Legislation at section 35 (Opens new window) and Schedule 10 (Opens new window) of Finance Act 2010 increases the sanctions available to HM Revenue & Customs (HMRC) for tackling offshore non-compliance. It sets out a new penalty framework for offshore non-compliance that will apply to Income Tax and Capital Gains Tax.
Building on the new behaviour-based penalty structure, the legislation provides for increased penalties where the non-compliance arises in a jurisdiction which does not automatically share tax information with the UK.
The Government announced that the penalties will apply to the 2011-12 tax year.
More information on how the New penalties to tackle offshore tax evasion will work.
SI 20011 No.976 (Opens new window) The Penalties, Offshore Income etc (Designation of Territories) Order 2011 describes which territories are in 'category 1' and 'category 3'. All other territories (except the UK) are in 'category 2'.
The classification is predominately based upon the tax transparency of territories. Where a territory has arrangements with the UK which provide for the automatic sharing of information on savings income, the territory has been placed in category 1. Where the territory has arrangements in place which provide for the exchange of tax information on request with the UK, the territory has been placed in category 2. Where no information sharing arrangements exist, or arrangements are of insufficient quality, the territory has been placed in category 3.
Where a country does not share any information with the UK, the primary legislation also permits the Treasury to consider whether there would be any benefit to the UK, were an agreement to exist. The Treasury can take this into account in finalising the classification. This provision has been used to classify some of the least developed countries in category 2, even if they have no information sharing arrangements with the UK.
Tackling Offshore Tax Evasion – consultation response document 24 March 2010
A summary of responses to the December 2009 consultation was published on 24 March 2010. It also discusses the proposals for the new penalty framework for offshore non-compliance and how these had been devised in direct response to the comments received in consultation.
Tackling Offshore Tax Evasion - consultation document 9 December 2009
A consultation Impact Assessment was published alongside this consultation. The initial consultation sought views on measures to help HMRC tackle offshore tax evasion more effectively, including a notification requirement for certain offshore bank accounts and robust penalties for offshore non-compliance. It also sought views on the feasibility of reforms to information requirements around non-resident trusts.
