THERE has been much comment regarding the Chief Minister’s announcement on December 7 that the island would enter into a United States FATCA style automatic exchange of information agreement with the UK.
I do not intend to dwell on the debate about whether the island was right to make such an announcement ahead of our closest rivals, Jersey and Guernsey, but there are nevertheless a number of areas of very legitimate concern for businesses based in the island, all of which seem to be intertwined.
I am firmly of the view that there is very little business in the island that is not fully compliant with all relevant UK tax obligations, and therefore in a fully rational world one might expect there to be little impact on business based here.
After all, our life companies have for many years undertaken ‘chargeable event reporting’ directly to HMRC, whilst our banks have since last year been fully within auto exchange on interest payments to EU (including UK) resident individuals under the EU Savings Directive.
However, as stated above, there are some key concerns.
Firstly, timing: we are told that this agreement will be concluded to the same timetable as the agreement with the US - which probably means that it will be signed fairly imminently.
This gives very little time for businesses to take in all the potential ramifications and decide on appropriate actions – eg customer communication, impact assessments, how will UK FATCA reporting interact with existing reporting to the UK?
Secondly, cost: there can be no doubt that for many organisations in the island their biggest concern relating to UK FATCA will be the cost of compliance.
Will new systems have to be developed to facilitate the reporting? How can any systems developments be made ‘future proof’ – we can be sure that the US and the UK are just the first of many jurisdictions that will now demand similar agreements.
Finally, rational behaviour: I stated above that I believe that there is very little business in the island that should, in reality, have anything to fear from UK FATCA.
However, unfortunately, human (and organisational) behaviour is not always rational.
The playing out of the tax avoidance debate in the UK media has revealed that overly simplistic, and sometimes just plain wrong, reporting can still have a huge impact on behaviour (eg Starbucks ‘volunteers’ to pay more tax....).
Therefore it would be naive to think that UK FATCA might not have a very significant impact on businesses that choose to be based in the island.
There is no doubt that this early move to full auto exchange with the UK has, quite rightly, achieved some short term praise from the international community. But it would also be naive to expect that such praise is going to result in new business flowing through the doors of the island’s finance sector.
So, looking forward to 2013, island based businesses impacted by these changes have no choice but to face these additional challenges head-on to ensure that they (and we as an island) can continue to develop business and to thrive.
