UK’s sweeping new law targeting bankers, lawyers, advisors, offshore professional directors, nominees with fines

By Christine Duhaime | January 1st, 2017

Wide, Wide Net for Enablers

Starting today, parts of the UK’s Finance Bill 2016 came into effect which allows the HMRC to go after so-called “enablers” who help UK tax payers avoid taxes using offshore schemes, services or arrangements, such as bank accounts, investment or broker accounts, trusts, companies, directors / officers or nominees.

The amendments introduce a “name & shame” procedure and civil penalties for anyone, including lawyers, bankers employees, investment firms, accountants, incorporation firms and introducers who help individuals, trusts, funds or companies avoid taxes offshore and for other forms of non-compliance in respect of inheritance, capital gains and income tax.

The name and shaming will be like a “perp walk” only online, so that a bank, law firm, advisor or other enabler will be forever located on an online search and is intended to hurt lawyers, accounting firms and banks where it hurts most – reputation.

Foreigners Beware?

Its important to note that offshore taxation and legal advice, and financial services provided to UK companies, shareholders, funds or individuals by necessary implication, always involves persons, firms, banks, advisors, introducers, enablers and incorporation services firms situated offshore (i.e., not in the UK) and so foreign persons, firms, entities and enablers should not automatically assume that the legislation does not apply to them if they are in other countries such as Canada, Guernsey, Cayman Islands, Dubai, The Cook Islands or the US.

Who is Caught

The Bill captures people who enable others to avoid taxes using offshore mechanisms, including people who design, merely market or facilitate tax avoidance and specifically includes:

  • What the UK government calls the “whole supply chain of advisors and intermediators” who work in the flow from those who “develop offshore tax avoidance arrangements or schemes” to the tax payer who uses such arrangements or schemes to pay less tax than Parliament intended.
  • People who introduce tax payers to offshore tax avoidance schemes.
  • People who facilitate offshore tax avoidance arrangements
  • People who “develop, advise or assist” professionals develop offshore tax avoidance schemes and arrangements.
  • People who earn money from  offshore tax avoidance arrangements.
  • Banks and their necessary employees in the offshore tax avoidance machinery.
  • Trustees and their necessary employees in the offshore tax avoidance machinery.
  • Lawyers and their necessary employees in the offshore tax avoidance machinery.
  • Accountants and their necessary employees in the offshore tax avoidance machinery.

And also includes those who, for offshore tax avoidance:

  • Open bank accounts.
  • Provide legal services and legal documents.
  • Provide notary services and Powers of Attorney (the POA if a significant one).
  • Set up trusts and companies.
  • Act as professional trustees.
  • Act as professional corporate directors.
  • Act as nominees for offshore entities.
  • Help move money or assets, including by taking in placements or investments in other countries.
  • Provide planning services for offshore tax avoidance.
  • Act as a middleman or introducer, regardless of whether they are an advisor or not.
  • Complete currency conversions.
  • Hold funds in escrow or trust.

Considering that an enabler can be liable for merely introducing parties and for services that were careless, as opposed to deliberate, and may include foreign firms, advisors and middlemen, the Bill appears to the most sweeping ever enacted by a country to address tax evasion.

Careless to Deliberate Conduct

The fines imposed can be quite significant, up to 100% of the amount of taxes avoided. Liability flows for a range of conduct including being careless to actual deliberately enabling tax avoidance.

The rationale behind the amendments is to “raise the stakes” to ensure that enablers, who the UK Government has said historically took the position that they will not be prosecuted, will be required to pay the costs of tax avoidance and be shamed by being named for assisting tax evaders use offshore arrangements.

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