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Whilst the news cycle in the UK might have been periodically dominated by sunshine and sport over the early summer, the complexity of world relations, the economy and the use of personal data have never been far from the headlines. The scale of data and the technology available to interrogate it is driving many new ways of working and that is equally true in the world of taxation.

So, how should families deal with the reality that global tax authorities are moving to connect (and collect) more data than ever before? Over recent years new global information standards have been introduced which require nation states to collect financial information on individual taxpayers and in certain instances to provide that same data to other tax jurisdictions where individuals are tax resident. In addition, there are now broadly adopted standards for unlisted companies and also for trusts to report information about individuals who are connected to them. Families are often concerned about these changes but I like to remind them that these provisions which are driving transparency over personal financial data to drive more accurate tax reporting also offer an opportunity for the family to reflect on their global financial footprint and to develop a broader tax strategy that is fit for purpose.

Where to start? How to respond?

The first step is to map financial assets - knowing where each family member is tax resident, what they own, and whether ownership of any assets is shared amongst family members. This sounds simple, but cousins, spouses and children in established families could run to the hundreds. I had one conversation where no-one in the family was sure how many members they had, but at the same time were sure that assets were held in common – a real challenge! Without this foundation, a family might give mixed messages to tax authorities, increasing the chance of investigation.

Clarity of purpose

Once a family (or their family office) understands the wealth pool and family structure, it can move to clarifying important principles. Two to flag are:

  1. Awareness of the global tax reporting as a result of the location of assets, income streams and family members together with an understanding of what information will automatically flow to which tax authorities.
  2. Understanding the need for a family approach around tax governance.

Debate might identify differing views across the generations or branches of the family in respect of tax reputational risk, but unless all members of the family understand the need for a strong approach to tax governance, crucial information may be lacking for deciding asset disposals, potential co-invest partners and personal tax filings. In a world where tax reputational risk is high, the price of missing this conversation could be a tabloid headline.  

What if there was a global tax audit tomorrow?

If matters go public, media scrutiny isn’t the end of it. In a possibly apocryphal tale, one tax audit was allegedly triggered by reports of a traffic accident involving an allegedly non-resident individual.

With tax authorities having both increased access to a family’s data and new techniques to check that data, tax audits can be opened swiftly. Additionally, cross-border data sharing means that a tax enquiry is increasingly likely to be part of a global initiative, triggering higher stress and professional fees for the family. This can be significantly mitigated if a family knows clearly before any audit where data is held, when it is updated and how it can be disclosed. If a global tax audit happened today, how prepared would you be?

The practicalities of reputation management

And finally, some practical advice. It’s never been more crucial for families and the family office to have up-to-date advice, appropriate due diligence and tax governance reviews. If I had a pound for every time a client said “it’s fine – I just can’t find the paper to prove it”, I’d have needed my own family office years ago. 

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Annis Lampard – Deloitte UK

Annis is a director in our Deloitte UK tax disclosure and transparency team who works with private wealth and private companies to understand their relationship with HMRC. Working with clients in a range of situations, from dispute resolution to voluntary disclosure or building a clearer tax strategy, Annis draws on her experience as a former HMRC inspector to find the solution that is most appropriate for her clients.

She is a member of STEP, of the Tax Investigations Practitioners Group and has spoken at industry conferences about global information exchange programmes and the changing tax landscape. A key part of Annis’ focus is about the personal and reputational impact caused by tax misunderstandings with revenue authorities, but she is also part of a mixed-disciplinary team of specialists covering direct taxes, indirect taxes and tax litigation that also covers financial negotiations and legal disputes.

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