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UK and Isle of Man announce three-year disclosure facility

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UK investors with undeclared accounts in the Isle of Man are to be given three years to come forward and settle their tax liabilities before information on their accounts is automatically shared with HMRC, under an agreement announced on Wednesday.

The UK and Isle of Man governments agreed action to ‘clamp down’ on those who try to hide their money offshore, HM Treasury said. The disclosure facility will operate from 6 April 2013 and run until September 2016.

‘Liabilities arising from April 1999 must be fully disclosed and there is a guaranteed penalty rate – 10% for returns to be filed before April 2009 and 20% thereafter,’ the Treasury added.

‘This forms an integral part of the government’s offshore anti-evasion strategy which will be published later this year. The package includes an automatic tax information exchange agreement and the setting up of a disclosure facility.’

Agreement has been reached on the main body (everything apart from the jurisdiction-specific annex) of an information exchange agreement that closely follows the UK-US agreement to implement ‘FATCA’. HMRC published a memorandum of understanding on its website.

Stephen Camm, tax partner at PwC, said that without the new facility ‘there was a risk for the Isle of Man that those people affected would move funds to Liechtenstein to take advantage of the existing HMRC-approved Liechtenstein Disclosure Facility’. The agreement had prevented a potential outflow of funds from the island, he said.

The chancellor, George Osborne, said: ‘Today’s agreement builds on the ground-breaking work we have already carried out – the UK government has signed agreements with the US and Switzerland so far and we are in discussions with Jersey and Guernsey as part of our common commitment to combat tax evasion.’

HMRC announced last month that the UK-Swiss agreement that came into force on 1 January had delivered £342m as the ‘first instalment’ of a levy on the accounts of UK taxpayers in Switzerland.

Under that agreement, people with taxable assets in Switzerland have a choice of ‘authorising their financial institution to disclose the details to HMRC or have the levy and withholding tax applied by the institution’.

The government expects the UK-Swiss agreement to deliver around £5bn. In addition, the Liechtenstein Disclosure Facility is expected to bring in £3bn.