Panamania – new Bill to fight offshore tax evasion


The recent leak of the Panama Papers has done little to abate the public’s perception that offshore jurisdictions are havens for large corporations and the rich to hide their assets. The furore has even seen the Prime Minister David Cameron disclose information about personal tax affairs of his father and other members of his cabinet have followed suit to show transparency.

Of course, there is a stark difference between tax avoidance through planned use of these regimes, tax evasion and money laundering which attract criminal penalties. However, the morality of tax avoidance is another question. Should criticism really be levelled at those who operate legitimately using offshore regimes to mitigate tax?

The Government’s efforts to deal with the scourge of tax evasion and aggressive tax avoidance prior to the leak can be found in the draft Finance Bill (No 2) 2016, currently at committee stage after its second reading in the House of Commons on 11th April and the creation of a UK register in June which will publish the beneficial owners of companies who utilise offshore tax vehicles.

The Bill contains the following specific provisions to tackle offshore tax evasion and creates a new criminal offence:

Serial avoiders and promoters of tax avoidance scheme: After the first such defeat, the taxpayer will have to comply with a special reporting requirement and further defeats will result in a surcharge. After at least four defeats, the names of the defeated avoiders can be published. For those whose defeats concern the persistent abuse of reliefs, restrictions on them accessing certain tax reliefs for a period will be applied. A promoter may be made subject to the reporting requirements and obligations of the Potas regime if their schemes are regularly defeated by HMRC.

New civil sanctions for enablers of offshore evasion: This introduces a new civil penalty for individuals and businesses which deliberately enable offshore evasion, as well as naming provisions for the most serious enablers.

Strengthened civil deterrents for offshore tax evasion: An increase in minimum penalty for deliberate offshore tax evasion require greater levels of disclosure from tax evaders and increase the naming of offshore tax evaders. The legislation also introduces a new penalty based on the value of the asset that led to the evasion. This will apply to serious cases of offshore tax evasion.

A new criminal offence for tax evasion: A new criminal offence that removes the need to prove intent for offshore tax evaders. This will apply to only those with significant levels of non-compliance who cannot satisfy the courts they have taken reasonable care to comply with their UK tax obligations.

A new legal requirement to correct past offshore tax non-compliance: A new legal requirement for taxpayers to come forward and correct any past offshore non-compliance with associated penalties for failure to do so. The new requirement will underpin the new tougher offshore disclosure facility and operate ahead of the widespread reporting of information under the Common Reporting Standard in 2018.

Critics view the Bill as toothless because it does not go far enough in naming and shaming and penalising tax evasion. A reading of the draft clauses of the Bill lends support to this view; a tax payer would be required to flout the rules at least four times before they risk their name being published to the public; the penalty for an enabler can be 100 % of the tax evaded, but if the enabler pays the maximum penalty and provides full disclosure they will be protected from publication; offshore tax evaders will be protected from naming if they provide full unprompted disclosure. The criminal offence will not apply retrospectively and will not apply to exclude offshore income or assets reportable to HMRC.

Reading through the proposed legislation highlights that these changes will not improve transparency or reveal those who break the rules in their current form.  Further criticism of the draft Bill stems from concerns that the rules are different for those large corporations and wealthy private individuals using offshore jurisdictions. The legislation requires greater transparency, punishments and enforcement.

Until the Government implements the new tax legislation in a more concentrated form and robustly requires companies and individuals, who operate in the UK through offshore companies to disclose transparently their beneficial interest, the use of offshore structures to mitigate tax and launder money will continue. From June however, the Government is to set up a central register that will require an entry from beneficial owners of offshore companies in the UK. Should the register come into being, it is likely to be the starting point for investigations. The National Crime Agency is to be given powers over the Serious Fraud Office to direct investigations into money laundering and corruption would no doubt welcome this.

The Home Secretary is preparing an overhaul of the SFO which is due to be announced by the Prime Minster at an anti-corruption summit in May. The purpose is to ensure that more cases are prosecuted and ultimately successfully. The proposed overhaul may well achieve the enhanced ability to prosecute, but without also implementing a regime through tougher legislation which results in transparency, offshore jurisdictions will remain tax havens for those who seek to hide their assets.

The National Crime agency will also work with the SFO and HMRC as part of the recently formed government task force provided with initial £10 million funding to analyse the Panama Papers providing rapid action for any wrong doing, reporting to the Chancellor and the Home Secretary later this year. The content of this report may well have implications for draft Bill in its current form.

The government undoubtedly faces a heady task in tackling offshore jurisdictions and which will require them to pull a number of elements together: the legislation, investigative agencies and agreement of transparency from off shore jurisdictions.

The chameleon nature of the tax industry and offshore jurisdiction means tax schemes are here to stay. These are early steps in the right direction to preventing tax evasion and aggressive tax avoidance, but the road to achieving transparency is likely to be long and bumpy and at times difficult to see.

Martin O’Rourke is a solicitor at Stokoe Partnership Solicitors.

Stokoe Partnership Solicitors is a criminal litigation practice that specialises in defending very serious crime.


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