NO TAX HAVENS 2019: Information and Power

Posted on 28 March 2019

HMRC published its new offshore strategy – No Tax Havens 2019 – on 13 March 2019. The document boasts that “the UK is at the forefront of the international tax agenda’ and the statistics certainly speak for themselves. Since 2010, HMRC raised over £2.9 billion by tackling offshore issues via its introduction of over 100 new measures to detect and prevent offshore tax non-compliance.

No Safe Havens 2019 articulates HMRC’s approach towards offshore tax compliance. Unlike the original No Safe Havens strategy published in 2013, the strategy doesn’t solely focus on tax evasion but also includes behaviours such as simple mistakes and avoidance. The document is more relevant than ever given that initial analysis from HMRC suggests that one in 10 UK taxpayers have an offshore financial interest.

The strategy is divided into the following three sections to summarise the roles of HMRC: -

1) leading internationally (championing international tax transparency and further collaboration between tax authorities and jurisdictions);

2) assisting compliance (helping taxpayers to be tax compliant from the outset); and

3) responding appropriately (HMRC taking a proportionate approach to risk and behaviour).

An underlying theme throughout the document is that there is a huge amount of information and data readily available to HMRC in relation to offshore assets. Similarly, the document emphasises that HMRC now holds a full range of civil and criminal powers to tackle offshore non-compliance. In the words of Mel Stride MP, the Financial Secretary to the Treasury “these efforts have transformed HMRC’s capabilities.

Information, information, information

HMRC clearly has tipped the scales in their favour by ensuring that there is a huge inflow of data and information in relation to offshore assets to allow them to identify offshore tax issues. The biggest game-changers which are mentioned in the report include the end of banking secrecy as well as the ground-breaking Common Reporting Standard (“the CRS”). The automatic exchange of financial information between over 100 jurisdictions allows the UK to detect possible offshore tax non-compliance and investigate accordingly. The UK was a key driving force for the CRS in its role as president of the G8 and considers itself to be at the forefront of international efforts to increase transparency.

In fact, in 2018 HMRC received information on approximately 3 million UK taxpayers with offshore financial interests. As a result of this, many taxpayers (tens of thousands according to HMRC) will have received letters from HMRC prompting them to review their tax affairs and confirm that all is in order whilst others will have received the dreaded letter from HMRC opening a formal civil enquiry. HMRC states that in the most serious cases they will proceed with criminal investigations. HRMC’s new powers certainly put them in a position where they are able to carry this out. Strict liability criminal offences are now in force which may increase the likelihood of HMRC successfully prosecuting taxpayers as HMRC will no longer have to prove that the taxpayers intended to not declare offshore income/gains.

Beneficial ownership transparency plays a central role in ensuring tax compliance. The UK was one of the first countries to introduce a public register of company beneficial ownership. HMRC intends to create a new register for non-UK entities that own or plan to purchase UK property by 2021.

HMRC’s armoury of powers

HMRC has increased its powers over the years to tackle both offshore tax avoidance and offshore tax evasion.

Accelerated Payment Notices were introduced in 2014 and require those involved in tax avoidance schemes to pay any tax in dispute to HMRC within 90 days of its receipt. This is one example of HMRC taking a tough stance in relation to tax avoidance. HMRC also introduced a number of civil deterrents against offshore tax evasion, including punitive penalties. The deterrents are aimed at both the taxpayers and those who ‘enable’ them.

HMRC has extended the time period for which it can raise assessments to 12 years for offshore matters (as opposed to four or six-year time limits for non-deliberate behaviour). HMRC has been criticised by the House of Lords economic affairs committee who have called for a new review of HMRC powers. The Chartered Institute of Taxation also publicly spoke out against the introduction of the 12-year time limit.

Israel and the CRS

Israel is one of the jurisdictions which committed to the CRS. There was some delay as Israel was supposed to exchange information in September 2018. New Israeli regulations were published on 6 February 2019 which officially implemented the CRS. Many thought that this would not come to pass due to political and regulatory issues. This means that Israeli financial institutions will provide details of foreign resident account holders to the Israeli Tax Authority (“ITA”). The ITA will exchange this information with the other jurisdictions part of the CRS, including the UK.

Despite the delay, the information to be exchanged (by 23 June 2019) will relate to accounts which were open as at 31 December 2017. We note that Gemach who provide interest-free deposit and credit services will be exempt from collecting data and some of the reporting obligations.

Conclusions

Information on offshore activities of UK taxpayers and HMRC’s armoury of powers are key parts of the strategy for HMRC to achieve its objective of ensuring ‘offshore tax compliance and that there are no safe havens for offshore tax avoidance and evasion’. The question is whether HMRC has over-extended its powers and taken one step too far to succeed in ‘No Safe Havens’.