New penalties for offshore tax evasion

HM Revenue & Customs has published details of the new penalties for tax evasion linked to offshore bank accounts, trusts and other structures.

The new penalties apply from 6 April 2011 to Income Tax and Capital Gains Tax. The first Self Assessment returns affected will be for 2011-12. The legislation is at Schedule 10 of Finance Act 2010.

How it works

The new penalty is an enhancement of the existing penalty regime for inaccuracies, failure to notify chargeability and late filing.

These new penalties are geared to the tax transparency of the territory in which the income or gain arises. Where it is harder for HMRC to get information from another country, the penalties for failing to declare income or gains arising in that country will be higher.

There will be three new levels of penalty:

  • where the income or gain arises in a territory in ‘category 1’, the penalty rate will be the same as under existing legislation
  • where the income or gain arises in a territory in ‘category 2’, the penalty rate will be 1.5 times that in existing legislation – up to 150 per cent of tax
  • where the income or gain arises in a territory in ‘category 3’, the penalty rate will be double that in existing legislation – up to 200 per cent of tax.

The Treasury has published lists of territories in ‘category 1‘ and ‘category 3’. All other territories (except the UK) are in ‘category 2’.  See lists below.

There will be no penalty if a person can demonstrate they have taken reasonable care to get their tax right or have a reasonable excuse for a failure to notify taxable income.

Where penalties are due, HMRC can reduce them depending on how helpful the individual is in assisting it to establish the correct amount of tax due. The largest reductions will be for unprompted disclosures.

How are territories categorised for offshore penalties?

The table below shows which territories will be classified in ‘category 1’ and ‘category 3’ for the purposes of new penalties for offshore non-compliance.  Territories not listed here (other than the UK) will be in ‘category 2’.

Category 1

Anguilla, Aruba, Australia
Belgium, Bulgaria
Canada, Cayman Islands, Cyprus
Denmark (not including Faroe Islands and Greenland)
Finland, France
Germany, Greece, Guernsey
Ireland, Isle of Man, Italy
Korea, South
Latvia, Lithuania
Malta, Montserrat
Netherlands (not including Bonaire, Sint Eustatius and Saba), New Zealand (not including Tokelau)
Poland, Portugal
Slovakia, Slovenia, Spain, Sweden
United States of America (not including overseas territories and possessions)

Category 3

Albania, Algeria, Andorra, Antigua and Barbuda, Armenia
Bahrain, Barbados, Belize, Bonaire, Sint Eustatius and Saba, Brazil
Cameroon, Cape Verde, Colombia, Congo, Republic of the Cook Islands, Costa Rica, Curacao, Cuba
Democratic People’s Republic of Korea, Dominica, Dominican Republic
Ecuador, El Salvador
Gabon, Grenada, Guatemala
Iran, Iraq
Macau, Marshall Islands, Mauritius, Micronesia, Federated States of, Monaco
Nauru, Nicaragua, Niue
Palau, Panama, Paraguay, Peru
Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Maarten, Suriname, Syria
Tokelau, Tonga, Trinidad and Tobago
United Arab Emirates, Uruguay

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