The "Paradise Papers" - what's the likely fall out?

News Article

With the ongoing disclosures relating to the “Paradise Papers” we reflect on our experiences of the impact this type of media interest has on clients and what’s driving an increasing number of them to approach us in relation to their offshore structures and assets. We also announce a new member of the Pannu Tax team whose arrival further strengthens our ability to provide quality advice to clients at a reasonable cost.

We’ve seen a steady flow of clients approach us in the last 12 months in relation to their offshore assets and structures. This has been primarily as a result of the increased awareness (by clients and their UK advisors) of the impact of the various Automatic Exchange of Information Agreements signed by the UK Government and already taking effect or due to come in in 2018. The recent media frenzy on the “Paradise Papers” is likely to make those clients who have begun to review their offshore affairs from a UK tax perspective glad that they have already started this process. Those clients who have yet to act may feel pressure to do so in the near future.

One thing is for sure, the recent media reporting will have an impact on HMRC in terms of its compliance efforts. Whenever we have seen these types of disclosures and media reporting (irrespective of how technically correct most of it may or may not be) the attention eventually turns on HMRC and questions are asked about what tax inspectors are doing to tackle these perceived abuses. The reaction in the past has been mixture of increased funding for HMRC to provide more frontline officers and/or the introduction of what are often draconian new powers or obligations. Unfortunately, we don’t see this time being any different.

We've already noticed an increase in the last 6 months of HMRC starting to use the information already obtained from these international agreements to start investigations and enquiries or to 'nudge' UK taxpayers to make a disclosure or face the prospect of an investigation. We expect this activity to increase as a result of the recent media spotlight.

What's worrying UK clients with offshore assets?

Running alongside the new information exchange agreements, the UK Government is giving UK taxpayers a ‘final chance’ to regularise historic tax issues relating to offshore structures and assets prior to September 2018. The new “Requirement to Correct” regime will see clients facing stringent penalties of up to 200% of the tax due, the potential for an asset based penalty (of up to 20%) and ‘naming and shaming’ if they refuse to correct historic tax issues. This is likely to be in addition to an intrusive, expensive and time consuming HMRC enquiry or investigation.

What action should clients take?

Of the clients and advisors who have approached us over the last 6 months wishing to discuss the impact of these provisions, a number have clearly had historic tax issues which required disclosure to HMRC. Some, following a review, have not.

We've found that if there are historic tax issues the decision on how best to approach HMRC and to ensure that any risks to the client (in terms of financial penalties or, in the most serious cases, criminal investigation) is not a straightforward one. The ability to simply use one of the offshore disclosure facilities, which provided beneficial terms and immunity from allegations of tax fraud and criminal investigation by HMRC, are long gone. The current HMRC Worldwide Disclosure Facility provides no such guarantee from criminal prosecution and so real care needs to be taken on the best approach. It’s clear that the ‘one size fits all’ approach to disclosing offshore tax issues is no longer available.

How can we help?

If you have clients who might benefit from a review of their arrangements or believe they may have historic tax issues please contact us.

If you have clients who might benefit from a review of their arrangements or believe they may have historic tax issues please contact us.

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