The International Convention for the Safety of Life at Sea (SOLAS) was adopted on 20th January 1914. The conference was attended by representatives of 13 countries introducing new international requirements dealing with safety of navigation for all merchant ships. The ratification of the details outlined in this conference changed the face of shipping forever markedly improving safety across the board for Mariners.
On 31st July 2014 a 12 week consultation period took place which was attended by over 100 parties. The focus of the consultation was on the obligations of financial institutions to tackle offshore evasion and increase tax transparency through the use of automatic exchange of information. In September 2012 the UK signed an agreement with the United States of America (US) to implement the reporting required under US FATCA (Foreign Account Tax Compliance Act) legislation, which requires automatic exchange of financial account information on US citizens and entities. In 2013 the UK signed similar agreements with its Crown Dependencies and Overseas Territories, most noteworthy of which were the British Virgin Islands, Cayman Islands, Isle of Man and the Channel Islands.
Following on from this, in April 2013 the UK along with France, Germany, Italy and Spain (the G5) set up a pilot to explore the possibility of developing a common approach to automatic exchange of financial information. This was adopted by the G20 leading to work being commissioned with the Organisation for Economic Co-operation and Development (OECD) to develop a new global standard, and in February 2014 the OECD delivered the Model Competent Authority Agreements for a Common Reporting Standard (CRS) which was approved by the G20 as the Global Standard for Automatic Exchange of Financial Account Information.
The adoption of the automatic exchange of financial information by the G20 will undoubtedly change the face of offshore banking forever, much as the SOLAS Convention did for safety at sea over 100 years ago. However unlike the SOLAS convention very few yacht crew know anything about the changes that are afoot and how it will affect them.
The modus operandi for most yacht crew’s has always been ‘I work offshore, I’m not resident so why should I pay tax!’ However this is sadly no longer the case and even if you do work offshore and qualify as non-resident you are still required to disclose any offshore holdings in the form of a return or through a respective amnesty. The G20 can now see the following information if you hold accounts, trusts or companies offshore:
- Your Name
- Full Address
- Account Number
- Annual balance
- Details of your income
In 2013 HMRC the UK’s tax body contacted over 20,000 UK Citizens who hold funds offshore. If you are contacted by your tax authority and have not disclosed your offshore income, according to the annual publication No Safe Havens you can expect the following outcome:
- You will face a tax investigation into your financial affairs
- You will not qualify for penalties at the lowest rate
- You will have to pay the taxes you owe for up to the last 20 years
- You will not have your anonymity guaranteed- you could find your name on a published list of tax evaders
- You could face criminal prosecution, fines and even imprisonment
The G20 have committed significant funding to tax evasion and take a very dim view on those that choose to openly evade tax. Tax evasion until now has been a right of passage in the yachting industry, but I wonder if faced with criminal prosecution and heavy fines whether crew would continue to believe that this is the right option? Criminal convictions would mean the loss of a B1/B2 visa which significantly reduces employment opportunities and in turn 200% fines on tax owed would also prove to be an enormous financial set back.
The Open Exchange of Information has now been adopted by over 44 jurisdictions worldwide who faced with diplomatic sanctions have opted to exchange financial information on offshore account holders. However many yacht crew still believe that although the Crown dependencies of the Channel Islands & the Isle of Man can no longer offer financial transparency there are still those that do such as the Cayman Islands, Turks & Caicos and the British Virgin Islands. This is sadly not true and the aim of this article is to try and debunk the myths that are abundant today throughout the yachting industry.
The world of offshore banking is changing. Offshore investments are becoming more transparent. The G20 have already changed the way that they tackle offshore evasion, taking advantage of access to more information and shining the spotlight on hidden assets.
However help is on hand and it is easier now to file a return and disclose your offshore income than go to the great lengths required to continually evade tax. The UK, US & Australia have all launched tax amnesties to try and encourage clients to come forward and disclose their income. Project Lets Do It ended on 19th December 2014 in Australia. The Offshore Disclosures Facility ends on 30th September 2016 in the United Kingdom and the Offshore Disclosures Program in the US looks as if it will continue until at least 2017. Over 56,000 people in the UK came forward in 2013 and made disclosures through the ODF and even greater numbers are expected in subsequent years.
If you would like to come forward and disclose your income this can be done through one of the respective amnesties. In our opinion though it would be advisable for clients to first consult with an accountancy practice before establishing contact with your tax authority. Citizens of the UK who work onboard ships and spend more than 183 days out of the UK per tax year have the option of disclosing their income under the Seafarers Earnings Deduction exemption. In lay terms this means that they can disclose all of their income and returns from investments without being subject to tax providing that they qualify for the former exemption.
So does this mean the end for Offshore Accounts? In answer to this question the G20 have clearly stated that is ok for a client to hold accounts offshore provided it is for currency purposes not tax evasion. In our professional opinion time is running out for those who still need to declare their offshore income. It is imperative that you act now and not wait to be contacted.