Era of Offshore Bank Secrecy Dead

Posted: July 6, 2015

Almost every day brings new evidence that the era of bank secrecy for tax evaders is over, and that both tax authorities and banks are clamping down on unreported offshore accounts. 2014 started off with Swiss bank Credit Suisse agreeing to pay fines of $2.6 Billion and settle with the US Department of Justice for aiding US citizens to evade tax. The year ended with Bank Leumi (one of the largest banks in Israel) also settling with the US Department of Justice and admitting to helping over 1,500 US account holders evade taxes; part of the settlement terms was to surrender the names of those account holders to the US authorities and to pay $400 million in fines.

The crosshairs on Israel have now been focussed further. The large Swiss banks are now demanding confirmation from their Israeli customers to prove that they are in compliance with the Israel Tax Authority (Israel’s version of the CRA). In the past, Swiss banks UBS and Credit Suisse were the target of US, and later European, tax authorities in a stronger effort to fight international tax evasion. The Swiss banks now seem to be taking steps to avoid similar fines and penalties from other countries that are tightening up reporting requirements for offshore assets. This comes after implementing measures to ensure that their US and European customers are compliant with their respective tax authorities.

What this all means for Canadian taxpayers is that countries around the world are beginning to take note of the success that anti-tax evasion legislation is having, and both the tax authorities and major banks are starting to increase transparency in an effort to prevent taxpayers from hiding offshore assets through jurisdictions that are were traditionally known for their secrecy. In early 2014 Canada implemented the previously announced tightening of the noose around the necks of Canadian taxpayers with unreported offshore accounts in the form of the Offshore Tax Informant Program enacted by the Canada Revenue Agency (CRA). This snitch line ties into the increasing global cooperation between various tax authorities to root out tax evaders.

By 2018 Canada will join an agreement with 85 other countries as part of an initiative launched by the Organization of Economic Co-operation and Development (OECD). 51 countries will begin automatically swapping tax information collected by financial institutions in 2017, and 35 additional countries (including Canada) will join in 2018. Signatories to the agreement include tax authorities from most European Union nations and traditional tax havens such as Liechtenstein, the British Virgin Islands, and the Cayman Islands. The information being exchanged includes account balances, interest payments, beneficial ownership, as well as a wide range of other information. In the past, offshore accounts were difficult to detect by governmental authorities because a paper trail had to be followed. Today, nearly all financial transactions are electronic and it is very easy to exchange voluminous amounts of information with just the click of a button.

It is important to point out that simply owning an offshore account for Canadians is not illegal. The issue that is being attacked by tax authorities is that some individuals who have offshore accounts or assets are not paying taxes on the income that is being produced; in some cases, the assets must also be reported even if they are not producing income. In Canada, the assets must be reported if the cost is more than $100,000, and taxes typically must be paid on income generated by offshore assets. If CRA discovers these unreported assets or undeclared income, the individual may face harsh penalties including jail time, civil and criminal financial penalties as well as full interest on the tax arrears and the penalties.

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

The good news for Israelis with unreported offshore assets is that the Israel Tax Authority announced a new voluntary disclosure program last September for taxpayers to meet compliance requirements on their own volition. Canada has long had its own Voluntary Disclosures Program that allows Canadian taxpayers to proactively deal with the problem of unreported assets or income. If the taxpayer comes forward and discloses complete information to the CRA before they are caught, there will be no prosecution for tax evasion and they will generally be granted partial interest relief and no monetary penalties will be applied to the amount of tax owed.

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. The US’ IRS, the UK’s HMRC, the Swedish National Tax Agency, and many other countries have all begun producing regular estimates of the tax gap between the amount of taxes owed and the amount of tax collected to make better decisions about tax policy. Canada is on the same path with its implementation of the Offshore Tax Informant Program and participation in the OECD transparency agreement. Now more than ever, Canadian taxpayers need to be aware that with rapidly increasing global transparency, bank secrecy for offshore accounts is not only no longer a lock, but is rapidly disappearing.

If you are unsure whether or not you require help in becoming compliant with CRA, speak to one of our experienced Canadian tax lawyers. Our tax lawyers have experience with hundreds of disclosures with all types of situations and circumstances. If you have unreported income of any kind give our experienced team a call , we can negotiate with the CRA to reduce interest, eliminate penalties and ensure that you will be fully protected and compliant for moving forward.


"These articles provide information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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