UK and International Tax news

Consultation On New Requirement To Notify HMRC Of Offshore Structures

Monday 12th December 2016

HMRC has recently published a consultation document setting out a proposal to require businesses who create certain complex offshore arrangements to notify HMRC of the details of such arrangements and provide HMRC with a list of clients using them.

HMRC has stated that in the past it was very difficult to detect offshore tax evasion or other forms of offshore non-compliance. However, following the government’s work with international partners, the Common Reporting Standard (CRS) is now providing greater levels of information about offshore accounts, trusts and shell companies that will be available for use in detecting irregularities with offshore income or gains. Over 100 countries are currently committed to automatically exchange financial account information. For the 54 early adopters (including the UK), these exchanges will take place by 2017 with all others exchanging by 2018.

In addition to the CRS, the UK is developing an initiative with over 50 jurisdictions for the systematic sharing of beneficial ownership information following an announcement in April 2016 on a G5 pilot (UK, Germany, France, Italy and Spain). The UK published its own register of company beneficial ownership in June 2016.

In light of these measures, the UK government has signalled its ambition to be tougher on those with offshore compliance issues, and those who enable offshore non-compliance. The government has introduced a wide range of measures to toughen the sanctions for all those involved in offshore tax evasion. These include:

(i)  A new criminal offence for tax evasion, which removes the need to prove intent for the most serious cases of failure to declare offshore income and is included in FA 2016.

(ii) New increased civil sanctions for offshore tax evaders – whilst from 2010 offshore tax evasion has attracted a higher penalty,  FA2016 introduced a new package of measures which increase civil penalties for offshore tax evasion, including the introduction of a new asset based penalty of up to 10% of the value of the underlying asset.

(iii) New civil sanctions for those who enable offshore tax evasion – FA2016 also introduces civil sanctions for those who deliberately enable offshore tax evasion.

(iv) The introduction of a new criminal offence to apply to corporates who fail to prevent their representatives from facilitating tax evasion, where the corporation cannot show they took reasonable steps to prevent this. This offence is included in the Criminal Finances Bill currently being considered by Parliament.

(v) From 24 August to 19 October 2016 a consultation was opened on the details of a new legal Requirement to Correct (RTC) past offshore non compliance with new sanctions for those who fail to do so.

HMRC has indicated that recent high profile data leaks have highlighted how frequently an ‘enabler’, a third party such as an accountant, law firm, advisor or wealth manager is involved in facilitating offshore tax evasion on the part of an individual. A single enabler may support a number of individuals in evading tax. It considers that tackling these enablers will provide an additional tool to tackle offshore tax evasion on a “one to many” basis.

Despite the increase in international tax transparency engendered by exchange of information agreements, the government considers more can be done and, in particular, more information is needed to understand highly complex offshore arrangements, especially where beneficial ownership is being deliberately hidden, making it difficult for financial institutions to establish the identity of the beneficial owner.

With this in mind, the government is now consulting on a new measure which would require that businesses who create certain, defined types of complex offshore arrangements notify HMRC with details of the arrangement, and provide HMRC with  lists of clients using them.

This consultation seeks views on the high level design principles, and the risks and benefits of such a requirement. If, following consultation, the decision is taken to proceed, it is anticipated that there would be further public consultation on the details of the notification obligations.

Comments on the condoc have been requested by 27 February 2017.

If you would like further information on the condoc, please contact Keith Rushen on 0207 486 2378.

 

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