THE ARREST OF two British citizens on suspicion of using Swiss bank accounts at HSBC bank to evade tax signals a new, and long-awaited, phase in HM Revenue & Custom’s (HMRC) four-year crackdown on offshore tax havens.
Anticipation of such arrests has grown since the taxman first gained access to offshore bank account details in 2007, and more arrests are likely to follow in relation to suspected tax evasion within and outside the UK as the taxman gets tough on hardened tax dodgers. HMRC has declined to comment on the arrests of the British citizens.
Before the arrests last December, HMRC had encouraged taxpayers to come forward voluntarily in two “amnesties”, or disclosure facilities, offering people reduced penalties in return for coming clean about their finances. That was the carrot, now comes the stick. HMRC is hoping that possible criminal prosecutions (the two British citizens have not yet been charged) will act as a powerful deterrent and encourage more people to own up about tax owed on the interest from money in offshore bank accounts.
Line in the sand
Gary Ashford, head of tax investigations at RSM Tenon, said the arrests are a “line in sand” drawn by HMRC, to demonstrate that it has strong data on offshore accounts.
Ashford, who is also chairman of the management of taxes sub-committee at the Chartered Institute of Taxation, said he is certain that HMRC will make more arrests of suspected tax evaders, as its offshore crackdown enters its fourth year.
Further arrests will likely fuel demand for the tax disclosure facility the government has agreed with the tax haven of Liechtenstein.
Britons with cash hidden in other offshore finance centres have transferred their money to Liechtenstein in order to take advantage of the unique deal, which charges a fixed penalty of 10% on undeclared investments – significantly lower than normal penalties. In addition, taxpayers using the Liechtenstein Disclosure Facility (LDF) are only liable for tax owed on income dating back ten years, rather than the usual 20 years.
The LDF has proved more popular than originally expected.
In an interview with Accountancy Age earlier this month, Dave Hartnett, permanent secretary for tax at HMRC, said that the LDF, which was introduced in 2009, could raise up to £3bn by 2015 – well above the original estimate of £1bn.
There have been suggestions that HMRC, which has seen tens of thousands of job cuts over the past five years, does not have enough staff to analyse the vast amount of data it has amassed from its offshore probes.
Others have accused HMRC of being too soft on tax evaders by offering them generous settlement terms in amnesties.
Richard Murphy, director of Tax Research UK and anti-poverty campaigner, has previously questioned why HMRC had not made any arrests in its offshore tax crackdown.
Do recent developments indicate that HMRC and other tax authorities worldwide, are beginning to get the upper hand in the campaign against tax evasion?
The fight back
Experts reckon that the automatic exchange of financial information between governments and tax havens, has gained momentum over the past few years. This has provided HMRC more bank account data to analyse and cross-reference with its own records of tax payers.
Whistleblowers have also given tax authorities a helping hand. The arrests of the two Britons are thought to have resulted from analysis of stolen data relating to the accounts of thousands of British residents that was passed to HMRC last year. The data, allegedly stolen by an ex-employee of HSBC’s Swiss private bank, was passed to the French authorities, who later passed it to the UK.
That data has proved particularly useful to HMRC in helping it track the electronic flow of money from the UK to Switzerland, the world’s best known tax haven, which is estimated to manage an estimated $1.8 trillion of foreign wealth.
The next step in HMRC’s offshore crusade is to agree a “withholding” tax with Switzerland. The tax would require Swiss banks to collect a percentage of the tax owed from the interest on the money earned in their accounts on behalf of HMRC. The advantage of the deal for the Swiss banks is that it would preserve customers’ anonymity.
A withholding tax would be a second-best option for HMRC. It would prefer to do a deal under which Switzerland would automatically send the UK details of Britons with income received from Swiss bank accounts. That would help HMRC quickly spot potential tax evaders and encourage people with Swiss bank accounts to come forward about tax owed. However, HMRC officials privately concede that agreeing an automatic information exchange deal with the Swiss is unlikely, hence talks about a withholding tax.
But, according to Murphy, the decision by the UK and German governments to discuss a withholding tax with Switzerland is a compromise too far. He warns it could undermine the international fight against tax evasion. HMRC could well argue that the arrests tell a different story.
HMRC has won its tenth successive case against tax avoidance schemes promoted by NT Advisors. The Court of Appeal has ruled that NT ... read more
HMRC is continuing to ramp up the number of raids on premises it carries out as part of criminal investigations, searching 761 properties in the last year
Five million taxpayers are ow using digital personal tax accounts (PTA) as part of the making tax digital strategy, HMRC said
Since the release of HMRC’s plans for digital tax reforms, many have agreed with the call for a delay