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Her Majesty’s Revenue and Customs has launched its new weapon in the war on tax cheats – an offence of “failure to prevent the facilitation of tax evasion

It’s no longer enough not to advise clients on ways to evade paying tax – HMRC has made it an offence to fail to prevent anyone else doing so. Peter Bartram looks at where the battle lines are being drawn

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Her Majesty’s Revenue and Customs has launched its new weapon in the war on tax cheats – an offence of “failure to prevent the facilitation of tax evasion”. The mechanism started ticking for real on 30 September. Companies and professional advisers who have not prepared themselves adequately may soon find out how powerful the new weapon is.

But many firms have already shrugged their shoulders, given a resigned sigh, and started to put in the extra work to make sure they stay on the right side of the new law.In many cases, firms will build on the anti-money-laundering arrangements they already have in place, points out Frank Haskew, head of tax in the Tax Faculty at ICAEW. But Amit Puri, director of tax investigations at Grant Thornton, thinks the penny has yet to drop. “Those that consider themselves low risk may need to think again and the days of turning a blind eye or not asking probing questions of business counterparts may be over.”

Those who think they can argue over the meaning of the word “facilitation” could be in for a shock. HMRC takes it to include anyone who has encouraged, assisted, aided, abetted, counselled, procured or done anything that helps to commit a UK tax evasion offence.

Read full article HERE

European Commission announces intermediary tax disclosure rules

The intermediary tax disclosure proposals will reinforce EU's tax transparency framework, by shedding new light on the activities of tax intermediaries and promoters of tax planning arrangements

The European Commission has proposed tough new transparency rules for intermediaries - such as tax advisors, accountants, banks and lawyers - who design and promote tax planning schemes. The European Commission's press release formally announced the proposals, amidst extensive speculation over previous weeks of a Europe-wide crackdown on banks, accountants and legal firms that facilitate offshore tax schemes, based on leaked draft legislation.

To explain the proposed tax disclosure regime in a simple fashion, they have even produced a one-minute video.

Rationale

In the aftermath of the Panama Papers, 'unacceptable' practices by intermediaries had come to light. Intermediaries had been exposed in actively assisting individuals and companies to escape taxation, usually through complex cross-border schemes. The proposals target aggressive tax planning by forcing the disclosure of activities undertaken by tax planners and advisers.

The EU has become the front-runner when it comes to bringing more transparency to the world of aggressive tax planning. This work is already reaping results. Today we are proposing to hold responsible the go-betweens who create and sell tax avoidance schemes. Ultimately, this will result in greater tax revenues for Member States.

Mechanics based on UK DOTAS

The proposals have adopted similar mechanics to UK's Disclosure of tax avoidance schemes ("DOTAS"). Cross-border tax planning schemes bearing certain characteristics or 'hallmarks', which cause a loss to the exchequer, will have to be automatically reported to the respective tax authorities. The European Commission has identified key hallmarks, including the use of losses to reduce tax liability, the use of special beneficial tax regimes, or arrangements through countries that do not meet international good governance standards.

EU member states will automatically exchange the information that they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take early measures to block harmful arrangements. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, member states will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.

Wide scope of the proposed disclosure regime

The new rules are comprehensive, covering all intermediaries and all potentially harmful schemes across all EU member states. Details of every tax scheme containing one or more hallmarks will have to be reported to the intermediary's home tax authority within five days of providing such an arrangement to a client.

The disclosure obligation

The obligation to report a hallmark cross-border scheme will fall to:

- the intermediary promoting the cross-border scheme for implementation and use by a company or an individual;
- the individual or company receiving the advice, in all cases where the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is prevented by professional privilege or secrecy rules to make the disclosure;
- the individual or company implementing the cross-border scheme where the scheme is developed by in-house tax consultants or lawyers.

Brexit

It is conceivable, albeit unlikely, that the UK eschews the proposed intermediary tax disclosure regulations. Given that the UK has been at the forefront of combating tax evasion and promoting international tax transparency and cooperation, it would be odd for the UK not to seek to participate in the arrangement with the other EU member states. Indeed, a key element of UK's CCO for the failure to prevent the criminal facilitation of tax evasion (expected to come into force in September 2017) is the Overseas tax evasion facilitation offence.

Given the political weakness of the recently re-elected Conservative government under Theresa May, a hard exit now looks quite unlikely. If the UK negotiators manage to secure single market access, UK would be subject to the same tax and financial regulation as full members of the EU.

Next Steps

The intermediary tax disclosure proposal, in the form of an amendment to the Directive for Administration Cooperation (DAC), are to be submitted to the European Parliament for consultation and to the Council for adoption. It is expected that the new reporting requirements would enter into force as early as 1 January 2019, with EU member states obliged to exchange information every 3 months thereafter.

Source: Ali Kazimi, Managing Director at Hansuke Consulting

Swiss Federal Council adopts dispatch on automatic exchange of information with 41 states and territories

Bern, 16.06.2017 - During its meeting on 16 June 2017, the Federal Council adopted the dispatch on the introduction of the automatic exchange of financial account information (AEOI) with 41 states and territories. Implementation is planned for 2018, and the first sets of data should be exchanged in 2019. Switzerland is boosting its international position by extending its AEOI network to most of the G20 and OECD states, as well as other important financial centres around the world.

The proposals met with widespread approval from the interested parties who voiced their opinions in the consultations. In concrete terms, the AEOI will be activated with each individual state or territory by means of a specific federal decree within the framework of this dispatch. The exchange of information itself will be carried out based on the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (MCAA), which is in turn based on the international standard for the exchange of information developed by the Organisation for Economic Co-operation and Development (OECD).

Following the comments made during the consultations, the federal decree envisages that the Federal Council will prepare a situation report before the first exchange of data, which is planned for autumn 2019. In the process, it will be checked whether the states and territories concerned effectively meet the requirements under the standard, especially those concerning confidentiality and data security.

It is important for the Federal Council that a level playing field be created among states and that all major financial centres, in particular, be included. This year, Switzerland has introduced the AEOI with 38 states and territories, including all EU member states, and data will start to be exchanged with them in 2018.

Address for enquiries

Frank Wettstein, Communications, State Secretariat for International Financial Matters SIF
Tel. +41 58 462 38 56, frank.wettstein@sif.admin.ch

Switzerland signs BEPS Convention

Bern, 07.06.2017 - On 7 June 2017, Switzerland signed in Paris the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The Convention will serve to efficiently amend double taxation agreements in line with the minimum standards agreed upon in the BEPS project. Switzerland will implement these minimum standards either within the framework of the Multilateral Convention or by means of the bilateral negotiation of double taxation agreements.

In October 2015, the OECD adopted the final outcomes of the base erosion and profit shifting (BEPS) project. Some actions require the adjustment of double taxation agreements (DTAs). A group of over 100 states and territories – including Switzerland – developed a multilateral convention (BEPS Convention) which serves to align existing DTAs efficiently. Over 3,500 DTAs exist worldwide. The BEPS Convention was formally adopted and published on 24 November 2016.

Initially, the Swiss DTAs with Argentina, Chile, India, Iceland, Italy, Liechtenstein, Lithuania, Luxembourg, Austria, Poland, Portugal, South Africa, the Czech Republic and Turkey will be amended by the BEPS Convention. These partner states are prepared to agree with Switzerland the precise wording on how the provisions of the existing DTAs will be amended through the BEPS Convention. If agreements on the technical implementation of the BEPS Convention can be obtained with further partner states, the corresponding DTAs will equally be amended by the BEPS Convention at a later stage. Alternatively, the BEPS minimum standards can also be agreed by means of a bilateral DTA amendment.

Materially, the new treaty provisions resulting from the BEPS minimum standards modify the description of purpose in the preamble, include a standard anti-abuse clause and adjust the provisions governing dispute resolution within the framework of mutual agreement procedures. In keeping with its treaty policy, Switzerland opts for the inclusion of the mandatory and binding arbitration clause provided for in the BEPS Convention.

The Federal Council will submit the BEPS Convention for public consultation towards the end of 2017. It will undergo the standard parliamentary approval process before entering into force.

Address for enquiries

Frank Wettstein, Communications, State Secretariat for International Financial Matters SIF
Tel. +41 58 462 38 56, frank.wettstein@sif.admin.ch

Documents:
BEPS Convention (PDF, 282 kB)
List of Swiss reservations and notifications in accordance with Articles 28 and 29 of the BEPS Convention (PDF, 202 kB)

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