Tax Evaders Accept It?s Time To Come Clean

27.10.09

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

The push by G20 leaders to target tax havens and tax evaders is increasingly producing results for their treasuries. More people are voluntarily owning up to hidden offshore savings as they reali

The push by G20 leaders to target tax havens and tax evaders is increasingly producing results for their treasuries. More people are voluntarily owning up to hidden offshore savings as they realise it is only a matter of time before their bank accounts are disclosed to the taxman. Voluntarily disclosure usually results in reduced penalties and many countries are now offering tax ?amnesties? or voluntary disclosure programmes to encourage people to put their affairs in order and pay the tax they owe.

US disclosure scheme

The US voluntary disclosure programme has seen over 7,500 tax evaders come clean with the Internal Revenue Service (IRS). As risk of being caught increased they took the opportunity to pay reduced penalties, avoid criminal prosecution and, as federal law requires tax records to be kept confidential, for their names to remain secret.

Those who came forward had accounts in 100 different banks across 70 different countries, with amounts ranging from $10,000 to over $100 million. Two of the banks involved are Credit Suisse and HSBC.

IRS Commissioner, Douglas Shulman, said ?We have seen a very strong response to the programme and I am very pleased with the results.? He has made clear his intention to also punish those helping the tax evaders hide their money offshore. He added, ?This entire effort is not just about UBS and a single country.?

The IRS plans to hire more than 800 extra staff over the coming year and open or expand overseas offices in jurisdictions like Hong Kong, Australia, Beijing, Panama City and Barbados to further pursue offshore accounts.

The disclosure programme which began in March was scheduled to end in September but was extended by three weeks to 15th October as tax advisers asked for more time under a last moment rush as tax evaders tried to beat the deadline.

Under the voluntary disclosure programme, those who came forward will pay a reduced penalty of 20% of an account?s assets based on its peak value in the previous six years. Where there was an inactive account the tax authority would take as little as 5%.

Outside the programme, the IRS can take the higher of $100,000 or 50% of an offshore account's value when the holder purposely doesn't disclose the account. The penalty can be imposed on a yearly basis.

The voluntary disclosure programme followed the US and UBS bank episode when UBS agreed to hand over 250 names and $780 million in a settlement with the US government over tax evaders. The US government is already building criminal cases against 150 of those names. UBS has since handed over 4,450 names, from which 10,000 new cases were expected to unfold.

At least six US clients of UBS have owned up to secret accounts and tax evasion. They face a maximum fine of $250,000 each, a 50% penalty on the top value of the account and possibly a five year term in prison.

Former UBS banker and whistleblower, Bradley Birkenfeld, pleaded guilty in June 2008 for aiding billionaire Igor Olenicoff to evade taxes. He has been given a jail sentence of 40 months starting in January. In 2007 Birkenfeld co-operated with the US Justice Department by supplying information on 19,000 UBS offshore accounts where American taxpayers were hiding their wealth. Birkenfeld has filed a claim under the whistleblower scheme for a portion of the revenue collected by the IRS due to his information.

A 2006 law boosted rewards for those giving key information in cases involving evasion of $2 million or more. In 2008 whistleblowers alleged more than $65 billion in under-reported income, an increase of $8 billion on the previous year.

It could be that the idea of rewarding whistleblowers for tax evasion information is taken up by other countries as they strive to boost their monetary supply.

Canada

While Canada has not offered a specific amnesty programme, the Canadian system gives taxpayers 10 years to report undeclared income and avoid prosecution. Following the US success with UBS, over 50 Canadian UBS clients chose to voluntarily disclose unpaid taxes. Investigations have so far uncovered around $6.4 billion in unreported income.

Italy

The Italian amnesty offers anonymity and a one-off payment of 5% of the total funds disclosed. It is the country?s third amnesty since 2001 and this time around Italians are repatriating funds at a record pace. Asset managers say the amount repatriated will probably exceed the previous two amnesties combined ? where around ?80 billion was returned.

France

For the first time, France has also opened a voluntary disclosure office to help those who have evaded tax come clean. It offers reduced sanctions and some form of anonymity.

Confusion over UK disclosure facilities

The UK?s New Disclosure Opportunity runs from September 2009 to March 2010. It has been criticised for being less advantageous than the separate Liechtenstein Disclosure Facility, thereby encouraging tax cheats to disclose under the Liechtenstein facility.

Permanent Secretary for Tax at HM Revenue & Customs (HMRC), Dave Hartnett, told Accountancy Age that people ?cannot just use the one that suits you best?. HMRC has given notices to 308 financial institutions in the UK to provide details of their customers? offshore accounts. These customers cannot disclose through the Liechtenstein facility.

Hartnett, however, sowed more confusion after being quoted as telling the International Bar Association?s conference in Madrid that further country-specific disclosure facilities will be negotiated from 2010 onwards.

?I am not going to say which countries we are consulting with, but discussions are ongoing. I wouldn't hold your breath within the next six months, but after that there will be news“, Hartnett was reported as commenting in the International Tax Review.

Although Prime Minister, Gordon Brown, apparently backed up Hartnett?s remarks by reportedly saying that more arrangements similar to that with Liechtenstein were on the cards and could yield up to ?1 billion each, HMRC denied that there will be further disclosure opportunities and said Hartnett made no such comments.

Tax evaders will be found out in the end and the longer offenders put off legitimising their affairs the harsher the penalties will be as well as more tax and interest to pay. There are far safer, less stressful and fully legitimate ways to cut down on tax and in some situations avoid it. An authorised and regulated financial and tax adviser like Blevins Franks Financial Management can help with specific advice and arrangements to suit your circumstances.

By Bill Blevins, Managing Director, Blevins Franks

23rd October 2009

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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