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HMRC consults on new offshore tax avoidance offence

19 August 2014

Failing to declare taxable offshore income and gains is to become a criminal offence, under proposals just published by HM Revenue & Customs.

A consultation paper launched today by HMRC seeks views on the design of the new offence and on what the appropriate safeguards should be.

Although a series of agreements between the UK authorities and foreign jurisdictions has recently enabled HMRC to access new information on UK-owned assets located abroad, the paper says there are still a number of reasons why offshore non-compliance with UK tax law remains more difficult to detect and tackle.

The Government has therefore decided to introduce a new strict liability summary criminal offence of failing to declare taxable income and gains arising offshore. The prosecution would still need to demonstrate to the criminal standard that a person failed to correctly declare the income or gains, but not that they did so with the intention of defrauding the Exchequer.

This would complement existing offences by introducing a new, simpler offence, with less serious sanctions than existing criminal offences – albeit more serious than a civil penalty – without the requirement to demonstrate the mens rea. HMRC would continue to investigate cases of fraud and cheat using existing
powers, and with a view to ensuring that the most serious cases receive the most serious punishment.

The consultation asks a number of questions about the scope of the offence; measures to ensure proportionality – including a de minimis (minimum seriousness) threshold; the proper level of sanction, including whether custody is appropriate; and the legal and operational safeguards and statutory defences. The 20-year rule limiting how far back HMRC can look at a taxpayer’s affairs could also be suspended. The paper adds that the design of the new offence is still at an early stage, and the views expressed in response to the consultation will steer the way the offence is constructed and how it is ultimately used by HMRC.

Most offshore cases will continue to be dealt with through a civil approach. A further consultation paper sets out the government’s plans to introduce tougher civil sanctions for offshore evaders, including those who move their taxable assets between offshore banks in different countries in an attempt to hide their wealth and evade tax.

"There is nothing wrong with holding assets offshore, but investors must pay the tax they owe here", commented David Gauke, Financial Secretary to the Treasury.

“Over 56,000 people have already told HMRC about what they owe offshore and HMRC has offered opportunities to clear things up as quickly and easily as possible. Those that don’t come forward must face tough consequences, including a criminal conviction.”

Click here for the criminal offence consultation and here for the civil sanctions consultation.

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