Interview

HMRC's Dave Hartnett

Interview with Dave Hartnett, permanent secretary for tax at the UK tax authority, HM Revenue and Customs (HMRC).  

The British tax authorities have traditionally tried to steer a balanced course over what they consider to be tax havens and tax evasion by UK citizens. It is only in recent years that the HMRC has stepped up its targeting of taxpayers using offshore centres and institutions which facilitate accounts. The authority has used a range of devices to encourage taxpayers to confess and pay up and when they have not, it has launched legal actions against them. 

Speaking to Businessifc.com, Hartnett said: “The world has begun to change. There may well be a place for offshore financial centres but it will be different. There is considerable political will to end banking secrecy and to establish tax transparency as the standard. Such centres will be able to continue only if they are fully transparent.” 

He sees the exchange of tax information on request – which is the basis of the current Organisation for Economic Cooperation and Development (OECD) initiative – as the first step only. “I see automatic exchange of information as the benchmark. That is the position which I would like to reach as standard.” The Isle of Man has already made the first steps on this road and Hartnett hopes that more jurisdictions will adopt automatic exchange as the basis of agreements between states. He says that this would be a mature approach for international financial centres to adopt. 

The UK places great store by its disclosure opportunities and, while it welcomes the recent decision by the Global Forum on Tax Transparency and Exchange of Information, it believes the disclosure schemes are valuable.

“It gives taxpayers the opportunity to come clean, set the record straight for the future and pay outstanding tax. I acknowledge that there are differences between the general New Disclosure Opportunity (NDO) and the Liechtenstein Disclose Opportunity (LDO) but I do not see anything incompatible in that. 

“In terms of the NDO, we have issued statutory notices to 308 banks which offer offshore banking facilities requiring them to deliver account and other information to us. They are supplying details of UK taxpayers which we can store on our CONNECT system. This means we can cross reference huge amounts of information to build up extensive taxpayer profiles. It means we have substantial leverage in encouraging taxpayers to do the right thing. We have no such advantage with the Liechtenstein banks. 

“We were fortunate enough to receive some details on UK residents with bank accounts in Liechtenstein which gave us an insight into how people use Liechtenstein accounts.” Hartnett is referring to the LGT Bank affair and what followed when the German authorities paid for account details of customers of this leading Liechtenstein bank.

“But the agreement we achieved with the government in Vaduz needed to be more flexible that the NDO. I don’t see a problem with that. You work with the tools at your disposal.” He says he believes that Liechtenstein is now serious about ending tax secrecy and being fully compliant with tax transparency standards.

Does he believe that Liechtenstein has done too little, too late for the survival of its financial services sector? “No. Prince Alois, the head of state, and the new prime minister Klaus Tschütscher are behind this move. They have been working with the OECD and are serious in their intent. I am impressed that they are genuine in wanting to reform the country’s approach to tax secrecy.” 

Tax secrecy is a larger challenge for Liechtenstein’s neighbour Switzerland. “I think the most interesting question in this debate is what will Switzerland do? Banking – and therefore tax – secrecy has been a key factor in the Swiss approach. The federal government has committed to ending tax secrecy and promoting transparency.”

The September 7, 2009 edition of the OECD’s progress reports states that Switzerland has now signed six tax agreements which conform with the transparency standard. That is halfway to white list status. “I believe the Swiss when they say they are serious about this. The settlement over American UBS account holders with the US tax authorities is indicative. In addition, the French tax authorities have obtained details of 3000 French national account holders in Swiss banks.

"Switzerland is beginning to make real efforts to comply with the changing mood in the international community. I am sure that this has been difficult for the Swiss. Banking and tax secrecy is at the heart of the federation’s financial sector industry.” The Swiss say that they end intend to follow the OECD model and extend their double tax treaties to achieve absolute transparency before Christmas.” 

This is all primary level material for Hartnett. He has aspirations which go way beyond the scope of the current OECD-led exercise. Among his aspirations are powers for national tax authorities to access data directly on their taxpayers’ assets in other jurisdictions. This would be much more immediate than waiting for external tax authorities to supply information under present agreements.    

The HMRC plays a pivotal role in influencing the future of the global tax agenda and its views are central to the ongoing debate.