How common will tax reporting be for expats?

The Olive Press – March 2016
Ian le Breton

As I remain ensconced in Amsterdam, my piece last time about the links between Gibraltar and the Netherlands seems to have generated a decent (online) postbag. A couple of Dutch friends got back in touch, insisting we do lunch (can I send the bill to the editor?). Others tell me they are “coming out to see me”, as if I might be in need of consular assistance. But there were some whose reaction was not so positive.

“What do you mean by putting Gibraltar into the same league as the Netherlands?” read one email. Another said: “How very dare you?” That was not really what I’d intended to say if you re-read the piece but, hey ho. So I’ve had a bit of explaining to do in the last couple of weeks and this month I will offer a concrete example of the sort of inter-connectivity that I meant.

My example relates to something that sounds obscure but is in fact very timely and hugely relevant. Both Gibraltar and the Netherlands are categorised as “Tranche A” countries (others include the UK and Spain) under the new Common Reporting Standard – or CRS for short – which was brought into force on 1 January. It sounds innocuous enough doesn’t it? However it may well affect readers or people they know. Read on.

CRS is the OECD’s framework for enabling countries to collect client information from their financial institutions and exchange that information automatically with the client’s country of residence on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report and the different types of accounts and taxpayers covered. Although you may not yet be aware of it, it will apply to a great many Olive Press readers.

Over 90 jurisdictions have so far committed to CRS and its implementation is fast becoming a reality. Information will be exchanged between Tranche A countries in 2017 and between Tranche B (a list that includes Switzerland and Hong Kong) countries the following year. So, for example, a Gibraltar bank account belonging to someone tax resident in the Netherlands will be reported to the Dutch authorities.

Although other cross-border reporting initiatives – not least the EU Savings Tax Directive – have been introduced in recent years, CRS goes a lot, lot further. There is no (legal) way to circumvent CRS; it will apply to anyone who has foreign accounts, investments, and companies or, in some cases, trusts.

Anyone who has complied with their obligations to file full tax returns in the country (or countries) where they are resident has nothing to fear from CRS. But for anyone who may be “delinquent” in his or her tax filings (perhaps because they have never made any), the implications are serious. Such people may face penalties or even criminal liabilities.

Financial institutions have no choice in this matter and, sooner or later, all countries will be involved. CRS signals the end of banking secrecy and confidentiality. As I have been saying for years, any tax planning that relies on non-reporting is not really planning at all. It is fraud. CRS will prove this once and for all.