In a detailed report published today by the International Development Committee, it recommends that “the government introduce legislation similar to the relevant section of the US Foreign Account Tax Compliance Act (Fatca), requiring tax authorities automatically to exchange information relating to UK citizens or corporations.”
The cross party committee also calls on the government to use its influence through such avenues as the OECD Tax and Development Task Force, to persuade other governments to follow suit.
Malcolm Bruce MP, chair of the committee, said: "The government is committed to supporting economic growth in developing countries to reduce their dependency on aid. While this is clearly the right thing to do, it would be deeply unfortunate if the government’s efforts were undermined by its own tax rules.”
Its reasoning stems from a “serious problem” where assets are removed from a developing country and stored overseas. This capital flight “does not necessarily imply illegality; it may simply represent a rational economic decision to invest assets overseas. However, capital flight may also occur as a result of tax evasion.
The report states that if the tax authorities of a developing country wish to investigate possible tax evasion by one of its citizens or corporations, they may need to obtain information pertaining to the offshore activities of the relevant citizen or corporation from the tax authorities of the relevant offshore jurisdiction—most likely a tax haven.
“Until recently, the only way for developing country authorities to do this was by making a formal request via a bilateral agreement with the relevant jurisdiction.” The report added.
Under Fatca, by contrast, information is exchanged automatically, rather than just on request. If a US citizen or corporation (subject to certain exemptions) holds an account with a financial institution outside of the US, this financial institution is required to provide an annual report to the US authorities, covering information including the account balances, gross deposits and gross withdrawals.
There are no similar rules in place for non-US citizens or corporations, the report further states: “The EU Savings Directive is currently the closest equivalent to Fatca in the EU: if any EU resident holds an account in a member state other than his / her country of residence, there is a requirement for the tax authorities of his / her country of residence to be notified of any interest paid on this account. (Austria and Luxembourg are currently exempt from this obligation for a ‘transitional period.) However, unlike Fatca, which applies to tax authorities outside of the US, the EU Savings Directive does not apply to tax authorities outside of the EU.”
Organisations ranging from Christian Aid to Glencore, the global commodities trader, have also argued that a system of automatic information exchange should be implemented more widely than just in the US.
According to the committee, though the UK government claims to support automatic exchange of information in principle, it has expressed some concerns about the possible burden on businesses and financial institutions, and around taxpayer confidentiality.The exchequer secretary to the treasury, David Gauke MP suggested that the UK should wait for an international consensus to emerge rather than acting unilaterally, since the UK has "less of a tradition of extraterritorial impositions" than the US.
