UK tax authority criticized for lack of offshore crackdown

The U.K. Public Accounts Committee has criticized the lack of enforcement and prosecutions of offshore tax evasion by HM Revenue and Customs in a performance report. 

The report said the U.K. tax authority had made “little or no progress” in tackling offshore tax evasion.  

According to the committee’s findings, tax evasion and tax avoidance schemes challenged in the courts represented 4.1 billion pounds and 3.1 billion pounds (US$6.3 billion and US$4.7 billion), respectively, or 21 percent, of the total tax gap of 34 billion pounds (US$52 billion) in 2012-13. 

Last year, the Public Accounts Committee raised concerns that HMRC was slow to act on leaked data of 3,600 U.K. taxpayers who were customers of HSBC in Switzerland. 

Former HSBC employee Hervé Falciani had handed the bank’s customer data years ago to French authorities who then passed it on to governments around the world. 

By November 2014, HMRC had recouped 136 million pounds (US$208 million) from investigations sparked by the leaked account data. 

“However, 10 months later, HMRC told us that despite initiating 950 enquiries it had still only prosecuted one individual from the list and recovered £142 million in total,” the committee reported. 

HMRC’s Director General for Enforcement and Compliance, Jennie Granger, told the public accounts committee in September that there had been only 11 prosecutions overall in relation to offshore tax evasion during the past five years, resulting in 15 years of jail time collectively. 

“This is one of the really toughest areas, with people deliberately disguising what they are doing, and facilitators are very careful not to put foot on U.K. soil,” she said. “We are not going to pretend that this is easy to crack, but there has been a range of prosecutions and we expect that we will do more in the future.” 

These prosecutions are unlikely to come from the information provided by Falciani. HMRC believes it has made the most of the HSBC data. Ms. Granger explained to the committee that there were 3,000 lines of 10-year-old data that were badly broken and often did not meet the high standards for evidence required in the U.K. 

“Using modern techniques, we have been able to come up with some new lines of inquiry. However, what we do not want to do is to raise hopes about where those inquiries will lead,” she said.  

“We have pretty much exhausted that data, but we have not exhausted our appetite for dealing with offshore.” 

A large number of taxpayers on the Falciani list settled their affairs through voluntary disclosure facilities, which offer reduced penalties of up to 30 percent of the tax due, compared to the maximum standard penalty of double the tax owed. 

A Liechtenstein facility also saw several hundred taxpayers come forward to disclose previously undeclared offshore accounts and assets. 

In total, HMRC has recovered about 2 billion pounds from criminal and civil investigations of offshore tax evasion and from offshore disclosure facilities. 

In the latest budget, the U.K. Chancellor of the Exchequer George Osborne allocated an additional 800 million pounds to support HMRC to tackle noncompliance and tax evasion, with the goal of tripling the number of criminal investigations. 

Granger said some of the money was going to be spent on increasing the number of investigations of “wealthy evasion organizations” from 35 to 100 per year. 

She estimated about 90 percent of investigations lead to prosecutions, and noted that Revenue and Customs wins more than 80 percent of its cases. 

Lin Homer, chief executive and permanent secretary of HMRC, said that by 2017, HMRC will automatically exchange taxpayer information with 94 countries. 

“We already use much more third-party data. Once we have those kinds of insights, it will be much, much more difficult to hide and much easier for us to pursue without needing to have disclosure facilities,” she said.  

Nevertheless, offshore disclosure facilities and investigations have taught the revenue authority a lot, Homer added.  

“We are confident that we have got a lot of the revenue in that otherwise we would have not known about.”