Tackling offshore tax evasion - a requirement to notify HMRC of offshore structures - CIOT comments

This consultation is considering the introduction of a new legal requirement that intermediaries creating or promoting certain complex offshore financial arrangements notify HM Revenue and Customs (HMRC) of their creation and provide a list of clients using them. Clients in their turn would be expected to notify HMRC of their involvement via a notification number on their self-assessment tax return or personal tax account. Those who fail to comply with these requirements would incur civil sanctions.

The proposed measure is intended to apply to arrangements which could easily be used for tax evasion purposes. However, as the government recognises, in many cases these arrangements are used for legitimate purposes. Therefore the challenge will be to design a system that gives HMRC the information it wants without placing excessive administrative burdens on professional advisers or duplicating existing reporting obligations.

In our response, we point out that the vast majority of professional tax advisers would never knowingly advise on any structure in relation to tax evasion. Professional Conduct in Relation to Taxation1, the guidance written by seven accountancy and taxation bodies (including CIOT) for their members working in tax is completely clear on this. A member must never be knowingly involved in tax evasion. We accept that it is possible that a structure, onshore or offshore, could be used for evasion by someone determined to break the law, but it is extremely unlikely that they would be doing it with a professional alongside.

We go on to say that if a new notification system can be designed which successfully provides HMRC with information about offshore tax evasion that they would not otherwise receive and which helps their investigatory work, then this deserves consideration. But since tax evasion or fraud can take place regardless of the form in which a taxpayer’s business is, or investments are, organised, the challenge will be to define what it is that HMRC really want and to ensure that the legislation/hallmarks are appropriate, so that both advisers and HMRC do not face an onerous compliance burden and HMRC are not inundated with information they neither need nor want.

Our comments are available here.