Managing risks associated with tax has always been relevant for financial services businesses' in the Channel Islands.
Managing risks associated with tax has always been relevant for financial services business in the Channel Islands, often connected with distinguishing between evasion and avoidance. Now, data presents the biggest tax risk. Businesses have always held sensitive financial data on their clients. That is now more sensitive than ever with the impact of unprecedented reporting to tax authorities and the threat of tax data theft by criminals or activists.
Voluntary exchange of digital data
Reporting under FATCA and CRS to tax authorities should not cause concern. But businesses should take care with how they collate and share that data. The first CRS reporting in the Channel Islands is due by 30 June 2017. At that point, a business will hold comprehensive information on virtually all their clients in one file. Compiling and transmitting that file securely becomes imperative.
Digital data breaches
The game-changing data breaches of recent years have been simple theft, often connected with a staff member. Probably the most prominent data breach is the Mossack Fonseca case, more commonly known as the Panama Papers. It showed us that the repercussions are not confined to the individual business; rather it tarnishes the whole jurisdiction. It is not impossible to visualise a scenario in which the ‘Channel Island Papers’ make the business headlines, with the resulting fallout. Most would concede it isn’t a case of will there be another Panama Papers event but rather when and where it will happen.
The repercussions of a digital data breach
It is easy to envisage how a similar event in the Channel Islands could impact on businesses that are part of wider international groups. There would almost certainly be pressure to explain or justify the activities in the Channel Islands. This could raise questions at head office about the desirability of maintaining a Channel Island presence, especially where head office is influenced by government.
As we enter this new age of transparency and information exchange, where tax is concerned, businesses need to be sure that they have control over what is transparent and with whom information is exchanged. Full details of their entire client base appearing in a Sunday newspaper is not good for any business. How confident are you that it won’t be yours?
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.