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Tax Avoidance Scheme Promoters To Face New UK Penalties

Thursday, August 18, 2016

The UK Government has launched a consultation on proposed new penalties for "enablers" of defeated tax avoidance schemes.

According to the consultation document, the word "enabler" includes "anyone in the supply chain who benefits from an end user implementing tax avoidance arrangements and without whom the arrangements as designed could not be implemented." The definition proposed includes, but is not limited to: those who develop, or advise/assist those developing such arrangements and schemes; independent financial advisers, accountants, and others who earn fees and commissions in connection with marketing such arrangements; and company formation agents, banks, trustees, accountants, and lawyers who are intrinsic in, and necessary to, the machinery or implementation of the avoidance.

The Government's favored approach to a penalty regime for enablers is similar to that introduced in Finance Bill 2016 for offshore evasion, but "designed specifically to deal with tax avoidance which HM Revenue and Customs (HMRC) defeats." This legislation provides for a penalty of either 100 percent of the tax evaded or GBP3,000 (USD3,906), whichever is higher, for those who know their actions will, or are likely to, enable a person to carry out offshore evasion or non-compliance (where the evader is charged with a penalty or is criminally prosecuted). The Government has also proposed the option of naming enablers who are subject to the new penalty.

"The proposed penalty for those who enable offshore evasion or non-compliance is conditional on offenses being committed by, or penalties being chargeable on, the person whose offshore evasion or non-compliance has led to inaccuracies in their tax return," the consultation explained.

The Government intends to use the defeat of tax avoidance arrangements as "the trigger for enabler penalties," meaning that "each enabler of that avoidance arrangement would be subject to penalties in their own right, irrespective of the final penalty position of the user of the arrangements."

In her foreword to the consultation document, Jane Ellison, the Financial Secretary to the Treasury, said: "Tax avoidance takes money away from public services and places disproportionate demands on the government's resources. Those who seek an unfair advantage, or who provide the services that enable it, and who then frustrate HMRC's efforts to identify, investigate, and resolve these cases, should bear real risks and costs for their choices."