Avoidance: Go Direct to Jail?

HMRC want more deterrents for combating offshore tax offences

This week saw the publication of two new HMRC consultations both featuring 'Tackling offshore tax evasion', titled, 'A new criminal offence' and 'Strengthening civil deterrents'.

Both documents seek the views on:

  • A new strict liability criminal offence of failing to declare taxable offshore income and gains; and
  • Options to strengthen civil sanctions for those evading tax by hiding taxable income, gains and assets offshore.

The objectives of HMRC's offshore evasion strategy are to ensure:

  • there are no jurisdictions where UK taxpayers feel safe to hide their income and assets from HMRC;
  • would-be offshore evaders realise that the balance of risk is against them;
  • those who do not come forward are detected and face vigorously enforced sanctions; and
  • there will be no place for those who facilitate offshore evasion.

The Revenue assert that non-compliance remains more difficult to detect and tackle for a number of reasons:

  1. Those who facilitate offshore tax evasion are helping others to commit criminal activity, and those who do so knowingly run the risk of detection and punishment. These are strong incentives to ensure that the evasion remains beyond detection and as such it can be difficult to find and track the flow of funds outside of the UK.
  2. It can be difficult to identify the actual facilitators of offshore tax evasion as they are often based outside of the UK.
  3. It can be difficult to obtain information from a number of foreign tax jurisdictions, e.g the nature of the exchange of information agreements in place or because of banking secrecy legislation.
  4. Traditional exchange of information agreements include a 'no fishing expedition' provision which means tax authorities need to have already identified a risk of tax evasion. In some circumstances this can create a 'Catch 22' situation where the tax authority needs the information from abroad to identify the tax risk.
  5. A number of jurisdictions have yet to recognise tax evasion as a predicate offence under their anti-money laundering rules.

Such difficulties in detecting non-compliance provide HMRC with their rationale for increasing the costs of being caught as compensatory measures.

New Criminal Offence

A strict liability offence is a criminal offence where it is not necessary for the court to establish the state of mind of the defendant before convicting. Examples of such are driving offences, firearms offences and cruelty to animals.

There are very few strict liability offences in tax law and in each case it is necessary to to consider the state of mind of the defendant before a criminal sanction for tax non-compliance can be secured. HMRC want to change that by introducing a new strict liability summary criminal offence of failing to declare taxable income and gains arising offshore. This means that the prosecution would need only to demonstrate that a person failed to correctly declare the income or gains, and not that they did so with the intention of defrauding the Exchequer.

Strengthening Civil Deterrents

Offshore penalties have been around for a few years now. The level of penalty is based on the type of behaviour that leads to the tax arrears.

There are three levels of offshore penalty:

  • Category 1 – up to 100% of the tax (the same for domestic tax offences)
  • Category 2 – up to 150% of the tax
  • Category 3 – up to 200% of the tax

HMRC now want to extend the scope of offshore penalties and civil sanctions and have come up with six options which fall into three broad categories:

  1. Extending the scope of the existing penalty regime for offshore non-compliance;
  2. Deterring taxpayers from deliberately moving offshore assets to continue evading tax. One of the options suggested here is for the Revenue to be able to go back further than 20 years, as is currently the case, to collect tax where fraud has taken place; and
  3. Updating the existing offshore penalties to reflect the new global standard in tax information exchange.

Both consultations close on 31st October 2014.

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#1 kevinj 2014-08-20 08:40
I presume from this that HMRC have now resolved that slightly awkward situation where their offices were sold on a ease-back to a company who is safely ensconced in the Bahamas?
If not that would tend to put them into the position of 'facilitating offshore tax evasion' would it not?

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