September 24, 2022

Challenges facing companies in the face of intense scrutiny

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1996176150From Isle of Man Today

Dozens of island companies are facing challenges from unprecedented scrutiny by global tax authorities, a leading legal expert has told Business News.

Tom Maher, managing director of DQ Advocates said it is vital offshore service providers are fully compliant, know their clients ‘inside out’ and understand fully their rationale for having an offshore structure or investment.

The introduction of reporting for US FATCA this year, UK FATCA next year and then the Common Reporting Standard involving the automatic exchange of information between upwards of 90 counttries will create a ‘real flood of investigations’ warned Mr Maher.

He said firms including corporate service providers, banks and insurance companies now face a whole host of tax agencies around the world who could potentially launch investigations.

The UK’s ‘tax police’, the HMRC now holds more data than the British Library, it has emerged.

More than 70 senior businessmen and women were at a day-long global tax investigations conference at the Villa Marina, Douglas, aimed at offshore service providers and regulated businesses.

Mr Maher told Business News it was vital companies stay ahead of the game in the face of the intense scrutiny.

He said DQ’s conference was ‘timely and relevant’ in the face of important developments including:

This year we have witnessed the first reporting under US FATCA. [Foreign Account Tax Compliance Act]

Next year we will see further reporting for US FATCA and the start of reporting under UK FATCA.

‘As you can imagine there will be a lot more names to be disclosed under UK FATCA because historically we have a lot more UK business than American businesses.’

Mr Maher said that in the last four years many island businesses had not touched US business because FATCA had been ‘in the ether’ whereas other firms viewed FATCA as an opportunity to win new legitimate US business

‘From a UK perspective we expect a huge amount of disclosures to be made in relation to UK based taxpayers whether they be resident taxpayers or resident non-dom taxpayers.

‘That’s not to say the underlying structures in the Isle of Man are not perfectly legitimate and perfectly compliant.

‘So my buzzword at the conference was ‘‘Information is at the fingertips of foreign tax authories and information inevitably fuels investigations.’’ ’

Following FATCA disclosure the chances are there will be a number of inquiries and investigations as a result.

‘That was certainly the message from our US and UK speakers at the conference.

‘FATCA disclosure will often lead to a request for further information under the island’s TIEA network.

‘This in turn could lead to HMRC or the IRS to seek interviews with Isle of Man businesses or ask for their participation as witnesses in foreign proceedings.

‘Or that could be the end of the matter, the information provided may solve all the queries and the foreign tax authority may realise that nothing has gone wrong, and that all relevant earnings have been declared and the correct tax paid.’
l But Mr Maher said what happens next will create a ‘real flood of investigations and that is the introduction of the Common Reporting Standard [CRS].’

CRS is a global standard from the OECD [Organisation for Economic Co-operation and Development] and upwards of 90 countries have already committed to it.

Mr Maher said this will lead to what he calls a ‘data dump’ of information related to global taxpayers on an unprecedented scale.

Despite the huge volume of information that will be provided to tax authorities around the world, Mr Maher said those tax authorities ‘can and do join the dots’.

Their IT systems are so sophisticated that they can readily identify a needle in a haystack.

So Isle of Man businesses will have to disclose to the income tax division here in the island any structures and investments they have for anybody resident in any of the countries who have already committed to CRS.

‘Upwards of 90 countries, that is a big, big job,’ warned Mr Maher, ‘and that information inevitably, in our view, will lead to inquiries and investigations.

‘It will of course lead to a significant headache for regulated businesses in the Isle of Man having to go through their book of business to extract this information and to report it to the income tax division although many of the businesses here will have prepared for this already, knowing that CRS was coming down the line.’

The number of global tax and criminal cross border investigations will rise significantly, predicted Mr Maher.

The conference followed a similar one last year and was organised by law firm DQ along with global law firm Latham and Watkins based in the US.

Mr Maher said due to popular demand the conference was now an annual one.

Fiona Fernie, a partner leading Pinsent Mason’s tax investigations team in the UK addressed delegates on the current position of HMRC’s enforcement regime as well as future developments.

Neal Levin, a partner of Chicago based law firm Freeborn and Peters, works on all aspects of fraud with a particular focus on understanding the psychology of fraudsters.

Mr Levin gave an insightful presentation into the psychology of fraudsters and joined a panel discussion to advise delegates on how to recognise when their client may be engaged in criminal or fraudulent activity.

Mr Maher stressed the Isle of Man is one of the most compliant and transparent countries in the world and is in fact ahead of the UK and the United States in this regard.

‘We are the only offshore jurisdiction top ranked as “compliant” by the Global Forum for transparency and in my view are well positioned to tackle the challenges ahead.’

Mr Maher said the island’s companies were looking forward to the arrival soon of Karen Badgerow as chief executive of the new financial services regulator.

Canadian Karen Badgerow will take over as chief executive of the Isle of Man Financial Services Authority on November 1.

The new authority is the result of the merger of the Financial Supervision Commission and the Insurance and Pensions Authority.

IMAGE: DQ international tax conference: Chad Nardiello, Neal Levin, Tom Maher , Fiona Fernie, Annemarie Hughes and Sinead O’Connor

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