Offshore tax fraud - By DAVID S. FRANKS.jpg

Offshore tax fraud – By DAVID S. FRANKS

One of the largest tax investigations ever seen in the UK is currently underway by the Offshore Fraud Projects Group (OFPG). The OFPG was created a couple of years ago to recover tax from untaxed offshore bank accounts. Although it only consists of 40 investigators, they are investigating hundreds and thousands of offshore bank accounts.

The OFPG believes that funds held by UK residents in 13 Offshore Financial Centres total over 200 billion pounds sterling, with a significant proportion evading tax.

The OFPG persuaded UK special commissioners to issue a production of information notice [called an S20 (8) notice], to force overseas banks, such as Barclays in the Channel Islands, to produce massive amounts of information previously thought to be confidential.

These notices force the overseas bank to disclose information about bank accounts held by UK residents, even though the identity of these account holders are unknown (and hence unnamed) by the Inland Revenue.

The banks attempted to thwart the Revenue’s disclosure notice by arguing, among other matters, that the EU convention on Human Rights would be breached, and that the interaction of EU Law and EU Savings Directive overrides the disclosure requirement. However, the taxman successfully argued that the S20 (8) notice should be given because, even though they could not identify the taxpayers, they had reasonable grounds to believe that substantial tax was being evaded and that they could not obtain the information otherwise.  

Offshore banks in jurisdictions such as the Channel Islands, Isle of Man and Switzerland are all subject to the Exchange of Information agreements signed by their respective governments, and may now be compelled to provide confidential information.

Based on sample endeavours, the Revenue stated that they expect to yield at least 1.55 billion pounds sterling of additional tax! These figures completely outweigh any tax investigation ever conducted in the UK; they are simply enormous and are unprecedented. It is the most striking tax investigation in history, easily surpassing the Revenue’s secret occupation of a central Post Office in the 1950s, where, for nine months, they illegally opened Londoners’ private post.

So, in the next few months, the UK Tax Authorities will be given the names, addresses, account numbers and account details of over 400,000 UK residents from various overseas banks. It is a bonanza for the taxman, and will lead to many criminal prosecutions, fines, interest on unpaid tax and tax.

The 40 investigators in the OFPG cannot possibly cope with this number of investigations, so they have drafted in resources from the UK Tax Offices, using Local District Investigators. “Normal” tax investigations will be put on hold to cope with this extra workload.

When an investigation commences, it will develop in one of two ways: civil or criminal. Civil cases will be worked under the civil investigation of fraud process and, as long as the taxpayer fully discloses and co-operates, will be limited to penalties, interest and tax. The investigation will go back as far as 20 years. In addition, the taxpayers must not be found guilty of providing false documents or dishonesty. The penalty regime will nonetheless be severe, with high penalty levels. In other cases, criminal proceedings may be taken. If the taxpayer has already had an investigation, and is now found to have other undisclosed assets, criminal proceedings will very likely follow.

There is nowhere to hide. The tax investigation will lead to a full review of the individual’s private and business matters over several years, and anyone caught should obtain experienced professional advice. The old fashioned investigations at the local tax office will fall away as resources are diverted to concentrate on the massive number of cases about to be generated.

This tax investigation could have repercussions for expatriates, including those living in Portugal.

The information gathered by the UK tax authority during this investigation may also include the account details of many people who currently live overseas. The UK tax authority has agreements with overseas tax authorities, whereby it will share information. In the event they suspect tax evasion in another country, they are likely to advise the overseas tax authority accordingly, and the UK has such an agreement with Portugal.

This is likely to be followed by other national tax authorities in their seemingly unremitting pursuit of tax evaders, at a time when all EU countries are anxious to increase tax revenues to meet their unfunded state pension and other social welfare promises.

You should also note, that if you confidentially discuss your position with a UK adviser, and intimate that you have undisclosed assets, your adviser must immediately and secretly report you to the Serious Organised Crime Agency (SOCA) and is not permitted to tell you about his reporting disclosure, even if the non disclosure is with an overseas tax authority!

So, you cannot take advice in the UK about this situation without immediately disclosing it, in which case you need to decide to disclose in full before approaching your adviser.

The future for tax investigators is looking exceptionally bright.

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