Offshore evasion penalties: UK


New and Increased Penalties Proposed for Offshore Evasion

Two new consultations have been launched by HMRC on proposed changes to extend both civil and criminal penalties for offshore tax evasion.

In the first consultation paper the HMRC sets out its wish to extend the existing civil penalties that presently cover the evasion of income tax and capital gains tax offshore, to inheritance tax evasion offshore. It is proposed that the penalties could be up to 200% of the unpaid inheritance tax where there has been a deliberate failure to comply. HMRC considers that change is necessary as, in its view, inheritance tax ranks as one of the most significant taxes currently being evaded through the use of structures located in offshore jurisdictions. It asserts that the penalties should be correspondingly higher when cases of evasion and non-disclosure require detailed investigation to overcome the difficulty of detection.

As part of the drive against offshore evasion, HMRC also considers it appropriate to seek an increase to the penalties in instances where assets are moved or located offshore, to reflect the difficulty of detecting instances of deliberate evasion. The example is given of HMRC’s powers to request information from trustees, which are not enforceable against trustees located offshore.

In addition to the steps taken against inheritance tax evasion, HMRC is also targeting individuals who deliberately conceal assets in offshore bank accounts that are located in various offshore jurisdictions. The current 20 year rule, which prevents the investigation of a taxpayer’s affairs going back in time over more than 20 years, HMRC proposes should be abandoned to enable it to review the taxpayer’s affairs over an unlimited period.

Where wrongdoing is detected, in addition to an increase to the offshore evasion penalties, HMRC also proposes a new offshore surcharge be levied on those found to in breach.

The second consultation relates to proposed changes to the existing criminal penalties for evasion.  The increase to the penalties is considered necessary to raise the deterrent factor for offshore evasion. HMRC states that it considers the existing criminal sanctions should be boosted and to that end proposes a new strict liability offence, thus removing the requirement that the prosecutor prove intent. The new offence would be a failure to declare offshore income and gains and would be limited in application to individuals’ personal tax affairs.

HMRC states that it remains of the view that most investigations will continue to be dealt with through the civil courts and only in cases where proportionate and where there has been a significant loss of tax revenue would it pursue criminal action.

The consultation paper requests comment on the scope of the proposed offence, statutory defences and what could be considered to be appropriate penalties following conviction. Currently HMRC suggests 6 months imprisonment would be the maximum penalty.

The consultation on both the increase to civil powers and the proposed criminal offence is open until late October.