Following the Panama Papers authorities are preparing for global disclosure says Gary Ashford.
The leak of data from Panama is part of a larger story, one of tax authorities around the globe receiving huge amounts of information about their citizens holding assets abroad.
Above all, the latest deluge of detail through the media shows how the world has changed, along with the tools available to tax authorities.
The lesson is clear: Anyone with an overseas structure, or assets, should ensure they are tax compliant. Where appropriate, disclosure to HMRC for those with a UK reporting requirement would be wise, given what is likely to follow.
It is probable that the Panama leak will trigger serious tax investigations as the identities of those holding offshore assets there emerge. Civil penalties in the UK could mount up to 200 per cent of any additional tax. Also, a further 50 per cent penalty might be charged if funds were transferred to Panama to avoid detection.
The dice on disclosure was cast some time ago. The 2016 Budget introduced new offences relating to untaxed offshore assets, including a new strict liability criminal offence. There are also new civil offences for those enabling their clients to evade tax using overseas structures. HMRC may even name and shame evaders.
There is a tradition of schemes in the UK to encourage people to volunteer hidden holdings, usually in return for favourable treatment. In 2007, HMRC introduced the Offshore Disclosure Facility (ODF). This was the first ‘tax amnesty’, followed by another in 2009.
The most successful was the Liechtenstein disclosure facility (LDF) introduced in 2009, which was triggered by a disc containing the names of the UK clients of a Liechtenstein bank. The LDF was the only one to guarantee freedom from criminal prosecution. It ended on 31 December 2015, yielding over £1.1 billion from 6,000 disclosures.
HMRC may be about to give those who are non-compliant another nudge by launching a new disclosure facility. But it has already indicated that the terms will not match the generosity of the LDF.
The latest leaks need to be seen in the wider context of efforts to crackdown on non-compliance. The international community is seeking to counter tax evasion through the automatic exchange of personal information where bank account holders in one country hold them in another.
There is, in fact, an evolving history of tightening the rules to remove loopholes. The EU introduced the Savings Directive in 2005, but it only covered interest. It was possible to avoid the reporting requirement entirely by ‘wrapping’ bank accounts in company structures.
The game changer came with the introduction of FATCA in the US in 2010, a sweeping disclosure requirement that put obligations on financial institutions. They must report the details of US clients and confirm their own compliance with FATCA, or face a 30 per cent withholding tax.
Following on from FACTA, the UK signed agreements with all Crown Dependencies and Overseas Territories to provide details to HMRC of UK resident persons holding accounts, or interests in trusts overseas. The first reports will be made in September 2016.
The new Common Reporting Standard involving data sharing by tax authorities covering more than 100 jurisdictions, will start next year and in earnest in 2018.
What this all means is that for those who are non-compliant, the embarrassment of being identified through the media may be just the start of their problems.
Gary Ashford is a partner and tax investigation and disputes specialist at London law firm Harbottle & Lewis. He has previously worked for HMRC.