The era of offshore bank secrecy is dead

Posted on January 29, 2015 in Equality Delivery System – FP/FP Comment
January 28, 2015.   David Rotfleisch

Almost every day brings new evidence that the era of bank secrecy for tax evaders using Swiss and “offshore” bank accounts in “tax havens” is over. Both tax authorities and banks are clamping down on unreported offshore accounts.

Early in 2014, Swiss bank Credit Suisse agreed to pay fines of $2.6 billion and settle with the U.S. Department of Justice for aiding U.S. citizens to evade tax. At year-end 2014, Bank Leumi (one of the largest banks in Israel) also settled with the U.S. Department of Justice and admitted to helping over 1,500 U.S. account holders evade taxes; part of the settlement was to surrender their names to the U.S. authorities and to pay $400 million in fines.

The large Swiss banks are demanding their Israeli customers prove compliance with the Israel Tax Authority. In the past, Swiss banks UBS and Credit Suisse were the target of U.S. and later European tax authorities in a stronger effort to fight international tax evasion.

Canadian taxpayers must be aware that CRA and countries around the world are beginning to note the anti-tax evasion success, and both the tax authorities and major banks are starting to increase efforts to prevent taxpayers from hiding offshore assets. In early 2014 Canada implemented the CRA’s Offshore Tax Informant Program. This snitch line rewards tipsters who give the CRA information related to major international tax non-compliance that leads to the collection of taxes owing.

By 2018 Canada will join an agreement with 85 other countries including traditional tax havens such as Liechtenstein, the British Virgin Islands, and the Cayman Islands. The information being exchanged includes account balances, interest payments, and beneficial ownership. Today, nearly all financial transactions are electronic and authorities exchange voluminous amounts of information with just the click of a button.

Keeping an offshore account is not illegal. Not reporting the money to Canada and not paying your fair share of taxes is illegal.

In Canada, the assets kept offshore must be reported if the cost is more than $100,000. If CRA discovers these unreported assets or undeclared income, the individual may face jail time, and civil and criminal financial penalties as well as full interest on the tax arrears and penalties.

The large recent fines on banks such as Bank Leumi and UBS have spooked other major international banks into imposing strict compliance requirements on customers holding offshore accounts; some banks may freeze or close bank accounts that cannot prove they are compliant with the relevant tax authorities.

The takeaway from all of this is that tax authorities around the world are finally effectively tackling offshore tax evasion and the banks are their allies. Canada is on the same path with its implementation of the Offshore Tax Informant Program and participation in the OECD transparency agreement. With rapidly increasing global transparency, bank secrecy for offshore accounts is no longer a lock. Worse, it’s a lock to which tax authorities now have skeleton keys.

David Rotfleisch, principal at Rotfleisch & Samulovitch Professional Corporation, is a tax lawyer and an accountant.

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