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Crackdown on offshore evaders attacked as “draconian”

21 August 2014
Issue: 4466 / Categories: News , offshore evasion , Investigations

Planned new criminal offence assumes guilt, say experts

Taxpayers who fail to declare assets held overseas face tough new sanctions that include a strict liability criminal offence, under HMRC proposals that have been strongly criticised by tax professionals as “draconian”.

Two consultation documents lay out plans to strengthen civil deterrents against evasion by broadening and modernising the scope of the offshore penalties regime and introducing measures aimed at preventing evaders moving their offshore assets from one jurisdiction to another – which could see the suspension of the 20-year investigation limit on tax affairs.

The Revenue also intends to introduce the crime of failing to declare taxable offshore income, which, like many other tax offences, would not require demonstration of mens rea (guilty mind).

Phil Berwick, partner at law firm Irwin Mitchell, accused the tax department of attempts to “impose a draconian civil penalty regime with a statutory presumption of guilt” and of “seeking to re-write the rules on offshore penalties before there has been an opportunity to establish the effectiveness of the current regime”.

Berwick’s concerns were echoed by Andrew Watters, tax specialist at legal adviser Thomas Eggar, who claimed the strict liability offence put forward by the taxman will remove the relieve the state of the onus of proof.

“HMRC proposal will mean the current civil approach of ‘guilty until proven innocent’ will also apply to a criminal charge, he said. “ This is a further significant tilting of the balance of rights and obligations between state and citizen.”

The Chartered Institute of Taxation believes the creation the new offence “would be a hugely controversial step”. The professional body’s Gary Ashford said, “Strict liability offences have, up until now, mostly been used for matters with immediate risk to the public, such as speeding or selling contaminated food. It’s hard to see how non-declaration of tax fits into this category.”

He added, “The government must recognise that, while some taxpayers actively seek to hide their income, there will be individuals who make mistakes in their financial affairs without intending to act wrongly. Not everyone who under-declares their tax is acting with criminal intent.”

Law firm Pinsent Masons’ litigation head, James Bullock, questioned the necessity of the proposed measures.

“The Revenue has more powers in its arsenal – and greater funding – than ever before, and the tax take through its investigations is at a record level. Considering the success the department is having in cracking down on tax evasion, there doesn't seem to be the public policy requirement for extra powers,” said Bullock.

“The detailed proposals are more moderate than many had feared, but the principle remains that individuals shouldn’t lose their liberty because they have been careless or forgetful or allowed themselves to be misled over what taxes they had to pay.”

Ronnie Ludwig, partner at Saffery Champness chartered accountants, also expressed doubt, saying, “Whether these new measures will actually be effective in getting evaders to pay up is anyone’s guess. The results to date of HMRC’s wider efforts to tackle evasion using existing measures have fallen far short of expectations.

“The threat of handcuffs represents more of a new scare tactic than anything else, as truly hardened evaders are likely to continue to ignore the taxman.”

Issue: 4466 / Categories: News , offshore evasion , Investigations
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