‘Big Brother’ HMRC Targets Offshore Structure Ownership Data

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By Ben Stupples

Law firms that help to create offshore companies or trusts can expect a letter from Her Majesty’s Revenue and Customs requesting information on their clients’ beneficial ownership or interests, according to the U.K.’s representative body for solicitors.

The U.K.’s tax authority is seeking further data on offshore structures to help identify their ultimate ownership, leading to claims of it behaving like an oppressive state.

The Law Society says HMRC’s letter, which will be followed by a formal notice two weeks later, seeks to identify the name and address of any client seeking to create an offshore entity.

It will also request information on the name, jurisdiction and date of registration of offshore structures, and the details of anyone with ownership interests in them, according to a notice published Jan. 17 on The Law Society’s website.

The details of the letter come amid a crackdown from the tax authority on offshore structures following the publication of the Panama Papers last year, when a leak of more than 11 million documents from Panama law firm Mossack Fonseca & Co. revealed how offshore entities are used to avoid taxes.

Nearly half of the companies named in the Panama Papers were registered in the British Virgin Islands, a U.K. overseas territory, while the leak also revealed nearly 2,000 U.K.-based intermediaries that have facilitated tax evasion and avoidance.

‘Big Brother.’

HMRC’s latest plans suggest that the tax authority is struggling to gather sufficient information of offshore structures’ ownership, according to Mark Davies, managing director of London-based international tax advisory firm Mark Davies & Associates.

“It’s Big Brother stuff,” he told Bloomberg BNA in a Jan. 24 telephone interview.

“The state really doesn’t need to know everything about you,” he added in reference to advisers having to disclose clients seeking to set up offshore structures. “It just needs to know enough to establish that you’re paying the correct amount of tax.”

“The move by HMRC does not surprise me, and it does seem like they are leaving no stone unturned in the search for taxes they feel might not have been paid that might have been due,” Dean Mullaly, managing director of London-based Mark Dean Wealth Management, told Bloomberg BNA in a Jan. 24 e-mail.

“But I do think HMRC seem to think it is a bigger pot of gold at the end of the rainbow than it might actually be in reality,” he added.

Disclosure Drive

In September, following the publication of the Panama Papers, the U.K. created a “final chance” disclosure program to allow tax evaders to pay any U.K. taxes due.

Individuals who come forward to HMRC through the online disclosure system will pay the full amount of unpaid tax with interest and face a minimum penalty of 30 percent of the taxes due, HMRC said in a September guidance document.

The U.K. will punish tax evaders with fines of as much as three times the money owed if they haven’t disclosed any unpaid U.K. taxes on their overseas income following the deadline of the disclosure program in 2018, and they may have to reveal third parties involved in their tax planning, according to an August 2016 consultation document.

Seeking Confidential Information

HMRC’s plans to request beneficial ownership information have prompted fears over whether it will seek material that is confidential between clients and legal advisers.

The Law Society warned in its Jan. 17 notice that it will “vigorously defend and protect” this privilege. It added, however, that HMRC has said it will not seek confidential material, and that the tax authority is mostly looking for “transaction” information.

A spokesman for HMRC said in a Jan. 24 e-mail that the tax authority’s plans are in line with its No Safe Havens strategy created by the U.K.’s coalition government.

The strategy helps “to ensure we have the right information on who the ultimate beneficial owner of offshore companies, partnerships and trusts are,” they said. “This is all information that already has to be kept under the law and will help us tackle economic crime and collect taxes due.”

“We are working with the Law Society and other professional bodies to ensure the effective roll out of appropriate guidance for their members,” they added.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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