International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, July 21, 2015

UK Amnesty Not Leading to Disclosure of Tax Evasion in Channels. Is It "Much To Do About Nothing" or Are the Evaders Hiding Elsewhere?

For the record, I think that the UK has approached its tax evasion problem, as much as it has one, with an even hand, seeking to "gently but firmly" bring taxpayers into compliance, without bankrupting them (via FBAR type fines).  I say, "as much as it has one", because the various type of domicile and residency leave much 'facts and circumstances' area for potentially avoiding attaching tax to global income and assets, global capital gains.  Certainly makes the HMRC's job more difficult, but it is legislated public policy, thus so be it.

Having said this, in 2011, HMRC forecast that it would receive "billions" from the Swiss Disclosure HM_Treasury_logo.svgFacility.  In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF.  This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries.  As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.

Like the United States, the United Kingdom has non-compliant taxpayers evading tax via offshore accounts, and from a tax-burden equity and tax administrative perspective, it simply needs to stop. But how large a population are these non-compliant taxpayers, and what portion of lost tax revenues do they represent?  Is it enough to produce  five billion from Switzerland, three billion from Liechtenstein, or billions more from rectifying offshore non-compliance in general?  Probably not.

Some figures from HMRC reports are below.

The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK?  For 2014-15, it's approximately 29.7 million, of which 4.65 million pay the higher rate of 40% for income between 31,786 and 150,000 sterling. 332,000 filers report more than 150,000 sterling income and pay the highest applicable rate.

The next interesting issue is what portion of noncompliance is estimated to be offshore non-compliance.  According to HMRC:

The tax gap, which is the difference between what we collect and the tax that is theoretically owed, was £35 billion in the tax year 2011 to 2012, or 7% of total tax liabilities.

Tax evasion accounted for £5.1 billion, the hidden economy accounted for £5.4 billion and criminal activity £4.7 billion of the tax gap.

Nearly half the tax gap, 47.7%, is down to non-payment by small and medium-sized enterprises (SMEs), and while much of this is due to error, there is a significant risk of evasion among a small minority of SMEs, which we are tackling.

Back of the napkin calculation estimation, approximately 16% of the 35 billion tax gap is from tax evasion and 1.4% of potential tax income to the state.  Not all the 5.1 billion tax evasion results from offshore non-compliance.  How much though ? 

On 12 February 2015 HMRC disclosed that it had collected a total of £2 billion from offshore evasion disclosure and other compliance initiatives - primarily from the Swiss Disclosure Facility (SDF) and the Liechtenstein Disclosure Facility (LDF) - thus an additional billion since the 2012 report, approximately 333 million sterling additional per annum.  

Based on my table constructed below from HMRC, 5,400 disclosures brought in one billion sterling, and it is unclear how many disclosures have been made in Switzerland.  HMRC stated in 2012 that it had received 57,000 offshore disclosures from all disclosures.  Thus disclosures are falling - hopefully because most have come in from the cold.

HMRC reported that between 2010 and 2014 it secured more than 2,650 criminal prosecutions and 2,718 years of prison sentences for all tax crimes, approximately 530 annual prosecutions, with an average 1.2 years prison sentence (one was reported to be for 11 years and thus, several must be for less than a year).  The HMRC only prosecuted one Swiss leaked account, as explained below: 

The HSBC Suisse data initially revealed 6,800 ‘entities’ – individuals, businesses and trusts – but this contained duplication (some people had multiple accounts). Removing duplication left us with 3,600 entities, all of which we have examined.

We have investigated and challenged more than 1,000 account holders, and collected £135 million from them in unpaid tax, interest and fines. In many of these cases, people chose to disclose their offshore income through the Liechtenstein Disclosure Facility, set up by international agreement, which gave them an exemption from criminal prosecution if they fully disclosed all information.

In 150 of these cases, we sought to collect evidence for criminal prosecution. To do this successfully, we needed to demonstrate criminal intent (rather than error, for example). In addition, because stolen data is considered ‘dirty’ it needs additional corroborating evidence.

With these tests of evidence, and with the exemptions arising from the Liechtenstein Disclosure Facility, we could only prepare three cases for submission to the Crown Prosecution Service. Having examined the evidence, the CPS considered only one case to be strong enough to take forward, and that was successfully prosecuted in 2012.

In around 2,000 cases, we found no evidence of evasion and believe the account holders to be compliant, although we continue to monitor them.

We are still examining around 100 cases and 400 cases were untraceable.

  disclosures # settled settled unsettled avg settlement
IOM 186 149  £3,700,000.00  £1,900,000.00  £24,832.21
Guernsey 37 25  £700,000.00  £1,900,000.00  £28,000.00
Jersey 181 131  £2,200,000.00  £3,500,000.00  £16,793.89
Crowns 404 305  £6,600,000.00  £7,300,000.00  £21,639.34
LDF 5483    £1,075,000,000.00  £94,000,000.00  £171,195.00
Swiss (est)      £1,000,000,000.00    
Total 5887    £2,081,600,000.00  £101,300,000.00  
  •  table shows the Isle of Man disclosure facility (IOMDF) figures

     31 March 201430 September 201431 March 2015
    Registrations 134 190 232
    Disclosures received 62 139 186
    Yield generated from IOMDF settlements £600,000 £1,600,000 £3,700,000
    Payments made in IOMDF cases not yet settled £1,500,000 £2,000,000 £1,900,000
    Number of settlements to date 27 101 149

    This table shows the Guernsey disclosure facility (GDF) figures

     31 March 201430 September 201431 March 2015
    Registrations 24 43 56
    Disclosures received 6 21 37
    Yield generated from GDF settlements £100,000 £200,000 £700,000
    Payments made in GDF cases not yet settled £200,000 £600,000 £1,900,000
    Number of settlements to date 13 25

    This table shows the Jersey disclosure facility (JDF) figures.

     31 March 201430 September 201431 March 2015
    Registrations 106 185 232
    Disclosures received 39 124 181
    Yield generated from JDF settlements £400,000 £1,000,000 £2,200,000
    Payments made in JDF cases not yet settled £1,000,000 £2,300,000 £3,500,000
    Number of settlements to date 20 86 131

LDF Yield Stats as of March 2015

  • Yield Generated from LDF Settlements £1,075m
  • Payments made in LDF cases not yet settled £94million
  • Number of settlements under £100,000: 3777
  • Number of Settlements between £100,000 and £1 million: 1,549
  • Number of settlements between £1 million and £5 million: 143
  • Number of Settlements over £5 million: 14
  • Average Settlement figure to date under the LDF: £171,195

HMRC 14 February 2015 Compliance Stats

| Permalink


Post a comment