1. INTRODUCTION

1.1 This seminar paper is intended to supplement our overview session in relation to the Guernsey Disclosure Facility (the "GDF") which was announced on 9 April 2013 following the signing of a Memorandum of Understanding between Her Majesty’s Revenue and Customs ("HMRC") and the States of Guernsey.

1.2 This seminar paper is divided into two parts:

  1. the background to the GDF; and
  2. a summary of the provisions of the GDF.

2. BACKGROUND TO THE GDF

2.1 The GDF is part of a three part "tax package" that the States of Guernsey have agreed with the UK. This is following the announcement by the Chief Minister on 15 March 2013 that Guernsey is in the process of finalising intergovernmental agreements with the UK. The proposed "package" comprises:

  1. agreement in principle to enhanced reporting of tax information along FATCA principles through an Intergovernmental Agreement ("IGA"), with alternative reporting arrangements for non-domiciled UK tax residents (non-doms);
  2. agreement to negotiate a revised Double Taxation Agreement with the UK; and
  3. agreement on a disclosure facility.

2.2 The agreement to this tax package is largely a continuation of Guernsey’s commitment to transparency and tax information exchange, thereby maintaining its status as a reputable jurisdiction. Guernsey has already entered into 43 Tax Information Exchange Agreements. In that regard, the Chief Minister made the following statement following the agreement to the tax package:

"Guernsey is fully committed to combating tax evasion and the principle of automatic exchange and our twin IGA approach to US / UK reporting will provide our industry with a very strong platform to compete on the world stage against weaker, less transparent and compliant jurisdictions. The agreement that we are working towards with the UK will be consistent with our belief that Guernsey's long-term sustainable economic future is best served by safeguarding our position and reputation as a respected, well regulated, tax transparent jurisdiction. With such a UK agreement, automatic exchange under the EU Savings Directive and importantly an IGA arrangement with the US for FATCA now almost concluded, we believe Guernsey business will have both certainty and a competitive advantage [our emphasis]".

2.3 This commitment is re-enforced in Guernsey’s policy on Tax Information Exchange Agreements and Double Taxation Arrangements (updated to June 2013) (the "Tax Policy Document") and for example it is written that:

"The Government of Guernsey has a long-standing commitment to being a well-regulated, co-operative and transparent international financial centre" and that "Guernsey has been fully committed to the OECD Project on Transparency and Exchange Information for Tax Purposes for many years".

2.4 Guernsey’s increased commitment for the most part is in response to the continued scrutiny and criticisms of off-shore financial centres as "tax havens" following the financial crisis, budget deficits in (and therefore increasing public sector debt) in G8 and G20 economies. Indeed, an illustration of the increasing importance of this in the international context is that the second item on the agenda for the G8 summit (after the civil war in Syria) chaired by Prime Minister Cameron, was on how world governments can combat money laundering and tax evasion.

2.5 Guernsey is seeking to continually reassure the UK and the global community that Guernsey is a reputable and transparent jurisdiction and is committed to those principles and information exchange and is taking appropriate steps. By way of example, in the Tax Policy Document referred to above, the States has made it clear that:

"As an offshore financial centre, Guernsey is often unfairly criticised as facilitating tax evasion and tax avoidance. Guernsey values its international reputation as a financial centre in the premier league of transparency and information exchange. To defend that reputation, Guernsey often finds it appropriate to go one step beyond what may be expected of it in satisfying basic international standards".

2.6 Further, in response to Prime Minister Cameron’s letter to the Crown Dependencies and the Overseas Territories ahead of the G8 summit, below, the Chief Minister, Peter Harwood made the following comment on 20 May 2013:

"I welcome the UK Prime Minister's invitation to support its work on tax, trade and transparency as chair of the G8. Guernsey continues to demonstrate its commitment both to tax information exchange and to ensuring that the information exchanged meets the agreed international standards. This commitment has been confirmed through the independent assessment of organisations such as the OECD, the IMF and the World Bank. In addition, the fact that Guernsey is one of the jurisdictions which has been recognised by the UK government as meeting its own highest standards of tax information exchange shows that the UK is aware that Guernsey is part of the solution to tax evasion and not part of the problem".

"We welcome the forthcoming G8 meeting's focus on company ownership. Guernsey is one of only a handful of jurisdictions in the world that actually regulates corporate service providers and we also meet Financial Action Task Force's key recommendations on beneficial ownership".

2.7 Increased personal taxes in the UK as one of the means of reducing public debt has not been received well by the electorate, particularly given reports that large companies such as Starbucks, Google and Amazon have not been paying as much tax as would have been expected in the jurisdictions by structuring their affairs through offshore jurisdictions.

2.8 This increased pressure in the UK domestic context means that the UK government and, in particular HMRC, are looking to recover as much unpaid tax as possible. In that regard HMRC has stated in its publication "No safe havens - Our offshore evasion strategy 2013 and beyond" that the UK government has committed approximately £1 billion for the period 2010 to 2015 to specifically tackle tax avoidance, evasion and fraud. HMRC is investing in 2,500 extra staff and cutting edge technology and has set up a dedicated Offshore Co-ordination Unit.

2.9 The UK strategy and means of drawing in this tax, is by means of ensuring greater sharing of information between governments. In the "No Safe Havens" publication (referred to above), HMRC confirms that to date the UK has a network of 137 agreements that allow HMRC to exchange information on taxpayer’s affairs with tax administrations overseas, including bank account and investment information. Indeed, the importance of information exchange agreements was discussed at the G8 summit. The rationale is that increased level of tax information agreements and exchange of information will result in greater multi- jurisdictional information flow and therefore an increase in the likelihood of "tax evaders" getting caught. HMRC states in its "No safe havens" publication that:

"Those who are determined to continue breaking the law by evading tax will find that the strongest penalties are imposed on them. The time has come for those with hidden offshore interests to come forward: there are no safe havens for tax evaders".

2.10 In that regard, and prior to the GDF, HMRC had also already entered into a number of bilateral agreements with other individual countries to address historic tax evasion. These include:

  1. The Liechtenstein Disclosure Facility (the "LDF");
  2. The UK-Swiss Co-operation Agreement; and
  3. The UK-US Agreement to Improve International Tax Compliance and to Implement Foreign Account Tax Compliance Act ("FATCA").

2.11 Similar to the GDF, the LDF also offers people with unpaid taxes linked to offshore accounts or assets the chance to settle their tax liabilities voluntarily. In its paper, HMRC has confirmed that 4,000 registrations have been made under the LDF. £481 million has been recovered to date under the LDF and it is expected that £3 billion will be recovered by 2016.

2.12 The UK Swiss Co-operation Agreement came into force on 1 January this year and covers Swiss bankable assets only. According to HMRC this is the largest tax evasion settlement in UK history and is expected to secure £5 billion through a significant one-off payment to address tax evaded in the past and a withholding tax on future investment income and gains arising in Switzerland. The agreement also introduces new ways, through co-operation, for HMRC to uncover information on Swiss bank accounts. It is reported that this facility has already brought in £340 million in tax.

2.13 The GDF is another one of HMRC’s and the UK Government’s initiatives to flush out unpaid tax and reduce the UK’s budget deficit. HMRC has publicised that it is expected that approximately £1 billion will be recovered through the disclosure facility agreements with Jersey, Isle of Man and Guernsey.

3. SUMMARY OF THE PROVISIONS OF THE GDF

Introduction

3.1 Against this background, Guernsey concluded the GDF with HMRC on 9 April 2013. The GDF provides an opportunity for UK tax residents with undeclared tax liabilities to disclose and settle those liabilities in advance of information being passed automatically between Guernsey and the UK from 2016.

3.2 Persons with unpaid UK tax liabilities, who do not come forward under the GDF, face investigation, possible criminal sanction and penalties if HMRC receives information following the September 2016 cut-off date.

Key Dates

3.3 The GDF is available from 6 April 2013 to September 2016 and therefore "relevant persons" (see below) must register with HMRC by September 2016.

3.4 Under the GDF the States of Guernsey has agreed to require financial intermediaries in Guernsey to:

  1. contact "relevant persons" twice to notify them of the GDF:
    1. prior to 31 December 2013; and
    2. in the six months leading up to 30 September 2016; and
  2. continue to ensure that financial intermediaries properly apply Guernsey legislation for the prevention of anti-money laundering.

3.5 For the purposes of the GDF, "financial intermediaries" are persons who hold or are required to hold a licence under the Financial Services Commission (Bailiwick of Guernsey) Law, 1987 i.e. any person holding a licence under the following regulatory laws:

  1. The Protection of Investors (Bailiwick of Guernsey) Law, 1987;
  2. Banking Supervision (Bailiwick of Guernsey) Law, 1994;
  3. the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000;
  4. The Insurance Business (Bailiwick of Guernsey Law), 2002; and
  5. The Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.

Persons who can use the GDF

3.6 The GDF is available to the following "relevant persons":

  1. Individuals who have a "beneficial interest" in "relevant property" and were or are UK resident at some point in the period 6 April 1999 to December 2013.
  2. Legal persons who have a "beneficial interest" in "relevant property" and who were or are incorporated or resident in the UK at some point in the period 1 April 1999 to 31 December 2013.

3.7 Under the GDF the following is "relevant property":

  1. an account held with a bank or financial institution in Guernsey;
  2. an annuity contract or cash value insurance contract issued or maintained by a financial institution in Guernsey;
  3. a company, partnership, foundation, establishment, trust, trust enterprise, or other fiduciary entity, estate, cash value insurance or annuity contract that is issued, formed, founded, settled, incorporated, administered or managed in Guernsey.

3.8 Under the GDF a "beneficial interest" in relevant property is broadly defined as:

  1. In the case of an individual, persons who on or after 6 April 1999 have held or controlled any share in or received profits of a legal person (other than those that are listed or collective investment schemes) or a body without legal personality (e.g. partnership interest);
  2. In the case of a trust:
    1. the settlor;
    2. principal beneficiary;
    3. a person entitled to income or capital;
    4. a person who has received a distribution since 6 April 1999; or
    5. a person who has been provided with the benefit in a given tax year, of an asset or any number of assets from such entity since 6 April 1999;
  3. In the case of a Bank Account:
    1. the person in whose name the account is held if the person is a UK entity or the individual who is the beneficial owner of the account; or
    2. if the account is held in the name of a natural person who is not the beneficial owner or in the name of a legal person other than a UK company, the person who would be identified as the beneficial owner in forms provided to the financial intermediary by that person pursuant to the anti-money laundering legislation and regulations;
  4. In the case of an insurance or annuity contract:
    1. The person entitled to access the cash or to change the beneficiary of the contract; or
    2. If no person can access cash or change the beneficiary, then the person named as the owner in the contract or who has a vested entitlement to payment under the contract and the person entitled to receive a payment under a cash value annuity contract or annuity contract upon its maturity.

Benefits of applying under the GDF

3.9 The period over which the individual may be assessed will be limited to UK tax periods from 1999/2000 onwards. The normal period would be 20 years.

3.10 Where there was no deliberate under-declaration of UK tax liabilities and the individual can show that he or she took "reasonable care" with his or her tax affairs, the assessment period may be shorter.

3.11 A fixed penalty of between 10% and 40% of the underpaid tax will apply. The exact rate, however, will depend on the nature of the failure, the tax year to which it relates and where the assets or interest to which it relates are located. No penalty will apply where a person took "reasonable care". By way of comparison, in the case of unprompted voluntary disclosure outside of the GDF the maximum penalty is 100% of the undeclared tax where it relates to assets or interests in the UK or 200% where it relates to assets in in offshore jurisdictions.

3.12 Importantly, there is no automatic immunity from prosecution under the GDF (as is the case with the LDF) and HMRC retains its sole discretion to apply their published criminal investigation policy in appropriate cases. However, HMRC have stated that if an individual fully co-operates with HMRC in relation to the GDF that person is unlikely to be subject to criminal investigation for a tax-related offence for past liabilities, unless the assets or funds involved represent the proceeds of crime.

3.13 There is no minimum amount that must be invested in Guernsey to take advantage of the GDF and an individual can therefore create a Guernsey footprint, by for example, opening and depositing a nominal amount with a bank account in Guernsey prior to 31 December 2013.

3.14 The terms of the GDF do not apply to individuals or legal persons who:

  1. are subject to an open investigation by HMRC on 6 April 2013 that has not been concluded by that day;
  2. have participated in, engaged with or been approached by HMRC in respect of any previous published disclosure facility;
  3. is a "relevant person" under the UK/Swiss Agreement referred to above.

3.15 The following property is not "relevant property" for the purpose of utilising the GDF:

  1. an account with a bank or financial institution held outside the UK or Guernsey which was opened through a UK branch;
  2. property that constitutes "criminal property" within the meaning of section of 340 of the UK Proceeds of Crime Act 2002 by virtue of being a benefit from criminal conduct other than illegal tax evasion (not limited to UK tax).

Procedure

3.16 An "application to participate" needs to be completed and submitted to HRMC prior to 16 September 2016 in the prescribed form. This application is available on the HMRC website. At this time the relevant person needs to include confirmation that they are eligible to participate in the GDF and provide an outline of the disclosure.

3.17 HMRC will acknowledge the "application to participate" form and provide an "application participation number" and confirm whether to use Disclosure Pack A or Disclosure Pack B. Disclosure Pack A relates to where disclosure is limited to details of a bank account which has been funded by sums on which the applicant has paid the correct amount of tax, but has previously failed to disclose the interest arising. Disclosure Pack B will cover all other eventualities.

3.18 On the application being it is expected that the amount of the unpaid tax, interest, and penalties will be deposited with HRMC and that any further tax will be paid within 30 days of the notification. This is referred to as the "financial commitment". Failure to make payment without good cause can result in the application being withdrawn. Guidance on how to calculate what must be paid is set out on the HMRC website and professional advice is recommended in calculating the amount.

3.19 The disclosure must:

  1. include the personal details of the relevant person (i.e. name, date of birth and address or incorporation number and registered office) and the tax reference number;
  2. include an offer to HMRC for settlement of the tax, which if accepted by HMRC, creates a binding contact;
  3. be full, accurate, complete and include disclosure of all previously undisclosed UK tax liabilities for every UK tax year from 6 April 1999 – 5 April (for individuals) or every accountable period from 1 April 1999 to 31 March (for companies) before the application is made;
  4. be accompanied with sufficient information to show how the undeclared tax liabilities were computed with reference to the GDF;;
  5. include a statement of worldwide assets and liabilities to most recent 5 April before disclosure;
  6. a declaration that the disclosure is full and complete;
  7. full contact details of any person who has provided professional advice in relation to making the application to participate in the GDF; and
  8. a payment covering the remainder of the tax liabilities not already paid plus interest and penalties.

3.20 In terms of timing:

  1. HMRC expect to receive the disclosure pack within six months of an application to participate;
  2. HMRC will acknowledge disclosure within 30 days of receipt;
  3. HMRC will aim to finalise the disclosure within nine months of receiving the application to participate; and
  4. if HMRC cannot accept the disclosure it will open an inquiry and write to the applicant.

3.21 HMRC is also providing a "bespoke service". This is described as a personalised service which, without prejudice to HMRC’s general powers, allows for:

  1. the possibility of initial anonymous contact by a professional adviser (including financial intermediary) to discuss with HMRC the circumstances of a relevant person on a "no names" basis;
  2. the possibility for a person to have a single point of contact within HMRC to ensure consistency of treatment; and
  3. the due consideration by HMRC of:
    1. residence and domicile claims made by any person, subject to the provision of fully supporting evidence;
    2. estimate offers to settle UK tax liability, subject to receipt of evidence justifying such evidence;
    3. offers to pay instalments of outstanding tax, penalties and interest in instalments;

Practical points

3.22 All financial intermediaries should be or be in the process of determining which clients need to be notified under the GDF and writing to them to advise them about the GDF and suggesting that they contact their tax/accounting advisers for assistance. It should be borne in mind that if you have clients who hold relevant property in Jersey or Isle of Man they may wish to utilise those facilities. AO Hall would be happy to review or produce any template form letter for and on behalf of licensees.

3.23 It should be borne in mind that if a financial intermediary is unsure or has any queries in relation to a particular set of circumstances, the HMRC helpdesk can be contacted on a no-names basis using the "bespoke service".

3.24 Financial intermediaries need to bear in mind that should it come to their attention that any of their clients may not have paid tax, this may constitute a reportable transaction under anti-money laundering obligations under the relevant regulations requiring the submission of a suspicious transaction report.

3.25 The additional considerations discussed in the case studies presented at the seminar should be considered.