Advisers are bracing themselves for a backlash from HM Revenue & Customs after a year-long international investigation on the use of tax havens unveiled damning evidence of tax abuse.
Jennie Granger, director general of enforcement and compliance at HMRC, has already asked the International Consortium of Investigative Journalists (ICIJ), which carried out the comprehensive investigation, to share its details.
She said: “HMRC is committed to exposing and acting on financial wrongdoing and we relentlessly pursue tax evaders to ensure they pay every penny of taxes and fines they owe.
“HMRC has already received a great deal of information on offshore companies, including in Panama, from a wide range of sources, which is currently the subject of intensive investigation.
“We will closely examine this data and will act on it swiftly and appropriately.”
Her comments came after the ICIJ, together with media partners around the world, published a string of stories on the back of leaked documents called the ‘Panama Papers’.
These cover nearly 40 years, from 1977 through the end of 2015, and were allegedly leaked from Panama-based global law firm Mossack Fonseca.
The 11.5m papers indicate banks, law firms, offshore players and even politicians have often failed to follow legal requirements, while major banks are big drivers behind the creation of hard-to-trace companies in the British Virgin Islands, Panama and other offshore havens.
There are nearly 15,600 such companies listed, including thousands created by large global banks such as UBS and HSBC.
A spokesman for HSBC said: “We work closely with the authorities to fight financial crime and implement sanctions.
“Our policy is clear offshore accounts can only remain open either where clients have been thoroughly vetted, where authorities ask us to maintain an account for the purposes of monitoring activity, or where an account has been frozen based on sanctions obligations.”
HSBC would not comment on whether this was limited to the offshore subsidiaries or whether this included the UK operations.
The Panama Papers also suggested many of the ‘offshore facilitators’ were UK tax advisers, making HMRC’s warning notes pertinent for tax planners in the UK.
Since 2010, the UK government has bolstered the HMRC to reduce tax evasion and aggressive avoidance, cracking down on both individuals and the advisers who have helped them.
According to data from HMRC and private client law firm Collyer Bristow, it has already brought £2bn in from offshore evasion since 2010.
It has also garnered £154m through investigations into unpaid capital gains tax over the last tax year - £39m of which was obtained by HMRC’s newly created Counter Avoidance Directorate, which focuses on ‘marketed tax avoidance schemes’.
Ms Granger warned there are no safe havens for tax evaders. “The dishonest minority, who can most afford it, must pay their legal share of tax, like the honest majority already does.”
Jessica Parker, partner at regulatory law firm Corker Binning, said: “It appears HMRC has no qualms about the manner in which the Panama Papers have come to light and plan on making full use of any intelligence it contains.”
The UK is already creating a central public register of company ownership, which will be in force in June this year, while the Organisation for Economic Development and Commerce is also introducing a common reporting standard, whereby information from 31 tax authorities will be automatically exchanged between signatories to ensure individuals are tax compliant.
However, as Collyer Bristow partner James Badcock warned, wealth advisers will also need to make sure their client’s tax planning and use of particular overseas structures is robust and straightforward enough to withstand the inevitable increased scrutiny.
“It is perfectly legitimate to create certain tax structures, through companies and trusts, in international financial centres.
“Yet the UK government has been trying to discourage various tax avoidance schemes and people need to take proper advice on this and what the consequences of using various avoidance mechanisms will be.
“Due to so many changes to the law, advisers will have needed to be on top of this anyway and keeping their clients informed.”
Mr Badcock said most financial advisers with high-net-worth clients would “have a feel” for what would be prudent to do, rather than look for something sophisticated that HMRC may seek to crack down on.
George Bull, senior tax partner for RSM, said: “If an adviser has in the past recommended a certain structure to client, then it would be wise now to be to assess the facts and consider the legal position especially any possible legal consequence for the adviser and the client.
“Having assessed the situation, advisers might consider going to HMRC now and make a disclosure to get in the system now, rather than wait for HMRC to pick this up.”
Any litigation against a client could lead to significant reputational damage for the adviser, as Mr Badcock explained: “There is a media climate of naming and shaming, so there is a reputational risk that comes with being involved in sophisticated, complicated tax planning that bends the rules.”
Mr Bull agreed: “The important thing is to how best to handle the HMRC exposure, which could be anything from negotiated settlement, tax interest and penalties, through to litigation and perhaps even being hit with a confiscation order that might result from a prosecution.”
Mossack Fonseca and UBS were approached for a statement but had not responded by the time this article was published.
