Draft Finance Bill 2016 Clause 67 Civil penalties for enablers of offshore tax evasion - CIOT comments

By Technical Team on 01 Feb 2016

CIOT has written to HMRC expressing concerns with the drafting of clause 67 Finance Bill 2016, and in particular paragraph 1 which introduces penalties for enablers of offshore tax evasion.

Our primary concern is that the legislation applies to failure to take reasonable care as well as to tax evasion on the part of the taxpayer. At the time of the consultation into these proposals last year, we had thought it reasonably clear that the new civil penalty for enablers would apply only in relation to ‘tax evaders’. Indeed, paragraph 5.5 of the consultation document, under the heading ‘Who should be liable to a penalty?’ specifically referred to the term ‘evader’.

The draft legislation in effect replaces ‘evader’ with ‘Q’, so that there is no longer any requirement for the taxpayer to be a tax evader. Draft paragraph 1(4)(b) refers to another person (Q) carrying out ‘offshore tax evasion’ by engaging in behaviour that makes Q liable to a ‘relevant penalty’. ‘Relevant penalty’ is defined in paragraph 1(6) as including a penalty under paragraph 1 Sch 24 FA 2007 etc which covers penalties for both careless and deliberate errors.

In our view, it should only be possible for the offence of enabling to take place when the taxpayer has acted deliberately to evade tax. This would still meet the policy objective.

We consider that including a failure to take reasonable care makes the legislation unnecessarily complex.  We ask HMRC to provide a clear statement of how and in what circumstances they intend to use this legislation.

The definition of ‘enable’ in paragraph 1 (3) is ‘encouraging’ and ‘assisting’ offshore tax evasion but also includes the term ‘otherwise facilitating’ which seems very vague, requiring no active involvement and is therefore potentially very wide. We think that the term ‘otherwise facilitating’ should either be dropped completely (our preference) or, alternatively, defined specifically within the legislation.

We also note that the term ‘deliberate’ is not used in the legislation when referring to the enabler’s behaviour, despite the policy paper clearly stating that the penalty only applies where the enabler’s behaviour is deliberate. We think the legislation ought to be specifically targeting dishonest deliberate action.

We also raise the possibility of these provisions being contrary to EU law.

Our full submission can be found here.

Technical Team

Downloads