This Is Guernsey

By Graham Parrott of Ernst & Young

Graham Parrott

NEXT month sees the start of the ninth series of Channel 4’s flagship TV reality show, but is Big Brother a shadowy figure behind the scenes of a TV programme, taking its only audible form in a broad Geordie accent, or is it actually Her Majesty’s Revenue and Customs service in the UK?

Recent events would suggest that could be so. For some time, conspiracy theories have surrounded the taking of our picture as we go through security at Gatwick Airport.

Is it really a security measure, or a way of finding out time spent in the UK? In reality probably not, but recent changes to the UK day-counting rules have certainly brought the issue more into focus.

We have been warned via various media outlets for some time about the consequences of sharing too much information on social websites.

Identity fraud is again one issue, but it has also now been claimed that this could be a useful new source of information in HMRC’s fight against tax abuse. Be careful what you put on Facebook.

The disclosure of interest income earned by EU residents in Guernsey bank accounts can be seen as evidence of increased monitoring of activity by all EU tax authorities. Someone is watching you.

Further claims of Big Brother tactics followed HMRC’s attempt to obtain information about UK residents’ offshore bank accounts. It was originally part of the offshore disclosure facility or ‘amnesty’ last year and HMRC is now following up those who allegedly have an offshore account which they have not explained.

While it is aimed more at UK-resident taxpayers – or more accurately in effect those with a UK address and a bank account offshore – not all the shots in what can appear to be a rather scattergun approach have been accurate, to which I can bear personal witness.

And now, finally, our own data protection commissioner has drawn attention to the ability of the UK tax authority to look beyond its shores.

In his annual report for 2007, he points out that of the 71 complaints received by his office last year, 29  concerned information given to HMRC by banks as a result of the measures taken last year.

He highlighted the dangers from the outsourcing of processes, particularly to the UK, and how that can be used by HMRC as a means of gathering information.

It is worth repeating that the sort of information being sought is of primary use to HMRC in seeking out undeclared funds of UK resident taxpayers maintained outside the UK. They would maintain that the end justifies the means and others will go further – witness the recent scandal surrounding Liechtenstein hiding funds from a revenue authority – not the sort of business we want or need. However, neither is it helpful if as an island we are seen to be at the whim of another territory’s revenue authority, irrespective of the rights and wrongs.

It is certainly the case that if an island institution maintains information in the UK, that provides a route for HMRC to gain access. ’Twas ever thus.

However, there is more to it than that. Merely avoiding processing in the UK will not prevent HMRC gaining access to information if someone in the UK has power or possession over it – in other words, the authority to gain access to information – even if the data itself is here rather than the UK. It is still possible to outsource to the UK, but it should be done in a way that addresses the issue.

Is Big Brother watching us? It is undoubtedly the case that tax authorities generally are looking further afield in seeking to ensure that residents of their country pay tax on all the income they should be taxed on. The Savings Directive has been one way of achieving that, buying information another. For HMRC in the UK, the ability to gain access to data through individuals in the UK is but another tool in the  armoury.

So while next month Big Brother’s attention may be focused on the activities of a strange collection of individuals cooped up in in attempt to entertain us, we do all need to be aware of the dangers as well as the benefits of new technology and of the power of information.