Summary of measures
A package of measures was announced today which will help promote the UK as a competitive environment for business. The withholding tax on international bond interest will be abolished, to be replaced by simpler and less burdensome requirements to provide information to the Inland Revenue.
Other changes announced will allow the Inland Revenue to improve the effectiveness of exchange of information arrangements under double taxation agreements with other countries; and allow the UK to enter into new exchange of information agreements which will help to prevent individuals and companies evading or avoiding tax.
1. The package includes legislation which will help promote and protect the competitiveness of UK and EU financial markets by:
– Abolishing current tax rules for financial institutions which act as Paying and Collecting Agents of international bonds and foreign dividends from April 2001. 40 pages of complex legislation will be swept away and allow the Inland Revenue to:
– Obtain routine information about the UK savings income of all individuals. To ensure a level playing field, this information will not be exchanged with other countries, other than on a reciprocal basis The Government is seeking to establish exchange of information on as wide an international basis as possible to ensure a level international playing field for individuals and businesses
– Obtain taxpayer information at the request of the tax authorities of another country with which the UK has a double taxation agreement. The law at present gives the Inland Revenue powers to obtain information only if needed for its own purposes or at the request of another EU Member State
– Enter into new Tax Information Exchange Agreements with other countries.
2. The changes will allow more effective two-way exchange of information with countries where there are significant transactions involving UK taxpayers.
3. As now, taxpayer information will only be passed on under strict conditions of taxpayer confidentiality.
1. The tax rules for Paying and Collecting agents of quoted Eurobonds and foreign dividends apply to about 600 financial institutions. Currently, they are required to deduct and account for tax on payments to UK residents, and to obtain and keep for inspection various types of declaration from non-UK residents and others entitled to receive payments without deduction of tax. The rules date back to the nineteenth century.
2. The Revenue is already able to exchange taxpayer information with other countries with which the UK has a double taxation agreement. Information exchanged under these agreements is on a reciprocal basis. But the UK does not receive information from other countries unless it is able to provide similar information in return. And it does not receive information from countries with which it has no double taxation agreement, including countries offering significant opportunities for UK tax to be avoided or evaded.
3. The Revenue has for many years had the power (under Section 20 Taxes Management Act 1970) to call for information from taxpayers and for documents from third parties to enable them to determine the right amount of tax due in a particular case. This power is used sparingly and is subject to a number of important safeguards, including in most cases the need for an Inspector to get the prior approval of an independent Commissioner. This power was extended in 1990 to allow the Revenue to obtain information on request on behalf of the tax authorities in other EC member states.
4. The Government has repeatedly emphasised the need for greater international co-operation in particular exchange of information to tackle financial crime, harmful tax competition, tax evasion and avoidance. A G7 initiative seeking to improve the supply of information from tax havens by the negotiation of effective information exchange agreements was launched by the Chancellor during the UK Presidency in 1998. In the context of the EU’s efforts to tackle tax evasion, the Government has recently circulated a paper on “Exchange of Information and the draft Directive on Taxation of Savings”. This paper sets out the case for tackling evasion of tax on savings income through exchange of information on as wide an international basis as possible. The paper can be accessed from the Treasury’s web site
5. The Government believes that the package of measures will have net deregulatory benefits for those businesses affected. It will be consulting on the detailed implementation of the measures, and will publish a full Regulatory Impact Assessment in due course.