Offshore amnesty bank question

Offshore amnesty bank question

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I prepared calculations and offshore disclosure forms for a client who was not happy with the amount of tax due. He contacted his bank - HSBC international - and was told by them that 1. He was not liable for UK tax on the interest arising on his account and 2. that they were not one of the banks covered by the offshore disclosure rules so HMRC would never find out about the account.
Leaving aside all ethics and ML comments ( who wants a client like this and I know my responsibilities!!) can anyone confirm that HSBC International (bank account originally with Midland) is correct with regard to disclosure. I have already told my client that he is liable to declare all his income worldwide on his tax return
Confused

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By User deleted
06th Jun 2007 16:51

Offshore amnesty bank question
Many thanks for the comments made. I have other clients who have offshore accounts and I know about the EU savings directive but thankfully they all already disclose their accounts correctly on their tax returns.I told this new client when he told me what the bank said that they were wrong but as usual clients like to hear what they want to hear!

The matter is now academic as the client is refusing to disclose and I have just told him in those circumstances to take his business elsewhere

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By User deleted
07th Jun 2007 11:21

Reporting to SOCA
David many thanks for your comment. Funnily enough when the client telephoned to tell me he was not prepared to disclose and I told him that in those circumstances he would have to go elsewhere as a client he said he understood. Then about 15 minutes later he telephoned and said he wanted to read me out a question " are you obliged to disclose this information to the authorities" . My answer was that as I had come across the information in the course of my acting as his professional adviser I could not divulge the information as it was privileged. (I am a Chartered Accountant )
However after I came off the phone with him I thought I had better check things today as despite courses on it etc I am always anxious to ensue I dont fall foul of MLR
I therefore appreciate the information you have provided as it addresses my concerns. I have printed off details of this thread and the relevant passage from the amended legislation and have placed it in my now closed file in the event of any future issues arising from this matter.
Once again many thanks to yourself and all those who added their voices to the discussion

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By martinfoley07
07th Jun 2007 12:20

as to the bank's alleged comments.....
......they appear quite extraordinary on the face of it.
I assume confused that you are absolutely 100% clear as to the client's residency etc status?
I guess the client may have twisted the actual words used by HSBC official to suit himself.

Subject to the above, it becomes difficult in the face of such evidence not to sympathise with Richard Murphy's views about banks openly colluding in straight forward evasion.

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Euan's picture
By Euan MacLennan
07th Jun 2007 14:41

Legal advice ?
"Confused" may no longer be confused but, like Martin, I am now confused.

s.330(10) POCA 2002 defines information coming to an "adviser" - now extended to include accountants - as privileged if it comes:

(a) in connection with the giving of legal advice to an existing client, or
(b) from someone seeking legal advice, or
(c) from someone in connection with (contemplated) legal proceedings.

David - are you saying that advising clients on their tax position is legal advice because tax is law? If so, as Martin says, most of what accountants in practice do will be covered by the exemption for privileged information.

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David Winch
By David Winch
08th Jun 2007 15:38

Response to Jon

Jon

Yes, in my view the restaurant owner volunteering information "out of the blue" should not be reported to SOCA (if the accountant is a "relevant professional adviser").

As for the crime / fraud exception under s 330(11) PoCA 2002, as you might expect if a client (or potential client) came to you saying, "I have had a letter from my bank about my undisclosed offshore account - where can I invest the money now that HMR&C won't get to know about it?" then this would be reportable to SOCA as the client is seeking advice to further a criminal purpose.

David

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David Winch
By David Winch
08th Jun 2007 08:40

A P.S. on legal advice and privilege

P.S. Similarly information received by a solicitor on a conveyancing matter is not privileged as the solicitor is providing a transactional service, not legal advice, but information received in connection with a divorce is privileged as a divorce is litigation.

Most members of the public think anything you tell a solicitor is privileged. Not true! Solicitors make thousands of reports to SOCA every year based on information received from their clients which is not privileged.

David

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Euan's picture
By Euan MacLennan
06th Jun 2007 14:19

There is a choice
When you approach your high street bank about opening an account in Jersey or the Isle of Man, they give you a choice:

1. Receive the interest without deduction of tax (which eager bank employees and willing clients tend to translate as tax-free), but have the account reported under the bilateral arrangements based on the EU Savings Directive requiring disclosure of bank accounts held by non-residents, or

2. Receive the interest net of tax (the special EU withholding tax or equivalent) and the bank will not report the account as a matter of routine, but only on specific request in cases of criminal or civil fraud.

There is no doubt that UK residents are liable to UK income tax on foreign interest paid under either of the above procedures and should disclose it on their tax returns - or under the current offshore disclosure amnesty if they have failed to do so. Double tax relief can be claimed on any withholding tax deducted.

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By AnonymousUser
06th Jun 2007 14:24

Possible?
Is is possible the bank beleives him to be either non-UK resident or non-UK domiciled? The bank shouldn't have to report anything if they beleive him to be resident in a non-EU country.

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By ACDWebb
06th Jun 2007 14:43

HSBC
was one of the first banks that I saw a copy letter regarding their having had to tell HMRC about "customers who held an offshore bank account with HSBC Bank plc and also had a UK address." That said it was HSBC Bank plc not HSBC International

The comment to your client by HSBC International is just plain wrong at 1 (unless he is non UK dom & remitted no funds, and they knew all that - which I doubt!), and possibly right at 2, but just because they were outside the information provision requirements and HMRC will never find out does not mean it is not taxable if he is resident & UK dom

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By Jon Stow
06th Jun 2007 16:35

The Bank
is based in UK these days. If HMRC has not got round to asking HSBC International for account details of customers with UK addresses then it will soon, even if the UK bank already has supplied such information. The fact that interest might be paid by an overseas subsidiary is irrelevant.

The bank person contacted may believe that the customer is not domiciled within a UK country and has not remitted any interest anyway, or, I suspect, is speaking from a branch other than one in Europe or CI and is talking through his / her hat.

Anyway, as you say, you know your responsibilities and the client has no choice now but to have this sorted out subject to any question of domicile.

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By Jon Stow
08th Jun 2007 14:51

David
Thanks very much for your insight on reporting to SOCA (or not). I had assumed that a report would need to be made.

In "Taxation" dated 24th May 2007 there is a case somewhat similar to that of "Confused". The two correspondents replying to this question in Reader's Forum (T17009 at pages 591-592) appear to believe that a restaurant owner volunteering that he has understated takings in past years should be reported to SOCA notwithstanding that he has provided this information "out of the blue" (it is not clear if he was previously a client of the querist). I would have thought that this was similar to your plumber revealing that he has been concealing jobs done for cash in hand.

I am sure an article on AWeb and maybe one for Taxation would be appreciated in view of the general confusion and current "official" advice from the professional bodies.

Edit: Thanks for the link, David. It seems that in most cases of clients advising of previously undisclosed sources a report will not be necessary.

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By EamonnD
08th Jun 2007 14:59

ODF
Thanks David for the prompt reply.

Your link is very helpful.

Eamonn

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David Winch
By David Winch
08th Jun 2007 00:18

Legal advice and privilege - part 1 of 2

The highest courts in the land have spent many days mulling over what does and does not constitute ‘legal advice’ and what is or is not ‘privileged’ and what is meant by ‘the client’. What follows is a layman’s cheap and cheerful thumbnail sketch, not a definitive answer!

Information supplied to you by a client (or potential client, or someone acting on behalf of one) is privileged for the purposes of section 330 PoCA 2002 (suspicious activity reports) if it is supplied to you in good faith in connection with the client’s request for legal advice or your giving legal advice to the client (or in connection with litigation) if you are a lawyer or 'relevant professional adviser' (or an employee of one).

The ‘privilege’ belongs to the client and attaches to the information supplied by him or on his behalf.

Legal advice is telling the client what the law is and, in the context of that legal advice, telling him what he ought to do and assisting him to do it.

Tax law is law, so advice about tax law can be legal advice.

My understanding of what happened in this case is that the heart of this client’s question to ‘confused’ was, “Is this income of mine subject to UK tax?”. That is clearly a request for legal advice. The information supplied by the client to enable ‘confused’ to answer his question is privileged. If, in the context of the accountant’s legal advice, the client supplies further information to enable the accountant to complete a tax return or ‘amnesty’ disclosure, the privilege extends to cover that information also. That remains the case even where the client subsequently declines to follow the advice the accountant gives him (as in this case from ‘confused’). So no report to SOCA should be made by a lawyer or ‘relevant professional adviser’ in these circumstances. (Unless the client provided the information with the intention of furthering a criminal purpose – but that clearly was not this client’s intention when he gave this information to ‘confused’.)

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By EamonnD
08th Jun 2007 14:18

Still Confused
David

Still not clear on this as CCAB guidance is that there is no relaxation of the requirement to make a SOCA report.

Eamonn

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Euan's picture
By Euan MacLennan
06th Jun 2007 18:06

As you said
You know your responsibilities under ML.

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By martinfoley07
07th Jun 2007 12:13

the question of privelege......
....seems to evolve slightly, or is it that the interpretation is evolving slightly, or is it that I do not understand it properly anyway !!

David, if I read your comment (and re-read links in context of your comment) correctly, is it now "clear" (I wish) to say that if (as a member or employee of member of the mentioned bodies) you come across evidence of evasion in the course of handling client tax matters, you are NOT required to make a SOCA report (in fact, you are precluded from so doing)

ie
we are back to where we started before POCA where the knowledge of evasion arises in the course of handling the client's affairs ; we report to no-one, but we cannot continue to act .

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David Winch
By David Winch
06th Jun 2007 18:11

Your ML responsibilities?

Confused

Are you intending to report this to SOCA or are you treating the information as privileged?

David
www.MLROsupport.co.uk

P.S. If it helps I would advise that:

1. If you are a Chartered or Certified Accountant or are otherwise a "relevant professional adviser" within the definition in section 330(14) PoCA 2002 (as inserted by the Proceeds of Crime Act 2002 and Money Laundering Regulations 2003 (Amendment) Order 2006), or are an employee of a "relevant professional adviser",
then you MUST NOT REPORT the information to your MLRO / SOCA because:
(a) PoCA 2002 does not require you to do so (because the information is privileged), and
(b) if the information was reported to SOCA you would be in breach of your professional ethics in relation to client confidentiality and liable to discilplinary action, and
(c) you could also be sued by your nearly-was client for damages for breach of confidence (especially if it turns out he is not liable for tax on this interest for any reason).

2. If you are not a "relevant professional adviser", nor an employee of a "relevant professional adviser", then you MUST REPORT to your MLRO / SOCA because you are required to by section 330 PoCA 2002 and this requirement over-rides your duty of confidentiality.

I hope this clears up any confusion you may have had!

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David Winch
By David Winch
08th Jun 2007 00:16

Legal advice and privilege - part 2

Suppose, on the other hand, a plumber asks you to do his accounts and tax return. He is not asking for legal advice, nor are you providing legal advice. He is asking for assistance in calculating his taxable profit in accordance with established legal principles and that is what you are doing for him. I accept that, in the course of that, legal issues might arise – for example, “Are First Year Allowances available on the vehicle he uses?” or even, “Is he employed or self-employed?”. But these legal points are subsidiary to the thrust of his request that you prepare his accounts and tax return. So you are not providing legal advice, you are performing accountancy and tax services. It follows that the information provided by the client here is not privileged. These accountancy and tax services are not being provided in the context of the provision of legal advice.

I have a rule of thumb, “Legal advice is words, not numbers”. I don’t suppose the House of Lords would approve of my rule, but it helps me!

Now to Martin’s point, “What if I come across information that leads me to suspect tax evasion, am I required to report it to SOCA?”. Yes, you must report it to SOCA unless the information is privileged. So if, adopting my earlier example, when you prepare the plumber’s accounts you form a suspicion that he may be engaged in tax evasion, you must report it to SOCA.

However if you had prepared the accounts without yourself suspecting anything, and afterwards the plumber came to you and said “Actually I have further income from 'cash jobs' which did not go through the books, but I now wish to tell the taxman,” then he would be seeking your advice about his tax (legal) responsibilities (and what HMR&C could (legally) do to him when he 'comes clean') and so that information would be privileged.

Another rule of thumb, “What I discover is not privileged, what the client tells me may be privileged”.

(An alternative point is that the plumber originally sent his records to you - excluding any mention of his 'cash jobs' - with the intention of furthering a criminal purpose - tax evasion - so that information could not benefit from privilege, see section 330(11) PoCA 2002. So if you had formed a suspicion based on that information you would have to report it to SOCA.)

So the vast bulk of information received by an accountant in general practice is not privileged and is reportable to SOCA where a suspicion arises. Information received from a client seeking advice about the tax 'amnesty' might well be privileged - but that is in contrast to the situation in routine work.

Does that clarify the situation?

David
www.MLROsupport.co.uk

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By martinfoley07
08th Jun 2007 10:44

Many thanks ...
...for the detailed comments, David. Don't wish to take up your time on ever more free inputs, but taking your plumber example :

You prepare accounts and tax comps, and have no reasonable suspicions of evasion.
Then he comes to you and says "well, actually, I have been doing some cash jobs for many years , I was told that was OK to offset costs, but I'm a bit worried that might not be legit" (Goodness knows why he would say that, but I am sure stranger things have happened.) You advise him accordingly.
That I imagine is priveleged legal advice if I understand your explanation.

So no report should be made. Regardless of whether he accepts or rejects your advice.
If he accepts your advice, you repair his past returns and deal directly with HMRC and do not report to SOCA.
If he rejects your advice, you resign and do not report to anyone?

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David Winch
By David Winch
08th Jun 2007 11:29

Response to Martin

Martin

The short answer is that I agree with your latest post - certainly insofar as NOT reporting to SOCA (on the basis that you are a "relevant professional adviser" and the information is privileged).

You would need to consider carefully what you say to HMR&C if the client declines to accept your advice and your firm has in the past submitted returns for this guy to HMR&C (in good faith) which you now believe to be incorrect.

You need to consider whether your professional ethics require that you should advise HMR&C that these returns can no longer be relied upon (without giving any more details!).

David

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David Winch
By David Winch
08th Jun 2007 14:47

Response to Eamonn

Have you read
http://www.icaew.com/index.cfm?route=148602?

I read this to mean exactly what I have said below (which is gratifying as I only found it five minutes ago!)

David

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David Winch
By David Winch
14th Jun 2007 07:42

Request for an article on this subject

Jon, thanks for suggesting an article on this subject and thanks too to the original questioner and other posters.

An article, The Tax 'Amnesty', SOCA and Privilege, has now been published on AccountingWEB. You can find it here.

David

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