U.K. Tax Agency Gets Seven-Week Deadline on Paradise Papers

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By Ben Stupples

The U.K.’s tax agency has been given a seven-week deadline from a parliamentary committee to obtain and report on the impact of the Paradise Papers.

Her Majesty’s Revenue and Customs should obtain the Paradise Papers and “set out its response” to the data leak by March 2018, according to a Jan. 12 report from the Public Accounts Committee, which scrutinizes public spending, on the tax agency’s annual performance. HMRC’s report to the select committee on its response should include any information on “any additional revenue likely to be at stake,” it added.

Published Nov. 5, the Paradise Papers data leak revealed the offshore tax planning of rich individuals and multinational companies, including Apple Inc. The data included 6.8 million files from Bermuda-based law firm Appleby. Nearly 14,500 of Appleby’s clients cited in the leak are linked to the U.K., the second-highest number of country connections in the Paradise Papers after the U.S.

In its report, the Public Accounts Committee (PAC) raised concern over HMRC’s future performance as the tax authority juggles its 10-year modernization program with major operational changes raised from the U.K. leaving the European Union. In a Jan. 12 news release, committee chair Meg Hillier warned that the Paradise Papers may also “significantly increase” HMRC’s workload.

In a statement, a spokesman for HMRC told Bloomberg Tax the authority continues “to look very closely at the information disclosed in the public domain” on the Paradise Papers. This information could reveal new facts “that could add to existing leads and investigations,” he said.

International Data Exchange

Since November 2017, the International Consortium of Investigative Journalists has published selected data on the Paradise Papers. The Washington D.C.-based network has a policy, though, against working with governments. As a result, the PAC noted in its Jan. 12 report that HMRC will likely have to use information-exchange agreements with other countries to get the data.

HMRC’s chief executive, Jon Thompson, told the PAC in a Nov. 6 evidence session with the PAC that the tax authority asked the ICIJ to see the Paradise Papers “two weeks” before. He also told the committee that HMRC eventually had to purchase the Panama Papers, an April 2016 data leak of more than 11 million documents from Panamanian law firm Mossack Fonseca & Co.

Fiona Fernie, a London-based tax partner at global law firm Blick Rothenberg, told Bloomberg Tax that HMRC sent letters to U.K. taxpayers linked to the Panama Papers after it obtained the data.

“In the letters, HMRC asked: ‘Can you show us where this income is on your tax return?’ If not, please explain why,” she said. “That’s a sensible approach as they can send the letters in batches, and I suspect HMRC will take a similar one with the Paradise Papers if they get the data.”

HMRC’s Paradise Papers Yield

In its report, the PAC noted that HMRC has secured an additional 100 million pounds ($135 million) and opened 66 investigations from the Panama Papers. HMRC’s latest annual report, by contrast, shows that it collected 28.9 billion pounds in the last financial year by tackling non-compliance.

Amit Puri, U.K. tax investigations director at global accounting firm Grant Thornton, told Bloomberg Tax that HMRC will aim to target “middle men” in its investigations around the Paradise Papers.

“They see these individuals as the enablers and facilitators of tax evasion,” he said. “Once you break the middle players who act for lots of other people, the amount of tax collected starts to rise.”

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

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

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