The New Year has brought with it HM Revenue & Custom's (HMRC) latest weapon in the battle against tax evasion: civil penalties for the 'enablers' of offshore tax evasion.
Under the new regime, accountants, bankers, lawyers and other advisers who take deliberate action to help others to engage in offshore tax evasion, will face civil penalties of up to 100 per cent of the tax evaded or £3,000, whichever is the higher.
Any measures which assist in combatting tax evasion are, of course, to be welcomed. Tax evasion, unlike tax avoidance – to which these measures do not apply – is a crime. It involves the deliberate non-payment or underpayment of tax that is due.
Evasion of the type intended to be caught by the new regime might, for example, involve a taxpayer transferring money offshore to hide it, in circumstances in which it should be taxed. When tax is evaded, money that could be spent on schools, hospitals and the like is lost.
However, it has to be questioned whether the new measures will have much of an impact.
Firstly, professionals in the UK are heavily regulated and assisting in criminal tax evasion is obviously impermissible. The consequences for anyone caught assisting evasion are already extremely serious, and an additional financial penalty is unlikely to provide much of an additional deterrent to any of the very few who might decide to assist in criminal conduct. The deterrent factor is therefore unlikely to be significant.
It also seems unlikely that these measures will yield much in tax. Unlike avoidance, there is not a great industry involved in assisting evasion, mainly because it is already illegal.
Moreover, contrary to the view that appears to be held by a number of politicians and officials at HMRC, the offshore jurisdictions – or international financial centres, as they prefer to be called – are not, in the main, awash with dirty money spirited away by tax evaders who have created offshore trusts.
Over recent years there have been many measures introduced to ensure that proceeds of crime, including tax evasion, cannot easily be hidden. Reporting requirements, tax information exchange agreements, money laundering compliance rules and a general aversion to risk on the part of financial institutions all mean that even if one wanted to conceal money or assets in an offshore structure, nowadays, it would be extremely difficult to do so.
Opening a bank account or setting up a trust for legitimate clients from certain countries can be difficult enough in many jurisdictions, and extensive evidence concerning the source of funds is usually required.
While these measures may not have much of a tangible effect, they should not be dismissed. There is merit in sending out the message that tax evasion will be punished, and the fact that there may not be much received in penalties reflects already high standards, not bad law.