No safe havens for evading tax: new criminal offence to be introduced

Thu 17 Apr 2014

On 11 April 2014, George Osborne announced that the Government is stepping up its efforts on tackling offshore tax evasion, and this was widely reported in the press. 

This was followed by an announcement by HM Treasury and HMRC on 14 April 2014, including an update to its approach to tackling tax evasion in ‘No Safe Havens 2014’.  HMRC will be consulting on its proposals later this year.  However, we do have an outline of what is being proposed.

New criminal offence – even where no intent to evade tax

HMRC is to consult on a new strict liability criminal offence of failing to declare taxable offshore income.  This is controversial as it means that HMRC will not have to prove that individual intended to evade tax, although ‘appropriate safeguards’ are to be introduced.  Instead, it will mean that HMRC only has to demonstrate that the income was taxable and undeclared.  As this would sit within HMRC’s existing criminal investigation policy, the new offence is only expected to be pursued ‘where there is a need to send a strong deterrent message or where the conduct is so serious that only a criminal sanction is appropriate’.

Enhanced civil sanctions

There are existing penalties for non-disclosure of offshore income and gains of up to 200% of the tax due.  HMRC will issue a separate consultation shortly to explore options for:

• Extending the scope of the penalties, as well as updating the penalty regime generally to implement the OECD’s new global standard of automatic exchange of information; and
• Deterring the deliberate movement of assets in an attempt to escape international information exchange agreements on tackling tax evasion.
• Rewards for whistle-blowers.

What is Offshore Evasion?

Offshore evasion is defined in the ‘No Safe Havens 2014’ document as ‘using another jurisdiction’s systems with the objective of evading UK tax.  This includes:

• Moving UK gains, income or assets offshore to conceal them from HMRC;
• Not declaring taxable income or gains that arise overseas, or taxable assets kept overseas;
• Using complex offshore structures to hide the beneficial ownership of assets, income and gains.

There is a clear statement here that there has to be an objective of evading tax, which does not sit well with the new proposals for a strict liability criminal offence. 

HMRC will start receiving information automatically from many territories this summer

In only three months’ time, HMRC will start receiving information automatically from financial institutions in Crown Dependencies, with a further 30 countries following shortly after.  All told, some 44 countries have signed up to the OECD’s global standard of information exchange. 

Anyone who is concerned they might be contacted by HMRC needs as a matter of urgency to consider using one of the existing offshore disclosure facilities.  The Liechtenstein Disclosure Facility (‘LDF’) can provide immunity from prosecution and remains open for the majority of taxpayers with offshore assets etc. to join (by making a qualifying investment in a Liechtenstein financial institution) up until 31 March 2016.  An individual can be prevented from joining if they are the subject of an open (i.e. unsettled) enquiry under Code of Practice 9, if they have been arrested or cautioned for a criminal offence or if the disclosure relates to criminal property and there can be limitations upon the full benefits that might be enjoyed if, for example, an offshore account was opened through a branch or agency of a UK bank or if HMRC had written to the taxpayer previously in connection with any earlier offshore disclosure facility.  The decision as to which disclosure route to take can be complex and involved but the clear message of the proposed legislation is that any taxpayer who considers that they might fall within the category of ‘Offshore Evasion’ needs to give urgent consideration to the making of a disclosure before this legislation comes into effect.