31 January 2011

UK: New penalties to tackle offshore tax evasion

HM Revenue & Customs (HMRC) has announced new penalties for offshore non-compliance.

These new penalties come into force from 6 April 2011 and apply to Income Tax and Capital Gains Tax. The first Self Assessment returns affected will be for the 2011-12 tax year, with paper returns due to be filed by 31 October 2012, and electronic returns by 31 January 2013.

The legislation can be found in Schedule 10 of Finance Act 2010.

How it works

The new penalty is an enhancement of the penalties for

  • failure to notify
  • inaccuracy on a return
  • failure to file a return on time

Under the new legislation, these penalties will be linked 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 laid legislation before Parliament which describes which territories are in 'category 1' and 'category 3'. All other territories (except the UK) are in 'category 2'.

Category 1Category 3
AnguillaAlbania
ArubaAlgeria
AustraliaAndorra
BelgiumAntigua and Barbuda
BulgariaArmenia
CanadaBahrain
Cayman IslandsBarbados
CyprusBelize
Czech RepublicBonaire, Sint Eustatius and Saba
Denmark
(not including Faroe Islands and Greenland)
Brazil
EstoniaCameroon
FinlandCape Verde
FranceColombia
GermanyCongo, Republic of the
GreeceCook Islands
GuernseyCosta Rica
HungaryCuraçao
IrelandCuba
Isle of ManDemocratic People's Republic of Korea
ItalyDominica
JapanDominican Republic
Korea, SouthEcuador
LatviaEl Salvador
LithuaniaGabon
MaltaGrenada
MontserratGuatemala
Netherlands
(not including Bonaire, Sint Eustatius and Saba)
Honduras
New Zealand
(not including Tokelau)
Iran
NorwayIraq
PolandJamaica
PortugalKyrgyzstan
RomaniaLebanon
SlovakiaMacau
SloveniaMarshall Islands
SpainMauritius
SwedenMicronesia, Federated States of
United States of America
(not including overseas territories and possessions)
Monaco
Nauru
Nicaragua
Niue
Palau
Panama
Paraguay
Peru
Saint Kitts and Nevis
Saint Lucia
Saint Vincent and the Grenadines
San Marino
Seychelles
Sint Maarten
Suriname
Syria
Tokelau
Tonga
Trinidad and Tobago
United Arab Emirates
Uruguay

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