With only days left for HNWs to get their tax affairs in order, barrister Tessa Lorimer asks if HMRC's new crackdown on offshore has teeth
In 4 days' time, HMRC could receive your company and trust information from more than 40 territories pursuant to the Common Reporting Standards. The information will include details of: overseas bank accounts, insurance products and other investments including offshore companies and trusts
The information will include your name, address, date of birth, and balance on the account/payments in to the account. There is a small window to correct your tax history but you only have days before the 'failure to correct' comes in force 1 October 2018.
So, will all of this information be the ‘game changer’ which HMRC hope that it will be or a ‘damp squib’ like the leak of data from HSBC in Switzerland? Historically HMRC hasn’t had the powers to find out about the details of foreign bank accounts from these ‘late adopter’ jurisdictions.
HMRC obviously thinks that this information will be a 'game changer' and in anticipation of receiving this windfall of information they and the government have been busy legislating in anticipation to increase its powers to detect, pursue and sentence.
The crux to understanding the importance of this information is to appreciate HMRC has had to rely on UK production orders and bilateral tax treaties to check the veracity information which a taxpayer has supplied on their tax return. The international information that was obtained was sporadic and the detail varied from country to country and was practically non-existent from the 40 jurisdictions about to take part. If a UK taxpayer didn’t disclose to HMRC that they had a tax liability arising from off shore financial interests, it was unlikely that HMRC would find out about it.
This new information will allow HMRC to adopt an aggressive approach to tax evasion as it will give them reasonable ground to suspect tax fraud and thereby give them access to the international criminal treaties. Once HMRC have access to the criminal treaties, they will be able to obtain evidence, locate the suspected tax evader and returned to the UK to stand trial / sentence and have the assets restrained and confiscated abroad.
In other words HMRC can potentially get evidence from all over the world and the evidence which can be requested in a tax fraud investigation may surprise you.
However, it will be still far from plain sailing for HMRC as it still has several hurdles to negotiate. It is not in the national interest of the late adopter nations to comply with an incoming request for information in a timely manner. Many the late adopter countries are losing business hand over fist because of the Common Reporting Standards thereby detrimentally affecting their economies.
It is expensive, time-consuming and resource intensive to comply with a request to provide evidence. The country concerned may have its own domestic issues which they need to direct their resources to as a priority over the request for information. The country concerned may not have the necessary infrastructure in place to comply with our request for evidence in a timely manner and it is no good to HMRC if the information requested is supplied years later.
In the UK, austerity measures have placed a huge burden on prosecutors and investigators as the 'less for more' culture has been implemented and there has been a steady drain of experienced prosecutors and investigators to private practice. Many of the taxpayers under investigation are very wealthy individuals who are in a position to sue the state for damages when these prosecutions go wrong. There is still much work which would need to be done to engage with and understand of the economic concerns of the late adopter countries before we see a significant increase in successful prosecutions for tax evasion.
Tessa Lorimer is a barrister specialising in tax investigations