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Out-Law News 2 min. read

Crown Dependency tax disclosure facilities yield 'surprisingly low' returns for HMRC


Just £13.9 million in tax that may otherwise have gone unpaid has been collected by HM Revenue and Customs (HMRC) through disclosure arrangements relating to tax irregularities in the Isle of Man and Channel Islands, according to new figures.

Tax investigations expert Fiona Fernie of Pinsent Masons, the law firm behind Out-Law.com, said that the figures would come as a disappointment to HMRC, given the success of a similar disclosure facility covering tax irregularities in Lichtenstein. However, it was worth noting that the Crown Dependency disclosure facilities offered less favourable terms to taxpayers than the Liechtenstein Disclosure Facility (LDF), she said.

The Crown Dependency disclosure facilities first opened in April 2013 and were originally scheduled to close in September 2016, but a recent Budget announcement brought this forward to 31 December 2015, Fernie said. The LDF is due to close on the same date, ahead of the introduction of automatic cross-border tax information exchange from 2016, she said.

"The cross-border exchange of data from September 2016 seems a long way off at the moment – but if people wait until then to identify and disclose any discrepancies it will be too late to use the favourable settlement opportunities that currently exist," she said. "Compliance activity will be stepped up by HMRC dramatically as it starts to receive that extra intelligence."

The UK Treasury originally estimated that the disclosure facilities would raise an extra £1 billion in tax over five years. They offer individuals and companies with undisclosed tax liabilities relating to assets or investments in the Isle of Man, Jersey or Guernsey the opportunity to disclose any overdue payments or irregularities in exchange for reduced penalties, and an amnesty on any tax liability pre-dating April 1999. However, unlike the LDF, these facilities do not offer immunity from prosecution.

Fernie said that because anyone without an existing bank account, investment or structure in Liechtenstein could bring themselves within the scope of the LDF by opening a Liechtenstein bank account before formally registering for the process, subject to certain conditions, some of those with undisclosed liabilities in the Crown Dependencies could be taking advantage of the more favourable scheme instead.

"The terms offered are much less favourable than those currently available under the LDF, which provides full immunity from prosecution," she said. "Taxpayers with more serious irregularities are likely to move assets to Liechtenstein if they can, to make use of the facility there."

"It may also simply be a reflection of the fact that the scale of tax evasion across the Crown Dependencies is not actually as extensive as many assume. There is likely to be some non-compliance, but more often than not it will be technical in nature or based on simple mistakes rather than non-legitimate structures," she said.

Just 37 disclosures yielding £2.6 million have been made by Guernsey accountholders since the start of the scheme; while £5.7m came from 181 disclosures from Jersey and £5.6m from 186 disclosures from the Isle of Man over the same period. By contrast, the LDF has raised over £1.1bn from 5,633 disclosures as of June 2015, according to HMRC figures.

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