Man and Gibraltar. More agreements will follow.

Those of you who have bank accounts in tax havens need to be aware that IRD is likely to find out; indeed IRD might already know. IRD has a specialist unit that investigates taxpayers with offshore investments and trusts.

We understand that staff from that unit have physically visited banks and trustee companies in the Channel Islands to obtain banking and trust records relating to New Zealand tax residents. Presumably, back taxes and penalties will be imposed on income previously not returned. Just like businesses, IRD expects a return on its investments!

This is part of an overall strategy by IRD to target those taxpayers who are more likely to have taken an incorrect tax position (not returned their full income). When you file a tax return you are making a declaration that you have included all income.

A New Zealand tax resident is subject to New Zealand tax on his or her worldwide income.

» Queenstown-based Murray McClennan is a tax director at WHK Cook Adam Ward Wilson.

- © Fairfax NZ News

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