UK FATCA should not result in ‘capital flight’ from the Channel Islands

Addressing a 100-strong audience at the Pomme d'Or Hotel, Mark Lee and Chris Oates of Ernst & Young said that they were confident that the Channel Islands would not lose out to “more exotic locations” as a result of the recent signing of disclosure facilities with the UK Government.

Explaining that the trend is in only one direction, Chris, who is based in London and heads up Ernst & Young's tax controversy and risk management team, said that, “the more countries that become involved in FATCA type agreements, the more pressure is brought to bear on those that aren't. It is only a matter of time before disclosure facilities of this type become the norm.”

The current environment is “unprecedented” and Chris told the audience that in his near 40 year career working in tax, he had seen more change in public and political attitudes towards tax issues in the last two years than in any of the previous four decades.

Using the Liechtenstein Disclosure Facility as an example, Chris reminded the audience that such instruments are not about guilt and provide an opportunity for people and corporations with offshore funds and structures to “quickly and cleanly get their affairs sorted out.” In fact, there had been a 95% response rate to letters sent by HMRC to already disclosed offshore account holders, even though the letter had no statutory basis and much of this was driven by the client's desire to maintain their good reputation.

The Crown Dependencies Disclosure Facilities, whilst they potentially may vary slightly, are essentially the same and whilst they do not offer immunity from prosecution, tax advisers are able to speak with HMRC on a ‘no names' basis which means that, for the most part, offshore account holders are able to know exactly where they will stand before disclosing their identities.

Prior to Chris' presentation, Mark, who leads Ernst & Young's Private Client and Trust team in Jersey, had explained that the recovery of revenue from offshore account holders was being driven by the UK government's need to plug a tax gap of £32bn and 60% of this was expected to come from anti-avoidance and anti-evasion initiatives. He also explained that the much publicized £1bn figure that the UK Chancellor mentioned in his budget speech was actually spread over five years and was not made up exclusively of monies recovered via disclosure agreements.