Government To Crackdown On Tax Evaders

Mar 20, 2015

Written By Billy Sexton, Editor, AllAboutLaw.co.uk

In the wake of the public outcry to the HSBC tax avoidance scandal, and possibly an attempt to harvest votes for the upcoming election, the government have announced further measures to “find and punish more evaders, deter more avoiders”.

As we outlined before, whilst tax evasion is completely illegal, tax avoidance merely involves “bending the rules of the tax system to gain a tax advantage that Parliament never intended… It involves operating within the letter – but not the spirit – of the law.”

So what do the government have up their sleeve?

Offshore Tax Evasion

The government announced a strict liability offence for those who don’t pay tax on offshore income. This means that there doesn’t have to be evidence of mens rea (intention), just merely an actus reus (action). “It will no longer be possible to evade large sums of tax and plead ignorance in an attempt to avoid criminal prosecution.”

And it’s not just those who partake in offshore tax evasion, the government are also coming down hard on those who enable offshore tax evasion. There will be a new penalty where enablers pay a fine equivalent to the sum paid to the enabler to assist tax evasion. This basically means if you drop £100k to an accountancy firm to help you evade some tax (you naughty little so-and-so), the firm that helps you would have to pay that money back in a penalty.

Additionally, it will be a corporate offence to prevent or facilitate tax evasion. Therefore, advisers, consultants and lawyers must make sure they are not helping people evade and also prevent it from happening in the first place.

The government have said that, “It is right the financial services industry should continue to play its part in tackling tax evasion… the government will legislate to take a power to require all financial institutions and tax advisors, to notify their customers: that HMRC is being sent data on offshore accounts; of the changes in the penalties for evasion; and of the final opportunity to disclose any unpaid tax”.

Tax Avoidance By Multinational Companies

The government are also keen to ensure multinational companies pay their taxes. New legislation will ensure that high levels of information on profit and corporation tax paid will be available to tax authorities. The government are also committed to introducing rules to tackle complex cross border tax arrangements.

Currently, some multinational companies argue that excessive risk, capital and intangible assets are located in low-tax countries and so profit should be directed there. The government want rules that attribute profit to where value is created. On top of this, if a company has a taxable presence in a country where it is not a tax resident, new rules will tax them based on the level and nature of the activity it undertakes in a specific jurisdiction.

Finally, dearest George Osbourne has introduced a new Diverted Profits tax with a 25% rate to counter arrangements whereby profits leave the UK. This will counter structures that circumnavigate international tax rules based and target arrangements that are typical of multinational businesses.

And there we have it, just some plans from the government to clamp down on tax evasion and avoidance.

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