U.K.’s Tax Debt Collected With EU Help Increases 177 Percent

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By Ben Stupples

The U.K. nearly tripled the tax debt it recovered with the help of European Union countries last year, signaling how the country’s Brexit vote hasn’t hurt cross-border collaboration in the trading bloc.

The U.K. government obtained a total of 5.4 million pounds ($7.6 million) in 2017 by asking other EU countries to recover unpaid tax debts on Britain’s behalf, a 177 percent increase from the previous year, according to official data. Bloomberg Tax obtained the statistics through a Freedom of Information Act request to Her Majesty’s Revenue and Customs, the U.K.’s tax authority.

The U.K.’s increased yield comes after the EU said that both parties will continue to assist each other in the cross-border recovery of tax debts after Britain leaves the bloc next year.

The laws covering the Mutual Assistance in the Recovery of Debt (MARD) will remain relevant for five years after the end of the U.K.’s 21-month transition period, which starts at the end of March 2019, on tax debts arising in the interim phase, according to a March 15 update of Britain’s withdrawal agreement.

Kate Ison, a London-based corporate tax partner and tax disputes team leader at global law firm Berwin Leighton Paisner LLP, cited political pressure and increased cross-border cooperation as factors behind the U.K.’s higher yield.

With tax becoming “increasingly high” on the U.K.’s political agenda, “one of the weapons on which HMRC has increasingly relied on to spread the tax net and maximise collection of tax is MARD,” she told Bloomberg Tax by email March 28.

“Although tax authorities have engaged in cross border exchange of information for some time, reliance on MARD and mutual assistance from other tax authorities to recover and enforce tax debts has become more prevalent as HMRC and other tax authorities have looked to recover tax outside their territorial borders,” she added.

MARD History

In force across the EU since 2012, the MARD program allows countries in the trading bloc to ask other member states for help in recovering unpaid taxes from businesses or individuals.

Through a request for recovery, an EU member state can ask another member state’s tax authority to pursue debtors, according to an HMRC manual. In addition, a request for information can include details on taxpayers’ assets or address, while a request for notification relates to sending legal documents.

Bloomberg Tax reported in February that HMRC sent 112 requests for information during 2017, a 195 percent rise from the previous year.

Between the 2015 and 2017 calendar years, HMRC collected a total of 8.4 million pounds through requests for recovery, according to the latest FOIA request from Bloomberg Tax.

In a March 28 statement, an HMRC spokeswoman said the MARD is “an important tool combating non-payment of taxes by businesses or individuals moving from one EU country to another.”

Debt recovery requests were the most popular use of the MARD from 2011 to 2016 across the EU, according to data compiled by Bloomberg Tax from a December 2017 European Commission report.

The report cites the U.K. as one of 16 countries that could improve their use of the MARD. Other countries included Italy, Spain, and Luxembourg.

“The success of mutual recovery assistance largely depends on sufficient resources and efforts to cooperate,” the report said. “Member States should devote sufficient resources to the internal collection as well as to the recovery assistance requests coming from other Member States.”

Global Reach

BLP’s Ison said HMRC’s higher yield in recovered tax debt highlights a “growing trend” of the U.K.’s tax authority seeking to extend its reach beyond the country’s borders. Another example is the U.K.’s new legislation to target corporations that fail to prevent the facilitation of tax evasion, she added. Introduced in September 2017, the measure applies to both onshore and offshore activity.

This legislation gives HMRC “extremely wide extra territorial powers to criminally investigate overseas corporates which have no presence in the U.K.,” she told Bloomberg Tax. “The tax environment is changing and is becoming more global.”

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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