.png)
.png)
KEY POINTS
- Too many offshore disclosure opportunities.
- 20% penalty for NDF was inevitable, but unhelpful.
- Unconfirmed prospects of further state-by-state agreements.
- What effect will this have on disclosures under NDO and LDF?
It’s a good job we’ve got a library page on the Taxation website, bringing together all the articles and news on offshore disclosure, because otherwise this trip into history would have been a lot harder to put together.
Which is surprising, because it was all meant to be over in less than a year.
The original offshore disclosure facility (ODF) was announced back in April 2007. Taxpayers had until June to register, and then until November to come forward with full disclosure, to get a 10% penalty.
Dire warnings were issued that if they did not do so the penalties would be much tougher when they were found out – as they inevitably would be, HMRC implied.
The problem was that, even before the first ODF had finished, there were rumours of a second one. I reported the background to this in my article nearly a year ago, Poor parenting.
By then, a year later, there were constant rumours of a further disclosure opportunity, but no formal announcement.
In July 2008, Dave Hartnett gave an interview to The Sunday Times in which he said that there would be a further disclosure opportunity, but with a more complex system for calculating tax penalties.
I said in my article:
‘The whole point about the ODF was that it was meant to be a one-off. As soon as you make it clear that it isn’t, the credibility of any subsequent statement that “you had better own up now” is seriously weakened. Other countries which genuinely do offer tax amnesties, such as Italy, have found that this is definitely an area where the law of diminishing returns applies.’
I also commented on the suggestion that the penalty on offer would be around 15%, pointing out that this seemed to be a long way from the 30% originally mentioned as the likely penalty for those who did not come forward under the original ODF.
Why were we waiting?
It now seems clear that the reason for waiting was to get the decisions in the two Financial Institution cases (TC148 and TC149). This confirmed HMRC’s right to serve notices in relation to overseas bank accounts where the address was in the UK.
It is understandable that HMRC wanted that in place before making the announcement, although it is not so clear that it was worth waiting through two years of rumours and half-announcements to get it.
But never mind, it was now possible to announce the full details of the New Disclosure Opportunity (NDO).
The ODF had imposed a penalty of 10% on those who came forward, threatening far higher penalties on those who did not. The NDO also imposes a penalty of 10% on those who did not receive a letter under the ODF.
So what was the reward for those who did not receive a letter, but came forward under the original scheme?
What, in other words, was the reward for, if not exactly honesty, then at least a very prompt confession? Nothing.
The difficulties HMRC were facing were also covered in my previous article. These stemmed more than anything from the lack of publicity from HMRC about the ODF.
They seemed to feel that they did not need to advertise it, as news coverage and activity from advisers would be enough to alert anyone who needed to know about it.
In fact, the number people registering to disclose was embarrassingly small to begin with, and only when letters went out from HMRC to those whose addresses they had (and were reasonably certain were correct) did the number increase.
Second chances
There might, therefore, be some justification for letting those people who did not receive a letter get another shot at the 10% rate, with the NDO backed up this time by a publicity campaign.
But what about those who did get a letter, warning them that this was their only chance to come clean without swingeing penalties, and who ignored it on the basis that they might still get away with it?
They are given yet another chance to come forward, this time with a 20% penalty. Now, dependent on the amount of money involved that could be quite significant.
It is not, however, as much as HMRC were rumoured to be trying to impose in the cases which they took up for non-disclosure, where penalties of 30 – 35% were rumoured to be the starting point.
Of course, it has to be an amount that will at least make people think about coming forward. What is the point of putting in a 30% penalty if people conclude they might get away with less than that, even if they are found out?
If you are going to have a second opportunity to disclose at all, then 20% is probably as high as you can go, even though it seems to breach the understanding behind the original ODF.
And again
Given the problems caused by having a second disclosure opportunity, the one thing you would really try to avoid is a third. As soon as you have broken the intention to have the one and only unique ODF, you need to reinforce all the more that the second opportunity really is going to be your last chance to come forward.
And that’s exactly what HMRC did. We reported Dave Hartnett as saying:
‘Now everybody who has not paid the tax they should in relation to offshore accounts or assets has this new disclosure opportunity to pay what they owe with penalties on more favourable terms than normal… [It] will be the last opportunity of its kind’.
Except that it is not. Even before the ink was dry on the NDO, we were getting details of the Liechtenstein Disclosure Facility (LDF).
Secrets revealed
Now you can see why HMRC were so excited about doing a deal with Liechtenstein. This is not a unilateral action by the UK authorities; it is an agreement to lift the veil of secrecy for UK residents holding accounts in a jurisdiction which was believed to be one of the most secretive in the world.
The agreement requires the Liechtenstein financial institutions to identify those account holders which they believe are UK resident.
These individuals will then have 18 months to show that they are either fully tax compliant in the UK, that they are not actually resident in the UK, or that they have notified their intention to make a full disclosure, and do so.
The penalty under the LDF is similar to that under the NDO – 10% if no disclosure letter was previously received, 20% if it was.
The big difference, however, is that the taxpayer only has to disclose and pay ten years of liabilities rather than the 20 required by the NDO.
The difficulty of finding information which goes that far back, together with the cost of all that added interest, is said to be one of the main factors putting people off coming forward for the NDO (and previously for the ODF).
So we have the NDO and the LDF – that’s it, isn’t it? Third time lucky, pity it took so long, but we’ve finally got to the real, honest-to-goodness last chance? Well, up to a point, Lord Copper.
Now you see it…
Last week, it was reported that Dave Hartnett had raised the possibility of further tax disclosure offers on a jurisdiction-by-jurisdiction basis. International Tax Review reported it as follows:
‘Speaking at the International Bar Association’s annual conference in Madrid, Hartnett said: “I am not going to say which countries we are consulting with, but discussions are ongoing. I wouldn’t hold your breath within the next six months, but after that there will be news.” ‘
This seemed to be backed up by a sentence in a speech given by Gordon Brown to Bloomberg, in which he was reported (by both Epolitix.com and The Times) as saying:
‘We have already announced that we will get £1bn in extra tax receipts from our agreement with Lichtenstein (sic) alone. And HMRC have served enforcement notices on 100,000 offshore accounts held at 300 different institutions. While similar agreements with other countries are expected to bring in equivalent amounts in unpaid tax.’
…now you don’t
Now for two reports of a speech to include exactly the same words normally means that both have used a copy released in advance of the speech being given. The peculiar style of the quote suggests the latter – that is how you punctuate a text to be spoken aloud, not how a journalist would write it up.
Surprising, then that the official copy of the speech on the No 10 website (which also misspells Liechtenstein) has a different wording, and does not mention further agreements.
We have tried to get a comment from HMRC but none was forthcoming at our press deadline. We would of course be happy to print a definitive statement from them on whether or not they are negotiating further agreements with other countries, and if so over what timescale.
In the meantime, I can only agree with John Cassidy, tax investigations partner at PKF, who told us:
‘The announcements last week are likely to damage the effectiveness of the NDO. It is still a good offer but I fear that current tax collection through the NDO will be reduced because those affected know that further amnesties will come along later.’
