The mass of information provided to HMRC from UK citizens declaring accounts
through the Liechtenstein Disclosure Facility will be pounced upon by other UK
agencies, advisers warn.
The taxman must share information with other departments, despite assurances
that highly confidential information will stay under wraps in the amnesty.
This has left accountants and lawyers concerned as to how the advice they
have honestly given with regards to disclosing tax in Liechtenstein will be
treated if a client is later found to have made gains through criminal acts.
HMRC has already said it is “highly likely” the number of people using the
facility will shoot up as new Liechtenstein laws calling on banks to seek
evidence investors are UK tax compliant are endorsed.
At a recent event held at the British Bankers Association, advisers voiced
concerns about the flow of information from HMRC about their clients, and how
their work would be interpreted by the agencies receiving it.
In response Andy Cole, director of HMRC’s special investigations unit,
conceded it was unclear what demands could be made on the Revenue by other UK
agencies and overseas jurisdictions. “We can’t give any assurances about how tax
information exchange agreements will be used by other jurisdictions,” he said.
Other agencies have passed information between each other previously after
voluntary disclosures which have led to prosecutions, advisers have warned.
“There have been situations in the past where individuals have made a
disclosure and another UK agency has got wind and prosecuted them off the back
of it,” said Frank Strachan, tax director at Grant Thornton. “You could have
situations with the LDF where other UK agencies say ‘we want a bite of the
cherry’. There is a concern for advisers.”
Advisers face action if they are judged not to have taken reasonable care in
making sure clients’ returns are accurate. But the LDF scheme’s architects have
said that the concerns about information leakage are overblown and secondary to
the central aim of making sure all UK citizens use the facility to declare any
Philip Marcovici, a Zurich based lawyer who acted for the Liechtenstein
government in negotiations, said: “It’s not a reason for them not to comply with
their tax obligations. If they don’t want to play by the rules, then they
shouldn’t be living in the UK. There’s unlikely to be a better option to pay
your tax obligations under such agreeable terms.”
The issue rests on the Memorandum of Understanding between Liechtenstein and
HMRC trumping the tax information exchange agreement with Liechtenstein. The
Memorandum gives Liechtenstein the ability to control how confidential
information is provided to the taxman through the LDF until 2015, when the
HMRC, or any other UK agency, is unable to use the TIEA to glean data
directly from Liechtenstein until then. But with HMRC now receiving data from
Liechtenstein under the MoU, it would have to hand over that information to
other agencies, including SOCA, the Security Services, The FSA and the Serious
Fraud Office and the Financial Reporting Review Panel, if it is requested.
“They are duty bound to give the information,” said Jason Collins, tax
partner at law firm McGrigors. “That’s why [HMRC] can’t give a blanket guarantee
about how the information will be used.”
There are key safeguards in place to ensure the information is usually only
passed on in cases of criminal investigations, but the fact remains that other
agencies have a knack of digging up information, whether it be from
whistleblowers or from cross-border deals.
HMRC did exactly that when paying for information about Liechtenstein
accounts from a whistleblower.
Since the landmark deal was announced last year, HMRC has had to soothe the
fears of investors, accountants and financial institutions that the confidential
details will be kept in-house.
HMRC’s agreement with the European principality, spearheaded by HMRC chief
Dave Hartnett and Liechtenstein’s Crown Prince, is generally regarded as
“The long-term benefit to HMRC is improved UK tax compliance for
Liechtenstein investors and increased tax receipts from those wishing to benefit
from the favourable disclosure terms,” HMRC added.
In our view
HMRC has managed to pull off one of the most ambitious deals in tax avoidance
history. Now it must ensure that the issues raised here are nipped in the bud.
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