Yesterday, the much maligned prime minister tried to stifle critics with an emotive statement. Sophie McIntyre asks industry figures whether the proposed changes will make a difference.
David Cameron began his defence at the dispatch box yesterday by dressing down the media for making ‘hurtful and profoundly untrue allegations against [his] father,’ before tackling the criticism he faced over a £200,000 gift from his mother. Unexpectedly, Cameron took a stand in favour of inheritance–tax-avoiding and pre-death parental gifts – something he says we should ‘proudly support.’
‘Aspiration and wealth creation should not be dirty words’ – was Cameron’s key sound bite, before detailing his four-pronged strategy for dealing with tax evasion. First off, he announced that there would be new information sharing arrangements with the Crown Dependencies, although notably not Anguilla or Guernsey.
‘For the first time UK police and law enforcement will be able to see exactly who really owns and controls every company incorporated in these territories - Cayman Islands, British Virgin Islands, Bermuda, Isle of Man, Jersey, the lot,’ he said.
But does HMRC have the resource to become an effective tax haven policeman? Simon Rylatt, head of Boodle Hatfield's private client and family department, is doubtful. 'The desire for more information seems to be an ongoing mantra, both as a mechanism for acting as a deterrent and as a demonstration that something is "being done". As to the cost of such exercises and the resources that are swallowed up in dealing with them versus their actual effect in discovering criminal behaviour and retrieving associated tax, that all remains to be seen.'
David Sleight, a criminal defence litigator and partner at Kingsley Napley LLP, echoes Rylatt, saying: ‘[Yesterday]’s announcement fails to consider the resources at HMRC's disposal to properly enforce this new measure.’ ‘There are real industry concerns that Governmental pressure to crack down on tax evasion has resulted in HMRC applying its criminal investigation policy in an inconsistent manner.
‘Cases that would previously have been deemed ‘civil’ in nature are now being pursued as criminal investigations which take significantly longer, are more resource intensive and do not guarantee a financial return at their conclusion,’ said Sleight. ‘Implementing further criminal legislation risks stretching limited resources even further at a time where enforcement activity is already the highest it has ever been. If it is serious in its desire to transform revenue collection, the government needs to learn the lesson from business - you must invest first in order to generate income.'
Tellingly Sleight highlighted the fact that just two weeks ago the Office of Budget Responsibility admitted that HMRC is set to miss its target of collecting more than £1 billion from offshore tax evaders because of a lack of resources. ‘The OBR has admitted that the enhanced disclosure facilities aimed at collecting tax from Jersey, Guernsey and the Isle of Man will raise just £270 million rather than the £1.05 billion which had been expected – a £780 million shortfall,’ he added.
Moving on from the Crown dependencies and after briefly emphasising the importance of next month’s Anti-Corruption Summit, Cameron re-iterated an earlier announcement, issued in advance of the statement via press release. This was a proposal for new legislation- a law making it a criminal offence for corporations to permit their staff to facilitate tax evasion.
‘Under current legislation it is difficult to prosecute a company that assists with tax evasion, but we are going to change that, so will legislate this year for a new criminal offence to apply to corporations who fail to prevent their representatives from criminally facilitating tax evasion,’ he said.
However, those in the firing line seem unmoved. Tessa Lorimer, tax investigations special counsel at Withers doubts that this law will make much difference in practice saying that aiding and abetting evasion has been an indictable offence for many years and the powers have always been there to tackle it. ‘If the circumstances involve an agreement between two or more accomplices, prosecutors can also charge conspiracy to cheat the Public Revenue against the group.’
Victor Dauppe, tax partner at ABG group, notes that if assessments are properly conducted and transparency is upheld, then there is nothing illegal about ‘preserving anonymity’. Perhaps Cameron’s reaction to the media attention is a step too far and are changes to current structures really necessary?
‘Preserving anonymity, “Hiding money” as the press call it, is not unlawful for tax purposes providing income and gains are properly returned and self-assessed. It is no more unlawful to put money in a foreign bank account with a nominee name or an overseas company with nominee shareholders than it is to put the money in a sea chest under the bed,’ said Dauppe.
‘It must be the case that full transparency of public registries and ownership documents will make it easier for the fiscal authorities to check that income and gains are being correctly returned and self-assessed but is it necessary?
‘The UK and many countries have special anti-avoidance rules to tax the income and gains of foreign structures. The UK tax return specifically asks questions and requires a return of such income and gains.'
Dauppe even goes so far as to say that if Cameron closes one loophole, then another will surely open, as long as individuals have a choice:
‘A last point must be that where two (or more) legal ways exist to carry out a transaction, then in the absence of specific anti-avoidance legislation, there is no compulsion in law to carry out the transaction in one way rather than another and have the transaction taxed accordingly. It is a question of choice.’
And, finally, Cameron declared that there would be up to £10 million of government funding for a cross-branch task force, designed to analyse the Panama documents.
‘Now this hare has been let loose, we’ve just got to let it run,’ said Dauppe. One wonders whether he means a hare, or something with bigger teeth.