Disclosure regimes and anti tax evasion
Anne-Marie Roberts provides a technical assessment of some recent international developments in information exchange to combat tax evasion.
There have been a number of developments on the automatic exchange of information and combatting tax evasion in the last few weeks.
The Organisation for Economic Co-operation and Development (OECD) is working on enhancing the powers of governments to automatically exchange information with other governments as part of the Base Erosion and Profit Shifting (BEPS) project.
Co-operation between tax administrations is regarded as critical in the fight against tax evasion and protecting the integrity of the international tax system.
On 21 July 2014, the OECD released the Standard for Automatic Exchange of Financial Account Information in Tax Matters. The Standard calls on governments to obtain detailed account information from their financial institutions and exchange that information on an annual basis with other jurisdictions. The Standard will be formally presented to G20 Finance Ministers at their meeting on 20-21 September.
There have been some moves by tax administrations to try and pre-empt these rules being enshrined in national tax systems and to persuade taxpayers to start complying with the new rules early.
The Australian Taxation Office (ATO) has announced Project DO IT. This has been described as a 'last chance' for taxpayers to disclose offshore income before enhanced information sharing between tax jurisdictions starts to close the net. The ATO offers the following to try and encourage the uptake of the opportunity:
- Penalties are reduced to a maximum of 10% of any income tax shortfall;
- The look-back period is limited to the last four assessment years; and
- The ATO will not proceed with criminal prosecutions.
The ATO is also offering concessions for taxpayers who wind up their offshore structures. The deadline for disclosures is 19 December 2014 after which the ATO will proceed with aggressive audit and prosecution activity.
There have also been some moves in this area by HMRC in the UK. There have been consultation documents issued on strengthening civil deterrents against offshore tax evasion as well as consultation on introducing a new strict liability criminal offence of failing to declare offshore income and gains.
The proposed rules would mean that where a taxpayer does not disclose any income or gains from an offshore account this would be automatically classified as a criminal offence – this is quite distinct from the current position when criminal intent has to be proved in court.
At the moment, accidental omission of offshore accounts is treated as a civil offence and subject to civil penalties and clearly it is vital that accidental omissions do not give rise to criminal convictions.
Practitioners should be aware of the changing landscape in this area and the implications for current and potential clients.
For clients seeking to remedy past omissions, the Liechtenstein Disclosure Facility remains open at the current time, although the scope of matters that can be dealt with through the Disclosure has been narrowed recently.
Under an amendment to the agreement between the UK and Liechtenstein, taxpayers who have reported tax avoidance schemes under the DOTAS rules or subject to an HMRC enquiry for more than three months will no longer be able to use the Liechtenstein Disclosure Facility.