The right to privacy

Sunday, 01 September 2013
Martyn Gowar rails against governments’ willingness to surrender the intimate financial details of their own citizens.

Over the past few months there has been a volume of comment, some of it bordering on the hysterical, about the right of the public to know details of the tax affairs of wealthy corporations and individuals. Leaders of the G8 gathered in Northern Ireland and declared their desire for more transparency, showing a complete lack of any balancing consideration for the right of individuals to personal privacy, which is enshrined in the European Convention on Human Rights.

Tax-gathering authorities want to know as much as they can about individual taxpayers. As we have noticed before, the parlous nature of countries’ finances encourages them to widen their net and dig deeper into the resources of the taxpayers held within.

Are we really to believe that thanks to FATCA the US Treasury is going to benefit from extra US tax revenues approaching the compliance costs?

At the same time, the serried ranks of the media have a quite different agenda behind their desire for access to information. Obviously, it helps them sell their newspapers and generate news items, substituting a cynical claim of public interest for what is usually nothing more than gossip. We now see that information obtained illegally and disclosed illegally is seized by governments, with the end justifying the means. We observe the media line: those who have arrangements involving the use of trusts or companies in places such as the British Virgin Islands or the Cayman Islands must be crooks! We know that that is far from the truth and that the vast majority of people who have arrangements in these places do so under careful advice. People forget that as qualified practitioners, with obligations to professional bodies, we would be struck off if we were a party to something illegal.

We are told that the Foreign Account Tax Compliance Act (FATCA) is going to be used as a model for international information exchange. Let me remind you that in the UK – and in other countries under model 1 of the intergovernmental agreements – entities (including trusts, for this purpose) are obliged to submit information to HMRC, which will then pass it on to the IRS to satisfy the US requirements under the FATCA legislation. What safeguards do we have that the IRS will not pass that information on to other US agencies? And if FATCA is the model, what safeguards do we have when information is passed on to any other country with which the UK enters a FATCA-type agreement?

FATCA was meant to combat tax evasion by US tax residents using foreign accounts. Even HMRC admits that the adoption of FATCA imposes a new burden on UK businesses. It will affect 75,000 UK entities and produce a one-off cost to business of between GBP0.9 billion and GBP1.6 billion, plus a continuing compliance cost of GBP50 million to GBP90 million a year. (This is trumpeted as a great success because, according to HMRC’s figures, the original implementation of FATCA would have affected about 300,000 UK entities at a one-off cost to UK businesses in the region of GBP2 billion to GBP3 billion, with ongoing costs of around GBP100 million to GBP170 million a year.

HMRC admits that over a five-year period it expects additional revenue of only GBP85 million for the UK. If the government proposed a tax that was going to raise GBP1.6 billion

to come out of taxpayers’ pockets, this would be a significant injection into the revenue of the UK – not far off what inheritance tax raises. Are we really to believe (because I do not think the US Treasury believes it) that the US Treasury is going to benefit from extra US tax revenues approaching the compliance costs?

My point is that this is but one agreement – between the US and the UK. Compound that with the agreements that the UK will have with every other country and that every other country will have with every other country! And what of the risk and exposure to the citizens of each individual country, as information passing to myriad other nations stands to be available far beyond the needs of each country’s fiscal system? Does this not make you worried? 

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Martyn Gowar

Martyn Gowar TEP is a Partner in McDermott, Will & Emery UK LLP.

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