1. AAT Birmingham Branch Tax Administration/powers and penalties Latest trends in HMRC activity GAAR Update Steve Besford Director Tax Investigations and Dispute resolution RSM Tenon London

2. 1 © Copyright RSM Tenon Topics  Information powers  Penalties  Tax Investigations update – LDF – Swiss Tax Agreement  GAAR update

3. 2 © Copyright RSM Tenon Information Powers  Schedule 36 FA 2008 - HMRC’s Information & Inspection Powers  Information can be requested from the taxpayer or a third party.  Any information requested must be “reasonably required for the purpose of checking [a] tax position”  A tax position includes “past, present and future liabilities”  Covers 13 types of tax  Notices can be issued to third parties where the identity of the target taxpayer is unknown.

4. 3 © Copyright RSM Tenon Third Party Notices  Can only be given with either the agreement of the taxpayer or approval from the Tribunal  The taxpayer must have been told – why the documents are required and – given reasonable opportunity to make representations  Unless the Tribunal is satisfied that doing so might prejudice the assessment or collection of tax

5. 4 © Copyright RSM Tenon Appeals  An appeal can be made in writing, within 30 days, to HMRC stating the grounds.  An appeal can be made if it is a third party notice on the grounds that compliance would be unduly onerous  There is no right of appeal against requirement to produce statutory records  There is no right of appeal if the Tribunal has given approval

6. 5 © Copyright RSM Tenon Safeguards  Documents must be in the person’s possession or power.  Cannot call for – Documents relating to the conduct of a pending appeal – Journalistic material – Personal records – Documents over 6 years old at the date of notice* – Documents over 4 years before deceased person’s death – Privileged information or belonging to Auditors or Tax Advisers papers  Where a return has been submitted, a notice may not be given unless – The return remains formally under enquiry – A discovery has been made – Or it is a type of tax not covered by returns, or relates to PAYE

7. 6 © Copyright RSM Tenon Powers to inspect premises and other property  An officer…may enter business premises and inspect: – the premises – business assets on those premises – business documents on those premises  Can inspect the premises of involved 3 rd parties  The inspection must be “reasonably required for the purpose of checking that person’s tax position”  Business premises – means premises or any part of premises that an officer believes is used in connection with carrying on a business  Buildings used solely as dwellings are specifically excluded.

8. 7 © Copyright RSM Tenon Timing of inspections  Can be announced or unannounced  At any reasonable time  by prior agreement with the occupier or  Occupier must have been given 7 days notice, not necessarily in writing, or if unannounced, be carried out by an authorised officer  Approvals can be sought from FTT without prior notice to the taxpayer

9. 8 © Copyright RSM Tenon Restrictions and Defences  HMRC guidance confirms the person has a ‘right to refuse entry’ – so entry cannot be forced  Distinction between inspect and search – Example: “You are shown into a room in which the books, records and invoices you asked for have been placed on a table for your inspection. You are allowed to open the files and boxes of records that have been collected. You are allowed to walk around and look at the pictures on the wall. You are not allowed to open the filing cabinet in the corner just to see what is in it”

10. 9 © Copyright RSM Tenon Penalties for non-compliance  Initial penalty for non-compliance is £300  Potential daily penalties of £60  Providing inaccurate information or documents up to £,3000  Tax related penalties – decided by the Upper Tribunal

11. 10 © Copyright RSM Tenon Assessing Powers  HMRC can make assessments where – Income or chargeable gains which ought to have been assessed has not been – A previous assessment is or has become insufficient – Any relief given is or has become excessive  Assessing time limits (Discovery Provisions) – Not more than 4 years after the end of the tax year – For careless behaviour – 6 years – For deliberate behaviour – 20 years  Loss is brought about by the person or another person acting on his behalf

12. 11 © Copyright RSM Tenon Determinations  HMRC can make a determination of tax due if no return delivered  Made to the best of the officer’s knowledge and belief  Time limits – Within three years of the filing date  Can’t be appealed.  Can only be displaced by a self assessment within 12 months of the determination

13. 12 © Copyright RSM Tenon Penalties  Two penalty regimes – Returns due to be filed on or after 1 April 2009 (for periods commencing on or after that 1 April 2008) – Returns due to be filed before 1 April 2009  Commonality – Understatement of liability – False or inflated loss claim – False or inflated repayment claim  Subtle difference – Previously ‘culpable tax’ – Now potential lost revenue (PLR)

14. 13 © Copyright RSM Tenon New Regime  Penalty is behaviour based – Reasonable care – Careless – Deliberate – Deliberate & concealed  Set maximum and minimum penalties for each behavioural category  Categories relate to jurisdictions  Reductions achieved by – Telling (30%) – Helping (40%) – Access to records (30%)  Separate but similar regimes for ‘inaccuracies’ and ‘ failure to notify’

15. 14 © Copyright RSM Tenon Maximum and Minimum Penalties for Inaccuracies - Prompted Disclosure CategoryCarelessDeliberateDeliberate and Concealed MinimumMaximumMinimumMaximumMinimumMaximum 115%30%35%70%50%100% 222.5%45%52.5%105%75%150% 330%60%70%140%100%200%

16. 15 © Copyright RSM Tenon Maximum and Minimum Penalties for In accuracies – Unprompted Disclosure CategoryCarelessDeliberateDeliberate and Concealed MinimumMaximumMinimumMaximumMinimumMaximum 10%30%20%70%30%100% 20%45%30%105%45%150% 30%60%40%140%60%200%

17. 16 © Copyright RSM Tenon Application of Reduction  Applies to the difference between the maximum and minimum.  Example: – 80% discount achieved for a deliberate and concealed understatement following a prompted disclosure in a category 1 jurisdiction: Penalty will be 80% x 50% = 40%. – Maximum penalty is therefore 100% less 40% reduction = 60% penalty.  Cannot go below the minimum except in special circumstances, which does NOT include: – Ability to pay – Loss from one person is compensated for by another person.  These cases go to a special policy unit,

18. 17 © Copyright RSM Tenon Jurisdictions  Countries are now categorised according to how tax compliant they are considered to be.  Default is category 2 – includes Jersey, Switzerland, Liechtenstein, Gibraltar, Luxemburg, Israel  Category 1 - Most EU, IOM, Guernsey, Cayman Islands, Cyprus, USA (with some exceptions)  Category 3 - Monaco, Andorra, Panama, UAE

19. 18 © Copyright RSM Tenon Old Regime  Based on culpable tax not PLR  All started at 100% of the liabilities, reduced by – Disclosure – up to 20% plus an extra 10 % if unprompted – Co-operation – up to 40% – Seriousness – up to 40%  In certain circumstances it was possible to get penalties down to nil.

20. 19 © Copyright RSM Tenon Liechtenstein Disclosure Facility  Memorandum of Understanding signed on 1/8/09 supported by a Tax Exchange Information Agreement – 5 year Tax Compliance Assistance programme/5 year Disclosure Programme for UK – Financial Intermediaries in Liechtenstein need to be satisfied that, where appropriate, clients are UK tax compliant  Started 1/9/2009 and final opportunity to disclose ends 05/04/2016  Account closure in Liechtenstein if no disclosure to UK tax authorities

21. 20 © Copyright RSM Tenon Liechtenstein Disclosure Facility Benefits and Advantages  10% penalty (20% from 2009)  40% Composite Rate Option (CRO) available but with loss of exemptions & allowances  Single Charge Rate (SCR) 50% 2010/11 (more limited than CRO)  No liability pre-6 April 1999

22. 21 © Copyright RSM Tenon Liechtenstein Disclosure Facility Benefits and Advantages (continued)  No liability pre-6 April 1999  Streamlined process, pre-prepared forms, web guidance, FAQs.  Scope for Innocent Error and with it shorter timescales  Assurances re. criminal prosecution

23. 22 © Copyright RSM Tenon Who does it cover ?  Individuals, companies, trusts, partnerships…any legal person and not just for those with existing assets in Liechtenstein  Qualification from 01/09/2009 if Liechtenstein investment existed at that date.  Qualification from 01/12/2009 if Liechtenstein investment acquired after 01/09/2009 subject to a Confirmation of Relevance (CoR) being issued  CoR is a statement issued by a Liechtenstein Financial Intermediary evidencing that the relevant person:  has a substantial portion of the assets affected by the disclosure invested or managed in Liechtenstein or  has personal contact with the financial intermediary, the client relationship is long-term and the services provided are not merely of secondary importance  With effect from 1 December 2011 HMRC will require sight of the Confirmation of Relevance before an LDF registration application can be accepted.

24. 23 © Copyright RSM Tenon Who cannot participate?  MOU Preamble paragraph E) a)Any person under (serious) investigation by HMRC. b) Any person who was previously under investigation by HMRC and who knowingly did not disclose their interest in any relevant property can participate BUT will not be able to benefit from the limited penalty. c) Any person contacted under the ODF or NDO can participate BUT will not benefit from the limited penalty d) Any person who participates in the disclosure facility and has a bank account or financial account, outside the UK or Liechtenstein which was opened through a UK branch or agency will not be eligible for the shorter period, the fixed penalty and the Composite Rate Option

25. 24 © Copyright RSM Tenon Timelines  Timing for action and disclosure  Registration by letter, fax, ‘phone or email accompanied by CoR  HMRC will issue registration certificate within 60 days  Certificate to be sent the financial intermediary within 30 days  Send the disclosure to HMRC within  7 months (if using composite rate)  10 months (if using normal rates)  HMRC will send disclosure certificate within 30 days  Timing for action and disclosure  Registration by letter, fax, ‘phone or email accompanied by CoR  HMRC will issue registration certificate within 60 days  Certificate to be sent the financial intermediary within 30 days  Send the disclosure to HMRC within  7 months (if using composite rate)  10 months (if using normal rates)  HMRC will send disclosure certificate within 30 days  Send disclosure certificate to financial intermediary within 30 days  If contacted by financial intermediary 18 months to demonstrate compliance  If no contact from financial intermediary there is still a need to disclose

26. 25 © Copyright RSM Tenon Liechtenstein Disclosure Facility Statistics to September 2012  3,227 Registrations  2,152 Disclosures  £377m Yield from settled cases  £88m paid on account of cases not yet settled  1,158 settlements under £100,000  555 settlements between £100,001 and £1,000,000  60 settlements between £1,000,001 and £5,000,000  5 settlements £5,000,000+  Average settlement £186,000

27. 26 © Copyright RSM Tenon What is happening in Liechtenstein?  Financial Intermediary legislation started on 1 September 2010  At any time up to 31st March 2015, the Financial Intermediary will identify and then contact any clients who may be liable to taxation in the UK in relation to Liechtenstein based investments.  Once contacted the client will have up to 18 months to prove that they are compliant with their UK tax obligations.  If the required documentation is not provided the Financial Intermediary will cease to provide services and require the removal of investments out of Liechtenstein, or  exceptionally, keep the investments impose financial sanctions.

28. 27 © Copyright RSM Tenon Financial Intermediary writes to you, you need to provide them with…  Provide written confirmation from legal, tax or accounting adviser confirmation you have already complied with UK tax obligations or applied under another disclosure facility  Evidence to prove already met UK tax obligations for Liechtenstein investments  A certified or notarised copy of your self assessment tax return showing Liechtenstein investments  Evidence not a UK taxpayer  Registration and disclosure certificates sent to you after registration under the LDF  Self Certification

29. 28 © Copyright RSM Tenon Liechtenstein Disclosure Facility Particular issues  Offshore Income Gains and Losses – HMRC Offshore Funds Manual and Savings & Investment Manual  Time limits for claiming capital losses – Third joint declaration  HSBC ‘stolen data’ cases – Options A, B or C  Composite Rate Option – “Where the person makes an election to apply the CRO, the calculation will be accepted by HMRC in lieu of all UK taxes due on the actual basis … provided that such calculation is full and accurate…”

30. 29 © Copyright RSM Tenon Swiss agreement  Published 6 October 2011  FA 2012 s218 and Schedule 36 Switzerland  Date of commencement 1 January 2013  A one-off payment on 31 May 2013 to clear past unpaid tax liabilities, and/or  a withholding tax on income and gains for the future from 1 January 2013, or  Authority to the Swiss bank or agent to provide details of Swiss assets to HMRC.  Enhanced cooperation by way of exchange of information

31. 30 © Copyright RSM Tenon One off payment  Apply the formula  T= 34%* [2/3 (Cr – n/8* Cb) + 1/3(n/10*Cr + 2/10*(average of C9’+C10’)]  Min 21%  Maximum increased by Protocol (Up to 41%)

32. 31 © Copyright RSM Tenon Non Domiciliaries and the Swiss agreement  The past – can still use one off payment or Voluntary Disclosure  But also… – Opt out (but no clearance of funds) – Apply “Self Assessment “ Method  Certificate required from lawyer, accountant or tax adviser (of a relevant body) confirming person is non domiciled and has claimed status for 2010/11 and 2010/12

33. 32 © Copyright RSM Tenon Withholding tax  Rate to be applied – Interest 48% – Dividends 40% – Capital Gains 27% – Other income 48%  Can make Voluntary Disclosure and no Withholding Tax  No opt out for those non UK domiciled, but withholding tax only on UK source or income and gains remitted to UK.

34. 33 © Copyright RSM Tenon Measure to safeguard agreement’s purpose  Swiss authorities will provide information on request if identity and “plausible grounds” provided. The details of the Swiss paying agent does not have to be provided by HMRC  Plausible grounds include where HMRC identify tax risk  UK authorities will notify UK taxpayer in advance unless they believe to do so will seriously prejudice collection of tax  Information can extend to 10 years prior to the date of the request  Maximum number of requests in first three years, 500

35. 34 © Copyright RSM Tenon General Anti-Abuse Rule (GAAR) “Being introduced to deter and counter abusive tax avoidance, while providing certainty, retaining a tax regime that is attractive to businesses and minimising costs for taxpayers and HMRC”  December 2010 – Graham Aaronson QC asked to lead a study that would consider if a General Anti-Avoidance Rule could deter and counter abusive tax avoidance.  Report published 11 November 2011  Budget 2012 – Government accepted the recommendations of the Aaronson Report to introduce a GAAR targeted at artificial and abusive tax avoidance schemes  7 November 2012 - Government to appoint interim advisory group appointed to over the development of guidance on the new GAAR  Completion early 2013

36. 35 © Copyright RSM Tenon Any Questions? Steve Besford  steve.besford@rsmtenon.comsteve.besford@rsmtenon.com  020 7535 1437