The UK has announced new measures to deal with tax evasion. The proposed measures are outlined in a policy paper issued on 19 March 2015 entitled “Tackling tax evasion and avoidance”. The UK government is introducing measures including publicly naming evaders as well as people or firms enabling others to evade tax. The government is also asking the regulatory bodies which enforce professional standards to set and enforce clear standards on the facilitation and promotion of tax avoidance. The proposals include criminal penalties for businesses that do not act to prevent tax evasion.
HMRC is continuing to refine the sophisticated data analytics used to gain information on onshore and offshore tax evasion. Increasingly HMRC will use third party information including data received from other tax administrations under the new common reporting standard. A strong focus will be on the hidden economy which will be tackled through smarter use of data.
Offshore tax evasion
The measures include a strict liability offence in the case of offshore tax evasion. This means that people will not be able to use ignorance of the arrangements as a defense against prosecution. The legislation will take into account the automatic exchange of information between tax administrations that will commence in 2017 or 2018.
There are to be civil penalties for anyone who enables others to evade tax and a consultation is to be held on the details. Those who are found to have enabled tax evasion are to pay a fine equivalent to the fine imposed on the tax evader they have assisted. There will also be public naming of assisters of tax evasion. There are already criminal penalties for this offence and there is now to be a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion.
There are currently penalties for evasion amounting to as much as 200% of the tax due, and the penalty regime is being strengthened in the Finance Bill 2015. There will be further strengthening of penalties following a public consultation. These stronger penalties would include the ability to take a portion of the asset that has been hidden from the tax authorities. More resources will be invested in rewards paid for significant information on offshore tax evasion.
The existing opportunities for evaders to disclose their tax affairs are to be closed at the end of 2015. In 2016 there will be a new time-limited opportunity for disclosure but with stronger penalties and no guarantee that criminal prosecutions will not be pursued. This will be the last chance for disclosure before the automatic exchange of information between tax authorities on offshore accounts commences in 2017.
The government will pass legislation requiring financial institutions and tax advisers to notify customers that HMRC will be receiving data on offshore accounts, to inform them of the penalty changes and to notify them of the final opportunity for disclosure of their tax affairs.
Artificial tax avoidance schemes
Taxpayers persistently entering tax avoidance schemes, sometimes using more than one scheme each year, are to be dealt with by a new surcharge where their latest tax return is incorrect as a result of another attempted avoidance scheme. Other measures are to be developed to tackle serial tax avoiders including public naming and restricted access to tax relief.
A new penalty is to be introduced for taxpayers caught by the general anti abuse rule (GAAR). The new penalty will be based on the amount that the taxpayer was trying to avoid in the GAAR case.
Further legislation is to be introduced in the Finance Bill 2015 in relation to the measures relating to promoters of tax avoidance schemes (POTAS). The scope of the legislation is to be broadened to allow HMRC to issue Conduct Notices to a wider range of connected persons. This will prevent high risk promoters avoiding penalties by complex or rapidly changing business structures.
The legislation on disclosure of tax avoidance schemes (DOTAS) is to be strengthened to allow HMRC to identify the users of undisclosed avoidance schemes; to increase penalties for non-compliance with the reporting requirements; and to protect persons giving information on failure to comply with DOTAS.
Base erosion and profit shifting
With regard to international efforts in respect of base erosion and profit shifting HMRC is introducing legislation on country by country reporting and is consulting on the implementation of new rules to combat hybrid mismatch arrangements.
Diverted profits tax
The new diverted profits tax is being introduced from 1 April 2015 and under this measure a 25% rate of tax will be applied to the amount of profits diverted from the UK. The tax aims at structures used to sidestep rules on permanent establishments and transfer pricing, for example by using related companies as conduits to tax havens. The tax will combat complex corporate structures used in the technology and other sectors.