HM Revenue and Customs have made 640 requests for information on individuals’ tax affairs to overseas governments in 2011-2012 (year ending 31st March) according to Pinsent Masons, the international law firm.
Phil Berwick, Partner* at Pinsent Masons, comments: “Taxpayers hiding assets from HMRC overseas are running out of places to hide. HMRC will use every tool in its arsenal to find out where people have assets.”
The tax requests were made under ‘Double Taxation Agreements’.** HMRC has one of the world’s largest networks of Double Taxation Agreements and Tax Information Exchange Agreements, with agreements to share individuals’ tax data with over 100 other countries.
HMRC is constantly expanding this network, and in 2012, it signed new agreements with Barbados, Liberia, Brazil, and Grenada amongst others.
Phil Berwick adds: “HMRC will come down very heavily on those it suspects are hiding assets. It is far better to get on the front foot and tell HMRC about an undisclosed offshore asset or other problem before HMRC finds out begins an investigation. There are various mechanisms people can use to report their undeclared overseas funds and assets to HMRC so there really is no excuse not to.”
Phil Berwick adds: “Taking a pro-active approach and using facilities such as the Liechtenstein Disclosure Facility to declare any offshore assets could help limit the risk of a criminal prosecution.”
Amongst the countries most frequently targeted by HMRC in 2011 were Australia (96 requests), Spain (49 requests) and Ireland (38 requests).
Pinsent Masons adds that HMRC has recently received a list of HSBC customers with offshore accounts in Jersey from a whistleblower, demonstrating the breadth of sources available to HMRC in its pursuit of missing taxes.
Phil Berwick says: “The use of whistleblowers and other forms of covert intelligence shows the lengths to which HMRC is going in order to recover missing taxes.”
“HMRC offers rewards to those that provide tip-offs or information about suspected tax evasion. With whistleblowing cases in the headlines, these types of leaks might become more common as potential whistleblowers follow the example set by others.”
However, Pinsent Masons adds that the new figures show that there is not a bottomless pit of tax avoiders or evaders for HMRC to target.
The number of HMRC requests declined 40% last year from the 857 requests made in 2010-2011.
Phil Berwick says: “HMRC has begun investigations into thousands of individuals with overseas assets in the last few years, and will probably have picked off most of the low hanging fruit.”
“HMRC teams have built up a very extensive picture of the assets they think are undeclared, so they will now be able to adopt a targeted approach. Many potential targets might also be coming forward voluntarily through the Liechtenstein Disclosure Facility, saving HMRC from launching an investigation. HMRC’s recent tough approach has prompted people onto the straight and narrow.”
Phil Berwick adds: “It may also be the case that HMRC’s heavy workload is catching up with it. The recent NAO report on HMRC’s compliance performance revealed that HMRC had 41,000 open avoidance investigations. HMRC has pushed very hard on compliance recently and may be hitting capacity.”
**Double Taxation Agreements are designed to prevent an individual’s income or assets being taxed in two different countries. However, Double Taxation Agreements provide tax authorities with the opportunity to find out the value of assets an individual has declared overseas, which helps authorities assess the tax liability of that individual in their ‘home’ tax jurisdiction.
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