Government's financial rewards for informants who reveal revenue offences is not an unheard phenomenon, and it's not restricted to the UK, writes Sophie Mazzier
Panama Papers, Paradise Papers – both misnomers, I believe, since I have come to the conclusion that they should perhaps be collectively renamed the 'Payment Papers' – although one must not forget that there was no 'payment' as such for the data when it was originally 'obtained' from the law firms in question.
Much airtime and many column inches have recently been dedicated to the issues surrounding offshore trusts and offshore funds and the opportunities they may or may not afford in relation to the payment (or non payment) of tax, legitimately or otherwise, and I am not going to add to them here.
What caught my interest was the surprise expressed by Labour MP Meg Hillier in her role as Chairman of the Public Accounts Committee who, during her part in the recent examination of HMRC’s performance in 2016/17, confessed to be 'reeling' from the news that HMRC (the second largest law enforcement agency in the UK after the Metropolitan Police) not only had the power but had used it to pay for data it had obtained following publication of the Panama Papers. While the HMRC representative did not divulge the source of that power in the meeting, I have since learned that as long ago as 1868 Parliament gave its approval to the Commissioners of the Inland Revenue to reward a person who informed them about a revenue offence.
The current legislation (s26 of the Commissioners for Revenue and Customs Act 2005) provides: 'The Commissioners may pay a reward to a person in return for a service which relates to a function of the Commissioners or an officer of Revenue and Customs.'
Ms Hillier should not have been surprised. Again many column inches have been dedicated to revealing such payments, and not just in the UK. Last year it was reported that tax officials in Denmark were paying for financial information on Danish nationals; government officials in Germany have reportedly done the same. The BND (the German Federal intelligence service) were involved with the purchase of data, where (perhaps ironically) the payment was reported to subject to 'a flat 10 per cent rate for informants'. The position is similar in the USA, where whistleblowers are paid based on the amount of money their information recovers. The IRS caused a stir in 2011 when it proposed to withhold tax on the payment of such awards.
There is some logic in this. If tax payers’ money is used to purchase information, then a return in the form of both tax on that payment and revenue recouped from previously evaded tax is in order. I suspect taxpayers will never know whether this represents value for money and it is not known whether HMRC will use it powers again following the recent disclosures. The HMRC representative confirmed that a request for information had been made of the Guardian newspaper and the ICIJ but no reply had been forthcoming.
Sophie Mazzier is senior counsel at boutique private wealth law firm Maurice Turnor Gardner LLP