HMRC Consultation Document on Tackling Offshore Evasion – Strengthening Deterrents for Offshore Evaders

In July 2015 HMRC issued a consultation document specifically outlining their thinking in terms of deterrents, both financial and non-financial, for those involved in offshore evasion.

The commentary below is a speed read of the Consultation Document which can be viewed in full via this link.

HMRC’s position is quite clear. Their view is that taxpayers will have had sufficient time to have put their offshore tax related affairs in order by the time that they receive volumes of data in 2017 under the Common Reporting Standards (CRS) and are seeking to punish those who have not done so.

The Consultation will close on 8 October 2015 and below are the main points arising:

• 94 countries currently signed up for CRS
• Consultation focuses on the widening of non-financial deterrents and changes to the way penalties are calculated
• Penalties are calculated in relation to the country applicable and that country’s level of tax transparency
• A new Category 0 penalty for countries who have adopted the global CRS requirements – penalties limited to 100% of the tax due
• Category 1 penalties will be capped at 125% of the tax due
• Categories 2 and 3 remain unchanged at 150% and 200% of the tax due
• A new ‘aggravated penalty’ for moving proceeds around jurisdictions to evade tax due. This relates to the movement of funds after 27 March 2015. HMRC is consulting on penalty uplifts of a further 50% of the penalty attributable under the relevant Category above
• Offshore penalties will also include IHT (Inheritance Tax) where the proceeds are hidden offshore
• Reasonable excuse – where a taxpayer suffers an unforeseeable event and takes action to remedy the tax position without unnecessary delay will not attract a penalty
• Reasonable care – HMRC will review each taxpayer’s ability and circumstances when considering claims for an abatement under reasonable care. HMRC expect more complex matters to be subject to higher levels of care – for example, formal professional advice is sought.

Options for consideration:

Financial

1. Consideration of a minimum penalty for all offshore related disclosures
2. Amending factors considered for the abatement of penalties
3. Penalty linked to the size of the asset not the tax at stake
4. A further additional penalty for the worst offenders. Penalty up to 100% of the asset and application will be made to the Upper Tribunal for their ruling in relation to the quantum of this further penalty.

Non-Financial

1. Exemption from naming and shaming only applies to taxpayers who make a voluntary and unprompted disclosure
2. Naming and shaming of directors behind certain structures.

Edwin Coe LLP will be responding to HMRC in due course in relation to the Consultation Document.

If you have any questions in relation to this matter, please feel free to contact any member of the Tax Services team.

If you aren’t receiving our tax updates directly to your mailbox, please sign up now