Expressing reservations, respondents to the consultation on Tackling offshore tax evasion: A requirement to notify HMRC of offshore structures said the authorities would “find it very difficult to […] only target abusive structures”.
HMRC appears to have accepted that it will face difficulties holding non-UK-based persons and businesses to account but said it would not exclude them and pledged to work with foreign counterparts and intergovernmental organisations.
Respondents doubted it would be possible for tax inspectors to identify non-compliance, through the hallmarks system proposed, in a way which could “minimise the reporting burden for compliant taxpayers”.
HMRC proposed that the hallmarks be designed to increase transparency around arrangements that could be used or misused for tax evasion purposes, while recognising that such arrangements can also be wholly legitimate.
An arrangement can receive hallmarks for failing a number of tests; including whether it might enable someone to obtain an advantage in relation to income, corporation or capital gains tax and whether or not the main benefit is to obtain such an advantage.
Under the new rules, offshore schemes that qualify for a number of hallmarks deeming them ‘complex’ are given identification numbers and their details are passed to HMRC.
Details to be shared include how a scheme works and who the clients are.
Upshots from the consultation
A likely upshot from the consultation is that it looks set to include rules around a hallmark relating to the avoidance of the common reporting standards (CRS).
A majority of respondents said they wanted to see objective and factual hallmarks and avoid value judgements.
Some respondents warned that schemes numbered in a similar way under the Disclosure of Tax Avoidance Schemes (Dotas) are often abandoned by clients and firms.
A minority, however, said a scheme’s number could be regarded as a ‘kitemark’ safety standard from the HMRC.
Lawyers exempt
Respondents expressed concern that lawyers could use legal privilege to avoid notifying HMRC when setting up and promoting offshore schemes. Under Dotas, where a scheme has been set up by a lawyer, requirement to notify can fall to any UK-based person involved; a policy which respondents endorsed.
Most controversially, the consultation touched on applying the notification retrospectively to existing schemes. This appears to have been parked, except when an existing scheme is altered.
On the whole, respondents accepted the principles of the proposals and were “generally satisfied that, should the measure be developed further, the use of hallmarks would be a suitable method”.
The additional requirements are designed to coincide with CRS, the requirement to correct and steeper penalties for offshore tax evasion.
