There will be no escape for evaders in George Osborne's speech, expects Tessa Lorimer of Withers
The coalition government unveiled two significant additions to HMRC's arsenal of anti-tax avoidance powers in the March 2015 budget. First, Chancellor George Osborne revealed that the remaining timespans for the Liechtenstein Disclosure Facility (LDF) and the Crown Dependency Disclosure Facilities (CDDF) were to be severely foreshortened, and that both would close at the end of 2015. This cuts four months off the original term of the LDF, and a full nine months from the CDDF's proposed span.
These facilities, it was revealed, are to be replaced by a new disclosure facility which comes into effect from 1 January 2016. This facility is expected to run for around eighteen months, up until the introduction of the Common Reporting Standards (CRS) which will come online from 2017, and will offer 'less generous terms' than the LDF and CDDF.
I expect that today's 'Emergency Budget' will contain much more detail on the terms of the new disclosure facility. All we have had to date is that the facility will be tougher than previous ones, with a penalty rate of 'at least' 30 per cent on assets disclosed, and no guarantee that disclosure will protect one from criminal investigation.
Compare this with standard fixed penalties of 10 per cent and the non-prosecution guarantee under the LDF, and a certain nostalgia for these more lenient facilities is understandable, even while they pass through their remaining few months of operation. The soon-to-be-revealed detail on the new facility's terms are more likely to contain further nasty surprises than to offer any comfort to the non-compliant taxpayer.
The second announcement in March was made by ex-Chief Secretary to the Treasury Danny Alexander, who proposed new anti-avoidance offences. These included a strict liability criminal offence for evasion through the use of offshore jurisdictions and linking 'those who enable evasion' to tax evaders for the first time by threatening them with the same civil penalties. A consultation was expected to follow and commentators predicted that the strict liability offence would be enacted in the Finance Act. And then… nothing.
However, I don't expect that the proposal will remain dormant for long, as the government are keen to see HMRC closing down every avenue for tax evasion. This is likely to involve the introduction of a sufficiently punitive level and range of penalties, as well as a strict liability criminal offence for offshore evasion to discourage anyone from considering it.
Accordingly, I expect that the budget will see a strict liability criminal offence introduced for the movement of non-compliant assets between offshore bank accounts in order to avoid being reported under the CRS. This, in combination with the existing civil penalty of up to 200 per cent of the value of the assets in an undeclared offshore account, will provide a strong disincentive to anyone considering hiding money in other countries.
This summer's budget is likely to provide a roadmap for anti-avoidance measures for the next few years. The introduction of the CRS in 2017 will profoundly, and perhaps irrevocably, change the relationship between taxpayers and tax authorities, with the latter having a nearly comprehensive view on the activities and assets of the former.
The question for this budget is how the government will prepare the way for the CRS, and the severity of the anti-avoidance measures that are introduced in the meantime.
One conclusion that can clearly be drawn now is that the provisions of the LDF and CDDF are more generous than any voluntary disclosure facilities that will come in their wake. Time is quickly running out for them both – waiting until the end of December 2015 will be too late to satisfy all of the requirements needed to enter the facilities – and the wise will choose to act now.
Tessa Lorimer is special counsel in Withers' tax investigations team