Last week 51 countries, including the UK, signed an agreement designed to tackle tax evasion by facilitating the automatic exchange of financial information between countries. Under the agreement, drawn up by the Organisation for Economic Co-operation and Development, countries will facilitate the collection and exchange of information on bank accounts and the beneficial ownership of companies and other legal structures such as trusts. Signatories to this agreement include the leading offshore investment centres, such as the BVI, Cayman Islands, and Liechtenstein, as well as the four Crown dependencies and overseas territories, with whom the UK had entered into similar intergovernmental agreements on the automatic exchange of financial information last year. Since the end of June this year, financial institutions in the Isle of Man, Guernsey, Jersey, and all of the UK’s Overseas Territories with financial centres have been collecting information on UK residents’ offshore accounts to share with HMRC. The first deadline for the reporting of information about non-resident account holders between the signatories to the OECD agreement is in 2017.
It is hoped that in addition to assisting with the detection of tax evasion, the automatic exchange of information will act as a deterrent, increasing voluntary compliance and encouraging taxpayers to report all relevant information. It also comes at the same time as the conclusion of the Government consultation on a new strict liability criminal offence of failing to declare taxable offshore income and gains. As part of the consultation, HMRC has argued that it needs the threat of criminal sanctions in addition to the currently available civil penalties and states that it has given people generous opportunities to put their offshore tax affairs on the right footing by way of time limited disclosure facilities. These allow taxpayers to come forward and clear up tax liabilities on the best terms available, including guaranteed low penalty rates and limited assessable periods. These disclosure facilities are due to close in 2016.
If the proposed strict liability offence becomes law, in order to successfully prosecute an individual HMRC would only need to demonstrate that a person failed to correctly declare their income or gains. It would not be necessary for the court to ascertain the state of mind of the defendant before convicting. Therefore it would not be necessary to prove that they had the intention of defrauding the Exchequer. The reason why the individual broke the rules will not be relevant, other than potentially as mitigation.Tax advisors have argued that the introduction of such an offence is unfair, given the complexity of the rules and ease with which mistakes can be made. However, given the growing international impetus to combat tax evasion, their arguments may fall on deaf ears in HMRC. For the government to enact such a draconian offence would be a dramatic shift in tax enforcement policy, not unlike the similar manoeuvre to remove dishonesty as an element of the cartel offence. However, watering down the threshold for criminal offending does not always make it easier to get convictions and the government is almost certainly going to have to concede that defences to the new offence would include the taking of professional advice and taking reasonable care in the conduct of one’s tax affairs.