5th May 2021

By Thomas Marron
06 14 24 61 29
thomas.marron@blevinsfranks.com

Does your cross-border tax planning stand up to today’s scrutiny?

Over one hundred countries are now automatically sharing financial information on taxpayers to expose tax evasion – and tax authorities are starting to benefit.
There has never been more tax transparency than today. With the ‘Common Reporting Standard’ (CRS) global initiative now in full flow, tax offices across the world are keeping track of taxpayers’ offshore assets and accounts through the automatic exchange of information. And they are increasingly starting to follow up on discrepancies.

Legitimate cross-border tax planning has always been crucial, but with such heightened worldwide scrutiny it is more important than ever to ensure you are paying the right taxes, in the right place, at the right time. If you get it wrong – even unintentionally – the penalties can be severe.

What is the Common Reporting Standard?

The CRS came into effect in 2016, when the early adopters began collecting information on financial accounts held by non-residents. The first actual exchange took place in 2017 between 49 jurisdictions, including the UK and France. Today, over 100 countries are co-operating; in 2019 alone, they shared details on 84 million offshore accounts covering total assets of €10 trillion.

The financial institutions obligated to report information each year include banks, custodians, certain investment entities and insurance companies, trusts and foundations. Besides basic contact details, country of tax residence and tax identification number, the focus is on financial assets owned outside the country of residence. This includes investment income (interest, dividends, income from certain insurance contracts, annuities etc.), account balances and gross proceeds from the sale of financial assets.

Scrutiny in France

This increased global transparency enables local tax offices to easily verify whether taxpayers have accurately reported their worldwide income on their income tax and wealth tax returns.

The French tax office is also following up on undeclared foreign income. Remember that you must now also include all inactive accounts when declaring non-French bank accounts and insurance policies each year, even if you have not deposited any funds, earned any interest/gains or made any withdrawals.

Beware that penalties for non-compliance are more severe following France’s 2018 anti-fraud act.

The UK’s clampdown on tax evasion

In the last decade, the UK government has introduced over 100 measures and 200 task forces targeting tax avoidance.

Today, the CRS plays a key ongoing part in HMRC’s strategy. Using its ‘Connect’ analysis programme, it can cross-check data received from abroad with its own (including details on salaries, bank accounts, loans, property, car ownership etc.). In 2018/19, HMRC received £560 million from offshore tax investigations – 72% more than the year before CRS data collection began. Recent tougher penalties for undeclared offshore income and gains include an unlimited fine and up to six months in prison.

New EU law to share cross-border tax information

To deter aggressive tax planning and uncover information not usually captured through the CRS, the EU has brought in new reporting obligations for cross-border tax arrangements by advisers, accountants and other third-party professionals. Under the EU directive, known as DAC6, relevant cross-border activity going back to 25 June 2018 – including certain arrangements using companies and trusts – must be declared by intermediaries across the EU.

The importance of getting it right

If you are tax resident in France and have assets or earn income in the UK or another jurisdiction, take extreme care. You need to follow the local tax rules, the UK tax rules and also the relevant double tax treaty to make sure you are correctly declaring income and paying tax where you should be.

While cross-border taxation is highly complex, getting it wrong – for any reason – can have serious consequences. Remember, ignorance is no defence; it is your responsibility to check you have declared all your worldwide tax liabilities and bring your tax situation up to date if necessary.

There are tax planning arrangements available in France that can help you legitimately reduce your tax liabilities, particularly on investment capital, so take advice for the best results. A locally-based adviser with cross-border expertise can help you enjoy favourable tax treatment while offering peace of mind that you are meeting your tax obligations, here and in the UK.

It is important to seek personalised, professional advice. For questions about completing your tax return, speak to a tax accountant. For advice on effective tax planning in France, to lower liabilities on savings, investments and pensions, speak to a cross-border tax and wealth management specialist like Blevins Franks. www.blevinsfranks.com