UK-Tax-Dodger-Shame-List

Tax dodgers to be named and shamed under UK budget measure

International Tax Review, April 1, 2009.

The UK government will name and shame deliberate tax defaulters to protect the country's tax system from abuse, the chancellor of the exchequer said on April 1, 2009.

Alistair Darling announced the new measure during his budget as part of a package of reforms aimed at reducing aggressive tax avoidance, evasion and non-compliance.

Under the new law HM Revenue & Customs will name corporates that incur a penalty because they have deliberately understated more than £25,000 ($36,000) of tax.

"It cannot be fair that those who should pay tax are allowed to avoid it," Darling said.

But professional service firms have been quick to criticise the measure.

"HMRC prided itself on maintaining tax payer confidentiality. Now people who evade UK tax, who thought their tax affairs are confidential, could now find their names and addresses splashed over the press," said Chris Oates, a partner in tax controversy & risk management at Ernst & Young.

He is concerned the new law will damage relationships between taxpayers and tax authorities. "People will be less inclined to bring forward negotiations behind closed doors," he said.

"Those customers of HMRC who voluntarily come forward to put their tax affairs in order will be spared this public humiliation", said Mike Down, Baker Tilly's tax investigations partner.

But he is not convinced the new rules will alter behaviour.

"HMRC are attaching a stigma to tax evasion, but the cynical might wonder if the register concept will backfire and become a mark of street credibility in certain circles," he said.

Under further measures announced, senior accounting officers at major corporates will now be personally responsible for making sure that adequate controls to prepare accurate tax computations are in place.

If the tax authorities deem information to be inaccurate or careless, the individual will be penalised not the corporate.

"I think this is the most significant change in the whole of the budget," said Oates. "It will be the riskiest job in town. It will also slow down processes and add to costs," he said.

In his budget speech, Darling said that over the last decade, the government had taken a number of measures, which have reduced tax evasion and avoidance, on average reducing avoidance by more than £1 billion a year.

"I intend to build on this today," he said. "We have identified loopholes and schemes, which, when closed, will result in £1 billion of extra revenue over the next three years."

Among other plans announced was the introduction of a foreign exchange targeted anti-avoidance rule to prevent schemes that seek to exploit the foreign exchange tax matching provisions; legislation to stop abuse of the manufactured overseas dividend rules; and clarification of the double tax relief rules to counter abusive schemes.

Darling also clarified the rules of the corporate intangible fixed asset regime by confirming that goodwill is treated as intended and he announced legislation to target avoidance schemes involving financial products.

Anti-tax haven activists were left disappointed by the Chancellor's lack of commitment in tackling offshore centres. Darling only went as far as encouraging countries to adopt the international standard for tax information exchange and agreeing to develop proposals, by the end of 2009, to make it easier for developing countries to secure the benefits of a new cooperative tax environment.

"The government claims to lead a crusade against tax havens – yet delivered little today," said Simon McRae, senior campaigns officer at the charity War on Want.

"Britain loses an estimated £100 billion a year through tax dodging – a sum badly needed in the current economic crisis. And corporate tax dodging costs developing countries an estimated £250 billion a year," he said. "Closing loopholes to raise up to £1 billion is a paltry substitute for shutting down secretive tax havens and cracking down on City of London tax dodges."

The government did however announce a new disclosure opportunity which will give holders of offshore accounts an opportunity to disclose, of their own accord, if they have unpaid tax or duties and to settle debts.

John Cassidy, tax investigations partner at PKF Accountants & business advisers, said this announcement was long overdue.

"We welcome today's announcement of a new facility for holders of offshore accounts to voluntarily disclose undeclared tax liabilities," he said. "As well as adding to the Treasury's funds, this will enable holders of these accounts to properly square matters with HMRC and get their affairs back in order.

"HMRC is still gathering data concerning offshore account holders by seeking to issue notices to offshore financial institutions, forcing them to provide various data about their customers," he added. "No doubt this will be used against those who do not take advantage of the new disclosure facility."