OECD calls time on offshore structures for tax avoidance

The OECD has issued new model disclosure rules that require lawyers, accountants, financial advisers, banks and other service providers to inform tax authorities of any schemes they put in place for their clients to avoid reporting under the OECD/G20 common reporting standard (CRS)

As the reporting and automatic exchange on offshore financial accounts introduced by the CRS becomes a reality in over 100 jurisdictions this year, the OECD says many taxpayers who held undeclared financial assets offshore have come clean to their tax authorities in recent years, which has already led to over €85bn (£75.5bn) of additional tax revenue.

However, the OECD reports there are still persons that, often with the help of advisers and financial intermediaries, continue to try hiding their offshore assets and fly under the radar of CRS reporting.

The new rules target these individuals and their advisers, by introducing an obligation on a wide range of intermediaries to disclose the schemes to circumvent CRS reporting to the tax authorities. The new rules also require the reporting of structures that hide beneficial owners of offshore assets, companies and trusts. Disclosures must be made within 30 days of the arrangement being set up.

They cover both promoters and service providers. An arrangement is judged to circumvent the CRS where it avoids the reporting of CRS information to all jurisdictions of tax residence of the taxpayers in a way that undermines the policy intent of the CRS.

Opaque offshore structures are defined as structures that involve the use of a passive entity in a jurisdiction other than the jurisdiction of tax residence of one or more of the beneficial owners and that are designed to, marketed as or have the effect of disguising the identity of the beneficial owner(s). Amongst others, this may include the use of nominee shareholders, the exercise of indirect control over entities or the use of jurisdictions with weak rules for the identification of beneficial owners.

In order to minimise reporting in low-risk situations there is a carve-out from the definition of offshore structure for Institutional Investors.

Pascal Saint-Amans, director of the OECD centre for tax policy and administration, said: ‘Time is up for tax evaders and their advisers that still want to game the rules and continue to hide assets offshore.

‘The mandatory disclosure rules will be a powerful tool to detect taxpayers that continue to refuse to be compliant with their obligations to declare their assets and income to their tax authorities. They will also have a deterrent effect against the design, marketing and use of schemes to avoid CRS reporting or hide beneficial owners behind opaque offshore structures.

‘This is key both for the integrity of the CRS and for making sure that taxpayers that can afford to pay advisors and to put in place complex offshore structures do not get a free ride.’

These model disclosure rules will be submitted to the G7 presidency and are part of a wider strategy of the OECD to monitor and act upon tendencies in the market that try to avoid CRS reporting and hide assets offshore.  This includes the recently announced consultation on cases of abuse of so-called ‘golden visas’ via options such as ‘residence by investment’ (RBI) or ‘citizenship by investment’.

Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures are here.

Report by Pat Sweet

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