International exchange of tax-related information 

The Deputy Minister of Finance is actively tracing bank accounts abroad that have not been declared. One of the means he is employing to achieve this is increasing the penalty for undeclared Box 3 income by 300% from July 1, 2009. Another means which he is employing is concluding international treaties that regulate the exchange of tax-related and banking information with other countries. Which countries are covered by this?

OECD tackles tax havens

The Organization for Economic Cooperation and Development (“OECD”), which is a partnership of 30 countries that endeavor to coordinate their international policy, has been trying for years to tackle tax havens. This involves not only challenging the lack of transparency but also promoting an effective exchange of information. Tax havens had until February 28, 2002, to state that they would comply with OECD standards. Shortly before that date, many of the 35 countries that were tax havens at that time had agreed to do so. Andorra, Liberia, Liechtenstein, the Marshall Islands, Monaco, Nauru, and Vanuata were the only countries not to agree. Obviously, agreement brings obligations with it. Since January 1, 2007, 68 agreements have been signed between OECD members and former tax havens, referred to as Tax Information Exchange Agreements. Between December 6, 2000, and January 1, 2007, a mere 11 agreements were signed. In April 2009, the OECD published a new list with at least 84 tax havens that, on the whole, do not either partially or completely meet the international criteria for the exchange of tax information. The definition of non-compliance would appear to have been broadened.

Recent treaties

The Netherlands has also signed tax treaties on the international exchange of tax-related information with various countries. Over the past few years, the Netherlands has signed treaties with the Isle of Man (October 12, 2005, effective from July 21, 2006), Jersey (June 20, 2007, effective from March 1, 2008), and Guernsey (April 25, 2008, effective from April 11, 2009). More recently signed treaties are those with Bermuda (June 8, 2009), the Cayman Islands (July 8, 2009), Anguilla (July 22, 2009), and the Turks and Caiscos Islands (July 22, 2009), which are not yet effective. New protocols to the treaties with Belgium and Luxembourg were signed on May 29, 2009, and June 23, 2009. The Netherlands has also recently signed treaties on the exchange of tax-related information with Singapore (August 25, 2009), the Caribbean island groups that include Antigua and Barbuda, St. Kitts and Nevis, Saint Vincent and the Grenadines (September 1 and 2, 2009), and Austria (September 8, 2009). Agreement has also been reached with the Cook Islands, Samoa and the Bahamas. As far as we are aware, the Netherlands is still negotiating with, amongst others, Liechtenstein, Monaco, San Marino, Andorra, Gibraltar, Malaysia, Panama and the Virgin Islands on the exchange of tax-related information.

Switzerland

The Netherlands has, by now, also reached agreement with Switzerland on a new treaty. The Ministers will probably sign this treaty in the autumn. The exchange of information with Switzerland concerns the exchange of tax-related information on a case-by-case basis. What the Deputy Minister of Finance is saying is that bank secrecy is over, although that is probably putting it rather too crudely. Experience with the United States of America has shown that the Swiss do not always respond to requests for information to be provided. As far as we know, Jersey has only provided information to the United States five times in seven years. Moreover, the treaty with Switzerland is not yet effective, so in this case the situation is not as black as it is painted.

Belgium

The agreement with Belgium goes further than that with Switzerland. An automatic exchange of information will be possible from January 1, 2010. The Belgian tax authorities could, for example, pass on Dutch savers savings’ account balances to the Dutch Revenue on an annual basis. Belgium will no longer hide behind banking secrecy. The bank information can also be provided, retroactive to January 1, 2008, upon request.

The Cayman Islands

The retroactive effect will also apply to the treaty with the Cayman Islands when it becomes effective. If the issue concerns criminal tax matters, the information may be requested retroactive to January 1, 2004.

Voluntary Disclosure Program

If a taxpayer still wishes to declare any income to the Dutch Revenue that has wrongfully not been declared, they can make use of the voluntary disclosure rules. Taxpayers who provide full disclosure of their affairs before they could reasonably suspect that the Dutch Revenue or the FIOD/ECD (Dutch Fiscal Intelligence and Investigation Service and Economic Investigation Service) may be investigating them, must, of course, pay all of the tax owed with interest, but, until January 1, 2010, the voluntary disclosure rules mean that no penalty will be imposed. From January 1, 2010, taxpayers only have two years from the filing of a tax return that is too low in which to provide full disclosure without being penalized.

In matters concerning foreign savings, the Dutch Revenue can impose additional income tax assessments for up to 12 years retroactively on the undeclared interest from the bank accounts. This regulation is, for that matter, valid for all undeclared domestic and foreign income, and is thus not solely applicable to foreign savings. We advise the use of specialists for guidance through the voluntary disclosure process.

Contact: Dick Barmentlo