03 12 2018

UK Urged To Drop Plan To Extend Offshore Tax Limitations Period

The UK Parliament's Economic Affairs Finance Bill Sub-Committee has proposed that provisions should be stripped from the Finance Bill that would extend the time limit on assessing offshore tax to 12 years

Currently the limit is four years. This can be extended to six years where a taxpayer has failed to take reasonable care, and to 20 years in cases where there is deliberately non-compliant behavior amounting to fraud.

In a letter to the Chancellor on November 6, 2018, the chair of the Committee, Lord Forsyth of Drumlean, outlined the Finance Bill Sub-Committee's interim conclusions on the draft Finance Bill 2018. It is due to table a report for parliamentary consideration shortly.

In its letter to the Government, the Sub-Committee said: "There was deep and consistent opposition to this measure from witnesses to our inquiry, primarily because the impact would extend beyond the high net worth individuals at whom one might expect it was targeted. The Low Incomes Tax Reform Group were concerned that many individuals affected by clauses 33 and 34 would be elderly people on low incomes. They, together with several other witnesses, suggested the measure be withdrawn, or at least replaced by something more proportionate and targeted."

It noted that: "The only reason given for the extension in the consultation document was that offshore matters are complex and take a long time to resolve. Witnesses disagreed with this assertion."

"Pinsent Masons LLP noted that while a 'complex offshore structure' may cause delay, the powers would also apply where there was no complexity, or where only a small amount of tax is at stake." It said: "'Offshore' does not equal complexity in the drafting of this measure: having a holiday home, shares in an overseas listed company, an overseas bank account, or small pension would be enough to bring a taxpayer within its scope."

"This could affect many thousands of taxpayers. Now that the Common Reporting Standard has been adopted by over 100 countries it should be more straightforward for HMRC to obtain any information it needs from overseas tax authorities. It is therefore difficult to understand why this proposal has been brought forward now."

"It is also unclear how the period of 12 years was arrived at. There was no consideration in the consultation of alternative time periods. [...] The evidence we received emphasized that [existing] time limits should be sufficient in relation to both offshore and onshore matters."

"The draft proposals would treble the normal time limit for compliant taxpayers and double the limit for those who fail to take reasonable care. In doing so it would remove the distinction between fully compliant and careless taxpayers, which makes the existing time limits proportionate. Compliant and non-compliant would be treated alike. This would disregard an important design principle in the tax system: that honest taxpayers have a fundamental right to certainty and closure after a reasonable time. This risks the removal of an important safeguard for compliant taxpayers."

"Under the proposal, all those with offshore elements to their tax affairs would have to wait a lengthy period before they could achieve certainty and settle matters finally. In the meantime, they would have to retain records to deal with any questions HMRC may raise. The longer after the event a question is raised, the more difficult this would be. We consider this unreasonable onerous and disproportionate to the risk."

"Some witnesses suggested that this proposal could have been necessitated by resource problems in HMRC and that without the appropriately trained staff needed to work cases with an offshore element, HMRC cannot complete them in a reasonable timescale."

"It would certainly be wrong for the Government to choose to place disproportionate burdens on taxpayers and erode important taxpayer safeguards instead of funding HMRC sufficiently to conduct offshore inquiries in a timely manner."

"The Association of Taxation Technicians suggested the legislation be amended to exclude from the extended time limits those taxpayers who have made all the necessary information available to HMRC at the appropriate time. Subsection 7 of Clause 33 contains an exclusion for situations where HMRC has received the information it needs from an overseas tax authority within the normal time limits and could make an assessment within those time limits. Inexplicably, there is no parallel provision for the situation where the information has been provided by the taxpayer."

The Committee concluded: "We see no logic in the application of this exclusion to situations where information has been supplied by overseas tax authorities, but not where the same information has been supplied by the taxpayer."

It said: "On the whole, this measure is unnecessary and undesirable. We recommend that it is withdrawn from the Bill."

The Committee instead recommended that the Government should start a fresh dialogue with representatives of tax professionals to consider how offshore tax matters can be managed more effectively.