In­for­ma­tion age

From now on, in­for­ma­tion about your fi­nan­cial as­sets will be au­to­mat­i­cally passed on to the rel­e­vant tax au­thor­i­ties, as Rob Kay ex­plains

Living France - - LES PRATIQUES -

The new global au­to­matic ex­change of in­for­ma­tion regime that started this Jan­uary af­fects ev­ery­one who holds fi­nan­cial as­sets out­side their coun­try of res­i­dence. It means that your lo­cal tax au­thor­ity will au­to­mat­i­cally re­ceive in­for­ma­tion from fi­nan­cial in­sti­tu­tions about all your as­sets world­wide.

The def­i­ni­tion of ‘fi­nan­cial in­sti­tu­tions’ that must re­port is broad, and be­sides banks in­cludes in­sur­ance com­pa­nies, cer­tain in­vest­ment ve­hi­cles and trusts. Al­most 100 ju­ris­dic­tions around the world have signed up so far. More than 50, in­clud­ing France and the UK, start col­lect­ing data in Jan­uary, while many oth­ers, in­clud­ing Switzer­land, Monaco and Sin­ga­pore, join a year later.

WHAT DOES THE NEW REGIME MEAN?

Tax au­thor­i­ties will au­to­mat­i­cally re­ceive in­for­ma­tion on all the fi­nan­cial as­sets their tax­pay­ers own over­seas with­out hav­ing to ask for it. So, for ex­am­ple, the French tax au­thor­ity will re­ceive in­for­ma­tion on ev­ery res­i­dent of France’s off­shore as­sets and in­come, re­gard­less of whether they have de­clared ev­ery­thing cor­rectly. Tax au­thor­i­ties will com­pare data re­ceived against tax re­turns, and where they find dis­crep­an­cies, will have good rea­son to launch a tax au­dit. This could re­sult in the tax­payer hav­ing to pay un­paid tax, plus in­ter­est, plus penal­ties. In some cases they could face crim­i­nal pros­e­cu­tion.

HOW IS THIS DIF­FER­ENT FROM BE­FORE?

The EU pi­o­neered au­to­matic ex­change of in­for­ma­tion with its 2005 Sav­ings Tax Di­rec­tive. This is lim­ited to sav­ings in­come, but over re­cent years, the EU has sought to in­clude other types of in­come.

The US For­eign Ac­count Tax Com­pli­ance Act (FATCA) was the more re­cent cat­a­lyst for global in­for­ma­tion shar­ing. For­eign fi­nan­cial in­sti­tu­tions have to re­port all ac­counts held by US per­sons to the US au­thor­i­ties. The US has de­vel­oped ‘in­ter­gov­ern­men­tal agree­ments’ with coun­tries around the world to al­low for re­cip­ro­cal au­to­matic ex­change of in­for­ma­tion.

The game changer, how­ever, is the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment’s (OECD) Com­mon Re­port­ing Stan­dard. Is­sued in July 2014, and closely mod­elled on FATCA, it is the tech­ni­cal stan­dard for au­to­matic ex­change of in­for­ma­tion that all sig­na­to­ries will now fol­low.

WHY DOES RES­I­DENCY MAT­TER?

Tax res­i­dency de­ter­mines where you are li­able to pay tax and what taxes you are obliged to pay. If you are buy­ing, or al­ready own, a prop­erty in France and spend time there each year, you need to un­der­stand what would make you res­i­dent in France and what would make you res­i­dent in the UK, so that you com­ply fully with the cor­rect tax regime. Get­ting it wrong could open up a lot of com­pli­ca­tions later on.

You are au­to­mat­i­cally con­sid­ered French tax res­i­dent if your main home (or foyer fis­cal) is in France. You would also be con­sid­ered res­i­dent if you spend more than 183 days in France in any cal­en­dar year, or if your prin­ci­pal ac­tiv­ity (for ex­am­ple, job) is in France, or if France is the coun­try of your most sub­stan­tial as­sets.

In the UK, the Statu­tory Res­i­dence Test de­ter­mines whether you are li­able for UK in­come and cap­i­tal gains tax on your world­wide in­come. In sum­mary, this is a com­bi­na­tion of day count­ing and the num­ber of ‘suf­fi­cient ties’ you have with the UK. Whether or not you were res­i­dent in the UK in the pre­vi­ous tax years also plays a part.

For ex­am­ple, you are not treated as res­i­dent for tax pur­poses if you spend less than 46 days in the UK in a tax year and were not res­i­dent the pre­vi­ous three years. You are treated as tax res­i­dent if you spend 183 days or more in the UK or your only, or main, home is there.

RES­I­DENCE AND THE UK/FRANCE DOU­BLE TAX TREATY

You can be res­i­dent in both the UK and France at the same time. In this case, ‘tie breaker’ rules in the UK/France Dou­ble Tax Treaty will de­ter­mine where you are res­i­dent for tax pur­poses.

This is only a brief sum­mary of com­plex leg­is­la­tion, so you must take pro­fes­sional ad­vice to de­ter­mine your res­i­dency.

WHAT IN­FOR­MA­TION IS SHARED IF I’M A FRENCH RES­I­DENT?

If you have fi­nan­cial as­sets out­side France, fi­nan­cial in­sti­tu­tions will col­lect and pro­vide the French tax au­thor­i­ties with the fol­low­ing ev­ery year: your name, ad­dress and date of birth your tax iden­ti­fi­ca­tion num­ber ac­count num­bers ac­count bal­ances

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