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Criminal Investigations and the Changing Environment

By admin
01 Jul 2015
Tax Investigation

I spent around six hours with Queen’s Counsel yesterday debating various technical issues and, of course, addressing the current change in environment. I have to inform all that the instructed QC (mail me for details) is an excellent Queen’s Counsel and addresses tax risks openly and with consideration to the practicalities of defending a client’s position. However, it is revealing that we automatically consider a client’s defense almost as if whatever planning is undertaken will be challenged. This is however not the case. Obviously some planning will not be challenged although some advisers are concerned that HMRC are ridiculously challenging previously acceptable planning. HMRC are on steroids (or amphetamines)!

The discussion with Counsel centred largely on duality of purpose and obtaining a deduction against profits chargeable to tax. I was in technical heaven although the discussion highlighted a new approach being taken by the courts, which will form a topic for our next newsletter and will be of significant interest to professionals preparing tax accounts.

The change in environment is probably best illustrated by the amalgamation of two of HMRC’s investigations teams. Previous articles have highlighted how criminal investigators are now accessible by investigation teams from the outset of an investigation. However, anyone working in a big organisation will know that there is a difference between accessible and working together: an open plan office doesn’t mean barriers are broken down. Merging a department, which would involve tying in performance criteria would incentivize the desire to work together.

The move by HMRC is to target serious tax crime more effectively. Specialist investigations and criminal investigations will merge allowing HMRC to better share expertise and knowledge and approach investigations with a view to criminal prosecution from the outset. Really, are there going to be more prosecutions? Our article “The future of HMRC prosecutions” is worth a read alongside this one.

The news of the merger came ahead of the first and rather exciting Conservative budget, which only goes to enforce the change in our tax environment. The push for greater disclosure to HMRC continues.

In 2017 HMRC will begin to receive information about offshore accounts, creators of offshore structures and beneficial owners and will at the same time share information with other tax authorities. So exciting that the mere fact should concern anyone with things offshore. Not necessarily for unpaid taxes but for the inconvenience of pending enquiries (and possibly unpaid taxes).

Financial intermediaries (including tax advisers) will be required to take a more active role in the application of the Common Reporting Standard and will be required to tell their clients about their reporting obligations under the regime.

HMRC will receive more funds to use this information to tackle tax avoidance and pursue criminal investigations of wealthy taxpayers and a specialist resource will be created to focus on non-compliance by trusts, pension schemes and non-domiciled individuals. The reader should remember that the new strict criminal offence is on its way (again see the article on The Future of HMRC Prosecutions).

There will be a new settlement opportunity. A time-limited disclosure facility will start in early 2016 under which someone may correct their tax affairs before information is shared under the Common Reporting Standard. Existing routes for resolving historical issues in taxpayer’s affairs, the Liechtenstein Disclosure Facility and the Crown Dependencies Disclosure Facility are being brought to an end this year. Next year’s limited new disclosure facility (which will be less generous than previous disclosure facilities) is likely to be the only route open and therefore it is more prevalent that people check their tax affairs now.

The Government are also launching a consultation process in respect of new penalties for breach of the General Anti-Abuse Rule, which targets artificial tax avoidance schemes. The indication is that the penalty will be proportionate to the amount of tax recovered and taxpayers who repeatedly use tax avoidance schemes caught by the General Anti-Abuse Rule will be “named and shamed”.

The chances of being caught are increasing and it is likely that investigations will become more common for wealthy individuals. Now is the time to review planning and structures (especially offshore) to make sure they will withstand scrutiny.

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