One of the key themes of the chancellor’s Budget 2016 was the continued commitment to cracking down on all forms of tax evasion, avoidance, aggressive tax planning and non-compliance including “tackling the hidden economy”. Reflecting on the £100bn additional tax revenue secured in the last parliament by HMRC, the chancellor stated that this budget “goes further” introducing a comprehensive package of measures.
Post-Google: a focus on multinationals
With multinational companies firmly within the chancellor's sights, the Budget states that “tax avoidance and aggressive tax planning by multinationals is unacceptable”. The business tax road map sets out proposals specifically targeting multinational enterprises. Working with G20 and OECD partners on the Base Erosion and Profit Shifting (BEPS) project to modernise the international tax rules, the chancellor is keen to stress that the UK has taken a leading role in tackling tax avoidance by multinational companies. As set out in the Budget 2016 detailed report, the government will cap the amount of relief for interest to 30% of taxable earnings in the UK or based on the net interest to earnings ratio for the worldwide group. To ensure the rules are targeted where the greatest risk of base erosion and profit shifting lies, the rule will include a threshold limit of £2m net UK interest expense and provisions for public benefit infrastructure. The government will continue to work with the OECD on the appropriate application of these rules to groups in the banking and insurance sectors.
Tackling off-shore tax evasion by criminal means
As announced at the Spending Review and Autumn Statement 2015, the government will introduce a new criminal offence that removes the need to prove intent for the most serious cases of failing to declare offshore income and gains. Set out in the Finance Bill 2016, introduced in December 2015, this new so-called “strict liability” offence has caused consternation amongst practitioners previously. This measure introduces a new criminal offence for those who have income or gains outside of the UK and evade their UK income tax or capital gains tax responsibilities. The offence cannot apply if the taxpayer can satisfy the court that they had a reasonable excuse for failing to comply with UK tax obligations. Conviction can result in a fine or prison sentence of up to 6 months. The Finance Bill is making its way through parliament and at this time there is no confirmed date of application as the measure is subject to a commencement order. The offence will not apply retrospectively but will first apply in respect of the tax year in which the offence is introduced.
The Finance Bill will also introduce new civil penalties linked to the value of the asset on which tax was evaded, alongside increased public naming of tax evaders. Civil penalties will also apply to those who “enable” offshore tax evasion. With a focus on “enablers”, a proposal for a new corporate criminal offence of failure to prevent the facilitation of tax evasion was under consultation last year but no provisions have yet been introduced.
Establishing a level playing field for VAT
Osborne stated that some overseas traders from beyond the EU avoid paying UK VAT, “undercutting online and high street retailers and abusing the trust of UK consumers who purchase goods via online marketplaces”. The Budget report sets out how HMRC will be able to require non-compliant overseas traders to appoint a tax representative in the UK, and will be able to inform online marketplaces of the traders who have not complied. If traders continue to evade VAT and no action is taken to prevent the fraud, then online marketplaces can be made liable for the VAT.
While the government continues to take action domestically, it argues that the global nature of the fraud means international action is also required. The UK has already raised this issue with EU and international partners and the EU and OECD’s current work programmes include further work to help combat this fraud. Indeed, the European Court of Auditors published a report on 7 March 2016 on “Tackling intra-Community VAT fraud: More action needed” - focusing on links to organised crime.
£12bn to be raised in this parliament
The chancellor is hoping his comprehensive package of measures should bring in £12bn within the next parliament. Supporting this, the HMRC departmental plan 2015-20 focuses on increasing the number of criminal prosecutions relating to serious and complex tax crime, with the focus on wealthy individuals and corporates with a goal of 100 such prosecutions by the end of this parliament. Whilst £12bn is the headline figures HMRC is expected to secure a compliance yield of £27m for this coming year. With re-affirmed commitments to tackle tax evasion and new legislative powers with which to do so, HMRC look set to continue the trend of investigation and prosecuting individuals, companies and those who advise them.
This article first appeared on www.economia.icaew.com.