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UK Launches World Disclosure Facility

by Robert Lee,, London

08 September 2016

The UK Government has launched a new Worldwide Disclosure Facility (WDF), which will offer a "final chance" to those with undeclared offshore income and assets ahead of the adoption of the Common Reporting Standard (CRS).

The WDF was launched on September 5 and is available to anyone who wishes to disclose a UK tax liability that relates wholly or partly to an "offshore issue."

An offshore issue includes unpaid or omitted tax relating to: income arising from a source in a territory outside the UK; assets situated or held in a territory outside the UK; activities carried on wholly or mainly in a territory outside the UK; and anything having effect as if it were income, assets, or activities of the kind described. It also includes funds connected to unpaid or omitted UK tax not included in the above list that have been transferred to a territory outside the UK or are owned in a territory outside the UK.

The WDF, unlike the UK's previous offshore disclosure facilities, will not offer participants special terms. Those using it will have to pay the outstanding tax in full, plus interest charged daily from the original due date.

Those wishing to participate must notify HM Revenue and Customs (HMRC) of their intention by using the Department's Digital Disclosure Service. A participant will be asked to self-assess their behaviors and must make a full disclosure of all previously undisclosed UK tax liabilities, and calculate interest and penalties based on UK legislation. If the disclosure is correct and complete and the participant fully cooperates with HMRC, it will not seek to impose a higher penalty on the outstanding tax liability.

However, if an individual fails to make a complete or accurate disclosure or refuses to provide HMRC with any additional information requested, the Department may apply a higher penalty. It could also open a civil or criminal investigation and publish the individual's details on the HMRC website.

The WDF will close on September 30, 2018.

The Government also intends to introduce a "Requirement to Correct" (RTC) obligation, designed to "compel those with offshore interests who have yet to put their UK tax affairs in order to do so by September 2018 ahead of the widespread adoption of the CRS." Failure to do so by the end of the RTC period would make such individuals liable to a new set of legal sanctions for "failing to correct" (FTC).

The Government will introduce RTC legislation in Finance Bill 2017, which will be published next April. The proposed "window" for action is therefore 18 months, and the end date of September 30, 2018, corresponds with the date by which all countries committed to the CRS will begin exchanging information. The Government expects that the RTC will cover all instances where there are outstanding UK tax liabilities or obligations on or before April 2017 that relate to offshore interests.

Fiona Fernie, Partner and Head of Tax Investigations at international law firm Pinsent Masons, commented: "The Revenue is continuing to come down hard on those underpaying tax on offshore income and gains. Tougher sanctions coming in over the next few years point to a zero-tolerance approach and those with any irregularities should think seriously about setting their affairs in order."

However, Fernie cautioned that the WDF may not go far enough to encourage individuals to come forward. "Those using it continue to face the risk of hefty penalties, and even criminal prosecution. It is possible that many will look at the terms and opt to do nothing - in the hope that any irregularities are not picked up by HMRC," she suggested.

According to Fernie, offering more appealing settlement terms may entice greater numbers to come forward, ultimately saving HMRC time and money.

"Either way, anyone who is concerned that they may have underpaid tax should, of course, seek professional guidance as soon as possible. It should be remembered that once the CRS is implemented, the Revenue will have unprecedented access to information on taxpayers' overseas wealth and activity," she concluded.

TAGS: compliance | tax | tax information exchange agreement (TIEA) | tax compliance | tax avoidance | tax incentives | interest | law | United Kingdom | offshore | tax planning | penalties | Tax | Tax Evasion

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