1.1 Consultation - Tackling offshore tax evasion: A Requirement to Correct
HMRC has issued a consultation on incentivising those with any UK tax irregularities in respect of offshore interests to correct those irregularities fully by 30 September 2018, after when, tougher sanctions will apply. The legislation will be introduced in Finance Bill 2017.
HMRC's aim is to provide a strong incentive for taxpayers to review their offshore affairs and come forward to put them in order before HMRC receives the full Common Reporting Standards (CRS) data from other tax authorities in September 2018.
For income tax, capital gains tax and inheritance tax, the new requirement to correct (RTC) past offshore non-compliance will apply to any taxpayer who has an outstanding UK tax liability or obligation as at 5 April 2017 that relates wholly or in part to an offshore issue in one of three areas:
1. A tax loss relating to:
- income arising from a source in a territory outside the UK;
- assets situated or held in a territory outside the UK;
- activities carried on wholly or mainly in a territory outside the UK; or
- anything having effect as if it were income, assets or activities of a kind described above.
2. Where funds connected to a tax loss not within 1 above are received in a territory outside the UK or are transferred to a territory outside the UK.
3. Where funds connected to a tax loss not within 1 above are owned in a territory outside the UK.
The consultation text deliberately does not refer to residence in the UK. For example, it aims to cover non-resident trustees who may have UK tax liabilities.
To avoid delay causing the window for raising assessments to close, assessment time limits for earlier years will be measured at 6 April 2017. The Government would prefer that any offshore non-compliance disclosed or identified by HMRC after the end of the RTC window (30 September 2018), is subject to failure to correct (FTC) penalties (see below).
The consultation also covers the following areas:
- a one-off extension of 5 years to assessment periods following the end of the RTC to allow HMRC the ability to raise assessments following a review the CRS data;
- a requirement for the taxpayer subject to RTC to provide information about any third party that has enabled or facilitated their offshore non-compliance;
- further information powers for HMRC to support the RTC or more widely the CRS;
- the new, tougher RTC sanctions would be charged in place of the sanction for the original offence; and
- a defence for reasonable excuse for non-compliance.
We have been expecting a new disclosure facility to replace the ones closed in December 2015. The consultation says: "HMRC... will launch a new, tougher Worldwide Disclosure Facility on 05 September 2016."
Responses to the consultation are due by 19 October 2016.
1.2 Consultations on tackling the hidden economy
HMRC has issued three consultations on tackling failure to register for and/or under-declaration of tax in the hidden economy. The consultations cover three areas: sanctions; extra data gathering powers; making access to licences or business services conditional on being registered for tax.
HMRC research indicates that, despite the existing penalty regime, there continues to be a small section of the population that are repeat offenders in the hidden economy failing to pay tax. The consultation proposes increased penalties for second and subsequent failures in this area. There would need to be some refinements to the existing operation of the penalty regime for inaccuracies in these cases. Also proposed is increased monitoring of those who receive 'hidden economy' sanctions.
Extension of data gathering powers to money service providers
This proposes to extend HMRC's bulk data-gathering powers to include data held by money service businesses (MSBs) relating to their customers' identities and aggregate transactions through an MSB.
'MSBs' covers a wide range of business models, including high street money transmitters and their agents, foreign exchange currency traders, and peer-to-peer money transmitters, as well as other enterprises that may offer these services in addition to their main line of business.
HMRC has some data gathering powers under the anti-money laundering legislation and FA2008 Sch36. The consultation indicates these are, however, generally unsuitable for gathering of data in bulk to identify those operating in the hidden economy, or cannot be used with the objective of checking the tax position of an MSB's customers.
The consultation proposes extending the FA 2011 Sch23 data gathering powers to include MSBs in the categories of business to which the relevant data gathering powers apply. Credit institutions such as banks, building societies, and other deposit-receiving institutions such as credit unions and friendly societies will be excepted.
The conditionality consultation looks at making access to licences or Government services for businesses conditional upon the business being registered for tax. The efficiency with which this is operated in practice would seem to depend on the ability to register for tax efficiently in a digitally secure environment and for that information to be shared effectively across government.
Responses to the consultations are requested by 21 October 2016.
1.3 European Commission decision on State Aid given by Ireland to Apple Inc
As reported widely, the European Commission (EC) has decided that Ireland granted undue tax benefits of up to €13 billion to Apple. It has directed that the Irish authorities recover that amount of unpaid tax from Apple, allegedly arising in the period 2003 to 2014.
The EC comments that "The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This decision does not call into question Ireland's general tax system or its corporate tax rate".
Irish Minister for Finance, Michael Noonan, has disagreed with the EC decision and sought cabinet approval to appeal it. Media reports indicate that cabinet approval has been given to the appeal.
The Irish Government's press release comments on what it sees as a contradiction in the EC decision that 'the tax recovery may be reduced if other countries decide Apple should pay tax on the same profits'. It says "While requiring Ireland to recover the tax sums, the Commission is also acknowledging that the sums may in fact be taxable in other jurisdictions. The European Commission is also incorrect to state that profits allocated to the Apple companies' head offices were not subject to tax in any country under a specific provision of the Irish tax law. This refers to a mismatch between different countries' tax rules, which by definition cannot be the responsibility of Ireland alone."
The US released a white paper on the issue before the decision, criticising the EC's approach and highlighting the potential significant issues for lost US tax revenues and increased barriers to cross-border investment.
Apple CEO Tim Cook's letter to customers on the matter includes the following extract:
"The Commission's move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe."
This is an issue that will no doubt continue to receive press attention over the next few months, particularly in view of the political and trade issues being discussed between the EU and the US.
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