Two consultations on offshore evasion strategy have now closed, new measures are being introduced in 2015/16. The new measures include making a failure to declare offshore income or gains a criminal offence.

Tackling offshore tax evasion: Strengthening civil deterrents

This consultation is intended to explore the design of tailored sanctions and considers three main areas:

• Extending the scope of the existing penalty regime for offshore non-compliance. The main proposal is to extend the principle of increased penalties and offshore matters to include Inheritance Tax and undeclared income and gains arising in the UK but hidden offshore.

• Deterring taxpayers from deliberately moving offshore assets to continue evading tax. This is aimed at those who move assets from a newly-transparent jurisdiction to one which has not committed to new automatic information exchange agreement. The options being considered are;

  • A new offshore surcharge
  • Extending the 20 year assessing time limit
  • Increasing penalties to reflect the number of times assets are moved

• Updating the offshore penalties regime to reflect the new global standard in tax information exchange

Currently there are three categories of penalties for offshore non-compliance which reflect the level of information exchange agreements with the jurisdiction in which the income or gains arise. This would introduce a new category to include territories which exchange tax information under bilateral agreements with the UK under the Common Reporting Standards (CRS), and would attract the lowest penalty rate of 100%, while penalties for other territories would increase.

 

Tacking offshore tax evasion: A new criminal offence

Perhaps more controversially this consultation raises the proposal of introducing a new strict liability criminal offence of failing to declare taxable offshore income and gains.

HMRC’s strategy for tackling offshore tax evasion was set out in ‘No Save Havens’ in April 2014. (See our comments here). Under the current system, HMRC need to prove that the individual intended to evade tax when failing to declare offshore income and gains.

A new strict liability offence means that it would not be necessary for the court to ascertain the state of mind (mens rea) of the defendant, it would only be necessary to demonstrate that a person failed to correctly declare income or gains, before convicting.

The consultation considers a number of issues in relation to the proposed new offence such as;

  • the scope of the offence - including which taxes should be included and the geographic scope
  • measures to ensure proportionality - including the consequences of a criminal record
  • the level of sanctions - from financial penalties to custodial sentences in serious cases
  • legal and operational safeguards – including possible statutory defences

These proposals will potentially have significant consequences for anyone with non-UK assets.

Commenting on the proposal for a new criminal offence for those who fail to declare taxable offshore income and gains, Gary Ashford of the Chartered Institute of Taxation (CIOT) said: “Creating a new strict liability criminal offence of failing to declare taxable income and gains arising offshore would be a hugely controversial step. HMRC already has the power to criminally investigate anyone with either UK or offshore untaxed funds where they can show these were deliberately not declared. If they cannot show dishonesty or criminal intent then civil penalties, up to double the amount of tax owed, in addition to the tax itself, can still be levied. The new offence would enable criminal convictions, potentially with custodial sentences, to be made without any requirement to show the defendant wilfully acted in a criminal way."

 

Both consultations close on 31 October 2014.

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