HM Revenue and Customs have recently announced that Great Britain has entered into another tax information exchange agreement (TIEA) with one of its offshore centres, which has resulted in many expatriates and international savers and investors asking whether this restricts or somehow limits the overall effectiveness of these offshore jurisdictions.
In actual fact, the tax information exchange agreements can be of benefit to those who use the offshore centres which have signed up to them. In part this is because the agreements also prevent double taxation from occurring, and also in part because they allow for greater reporting transparency between centres by following the OECD model agreement for exchange of information in tax matters.
In this article we cast a glance over Britain’s offshore centre tax information exchange agreements so that you know where they are in place and which jurisdictions therefore offer this level of transparency and are regarded internationally as being well regulated and controlled as a result.
The latest TIEA that the UK has signed is with the British Virgin Islands, a British dependency in the Caribbean particularly favoured as a centre for the creation of offshore or international business companies. The government of the jurisdiction has been working very hard in recent years to get the technology, infrastructure and regulation in place to ensure that the British Virgin Islands are regarded as a secure, competitive and attractive place to incorporate.
The latest piece of the jigsaw that they have put in place is the signing of a tax information exchange agreement with the UK. This will prevent the double taxation of Britons residing in the BVI for example, or indeed, the double taxation of BVI residents who relocate to mainland Britain. Furthermore, the agreement is a very important piece of legislation in the area of mutual legal assistance in criminal matters. According to UK Financial Secretary to the Treasury Stephen Timms, the agreement demonstrates: “the BVI government’s willingness to implement OECD principles of transparency and effective exchange of information in relation to both criminal and civil tax matters.”
The United Kingdom has previously implemented TIEAs with two other offshore tax havens, namely the Isle of Man and Bermuda. The former is world-renowned and respected for being very well regulated and for co-operating internationally with requests for information where criminal activity or deliberate taxation wrong doings have been suspected, but the signing of an agreement with Bermuda was more of a surprise! The jurisdiction is lesser known and considered by the average investor because the weight of its offshore business lies in insurance. Although the tax haven is of interest to Hong Kong residents seeking a jurisdiction in which to establish an offshore company. This is because the Hong Kong Stock Exchange approves Bermuda Exempted Companies for listing purposes. Because Bermuda is Britain’s oldest colony and it has ties to Hong Kong, which retains close ties with the UK despite the Sino-British Agreement which saw Hong Kong becoming a Special Administrative Region (HKSAR) of the People’s Republic of China, Britain was keen to have a TIEA in place with Bermuda.
Again it prevents double taxation – but it also ensures that there is the legislation in place should it be required to more easily investigate suspected criminal activity. For the average offshore investor, businessperson or banking client, these tax information exchange agreements are nothing to worry about at all – in fact, some would say they enhance the standing of the three offshore tax havens who have signed up to them.