Worldwide disclosure facility (“WDF”)

There have been several significant events and disclosure facilities leading up to the Worldwide Disclosure Facility.

The US Federal Law, Financial Account Tax Compliance Act 2010 started a global move on financial transparency. The UK launched its own FATCA in the form of Intergovernmental Agreements in the Budget 2013 and included:

• The provision of automatic exchange of information and UK residents with accounts in the Crown Dependencies;
• An alternative reporting arrangement for UK resident non domiciled individuals; and
• A tax disclosure facility (the Offshore Disclosure Facility).

The Lichtenstein Disclosure Facility (“LDF”) ran from 1 September 2009 to 31 December 2015. The LDF was originally extended to run until 6 April 2016, although it was announced in the 2015 Budget that the deadline to notify under the LDF would be brough forward.

The UK/Swiss cooperation agreement came into force on 1 January 2013 and HMRC created a standard pack for Swiss offshore disclosure.

The Offshore Disclosure Facility (“ODF”) ran from 6 April 2013 to 31 December 2015. The ODF was directed at the Crown Dependencies and the deadline to notify under the facility was again brought forward (from 30 September 2016) because of the 2015 budget.

On 15 July 2014 forty-seven countries approved the Common Reporting Standard (“CRS”). The number of countries agreeing to the CRS is now more than one hundred. The CRS is a global initiative launched by the OECD and originally based on the US’ Foreign Account Tax Compliance Act 2010. The CRS intends to prevent tax evasion through the automatic exchange of information.

The 2015 Budget set out the intention to introduce a new strict liability criminal offence for offshore tax evasion. The Finance Act 2016 also provided several sanctions against tax avoidance and evasion. The general anti-abuse rule, first introduced by the Finance Act 2013 was also modified to include counteractions and a process of linking arrangements to lead arrangements and penalties. Serial tax avoiders and promoters of tax avoidance schemes were targeted and Finance Act 2013 introduced the following provisions:

• Section 162: penalties for enablers of offshore tax evasion or non-compliance.
• Section 163: penalties in connection with offshore matters and offshore transfers.
• Section 164: offshore tax errors etc: publishing details of deliberate tax defaulters.
• Section 165: asset-based penalties for offshore inaccuracies and failures.
• Section 166: offences relating to offshore income, assets and activities.

In 2016 the Crown Dependencies and Overseas Territories began providing HMRC with a wide range of information on offshore accounts held by UK tax residents (either held directly or indirectly i.e. through structures and will include beneficial owners). The information included names, addresses, account numbers, interest and balances.

The WDF opened on 5 September 2016.

Finance Act (No.2) 2017 introduced the requirement to correct sanctions. The legislation follows that introduced by Finance Act 2016, which delivered civil penalties for ‘enablers’ of offshore tax evasion. An Enabler being a person that has encouraged, assisted or otherwise facilitated conduct that constitutes offshore tax evasion or non-compliance. The enabler’s penalty is directly targeted at professionals advising in relation to the act potentially giving rise to tax evasion or non-compliance and those professionals merely assisting the act. The enabler legislation therefore encourages professionals to encourage their clients to consider the Requirement to Correct (“RTC”).

The objective of the RTC legislation is to enable and incentivise persons with UK tax irregularities relating to offshore interests to regularise their tax affairs. The Requirement to Correct (“RTC”) period ends on 30 September 2018. The legislation is aimed at purposeful tax evaders and those using sophisticated offshore structures.

All irregularities are caught. There is no behavioural differentiation at all in the penalty regime: a simple mistake will be treated the same as a deliberate act.

It should also be noted that a specific definition of ‘avoidance arrangements’ was included in the draft legislation and referred only to circumstances where the main purpose, or one of the main purposes, was the obtaining of a tax advantage.

The penalties for not correcting are 200% of the potential lost revenue (“PLR”). The penalty can be reduced if the person makes an appropriate disclosure. The amount of the reduction should reflect the quality of the disclosure (timing, nature and extent). The penalty cannot be reduced below 100% of the PLR.

There is a right of appeal against the decision to charge a penalty, or the amount of the penalty. The penalty may be fully mitigated where there is a reasonable excuse. When considering reasonable excuse through reliance on a professional, it will be necessary to consider whether that professional was unconnected to the structure (i.e. not a provider or remunerated by the provider), whether an appropriately qualified expert to provide the advice; and whether the facts opined on were correct or whether generic advice was relied upon. Furthermore, independent professionals advising on complicated offshore structures will often set out the risks involved and a person in possession of knowing these risks may be regarded as acting in acceptance of them and not able to rely on a reasonable excuse.

The ‘Failure to Correct’ (‘FTC’) regime started on 30 September 2018, with punitive penalties, including:

• A tax geared penalty (100% to 200%) of the tax not corrected. 
• A potential asset based penalty of up to 10% of the value of the relevant asset where the tax at stake is over £25,000 in any tax year.
• Potential “naming and shaming”.
• A potential additional penalty of 50% of the amount of the standard penalty, if HMRC could show that assets or funds had been moved to attempt to avoid the RTC.

A person who has a UK tax liability that relates wholly or partly to an offshore issue can use the facility. An offshore issue includes unpaid or omitted tax 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.
• Anything having effect as if it were income, assets or activities of a kind described above.
• Funds connected to unpaid or omitted UK tax transferred to a territory or owned in a territory outside the UK.

HMRC advises that if a person is unsure whether they meet the eligibility criteria, they seek professional advice.

The WDF requires a self-assessment of the behaviour giving rise to the tax omission, which includes:

• Deliberate with a reasonable excuse.
• Inaccurate return with reasonable care.
• No return with reasonable excuse.
• Inaccurate return without taking reasonable care.
• Not deliberate without reasonable excuse.
• Deliberate failure to notify.
• Deliberately submitted an inaccurate return or deliberately withheld information by failing to submit a return.

Identifying the behaviour is a complicated task and assessing the behaviour is an integral part of the disclosure, which broadly means getting it wrong can result in civil intervention or criminal prosecution. The behaviour may be different for each omission. The prudent adviser should seek assistance from tax investigations specialist.

Using the WDF is unlikely to result in a criminal investigation unless:

• Activities giving rise to the omission involve crime.
• The disclosure contains material inaccuracies.
• Details of technical positions taken are omitted with an intent to illustrate a tax advantaged position.
• Details of estimates or methodology of calculating liabilities is omitted with an intent to illustrate a tax advantaged position.
• The statement of assets is inadequate or inaccurate.
• There is a continuance of behaviour during or following the disclosure.

[cs_gb id=1263]