Taxation:UK - higher penalties for undeclared tax in some jurisdictions

The action gives bite to the OECD's list of jurisdictions that have not signed at least 12 tax information exchange agreements with OECD members.

The list, published in February 2009, was made up of three groups: those on the "black" list immediately entered the first phase of meeting the OECD's demands. But there remains the "grey list" where jurisdictions have agreed to take steps but have not, as yet, entered into 12 agreements.

The agreements are bi-lateral but the format is according to a template set by OECD members. Little deviation is permitted.

But the UK goes further: deeming a list of jurisdictions as so lacking in what the UK Government opaquely calls "transparency" that special high penalties will be applied if tax evasion is discovered there.

The Treasury has given HMRC GBP900 million to chase those who evade tax which includes income tax and capital gains tax. The penalties are up to double the tax evaded.

The new penalties for income tax and capital gains tax non-compliance classify territories into three groups, which determine what level of penalty will apply for non-compliance.

The Offshore Disclosure Facility (ODF) – the first such offshore disclosure opportunity in the UK – ran from April to November 2007. It generated over GBP450m in tax, interest and penalties – with more from follow-up investigations. Unlike amnesties in other countries, there was no waiver of e.g. penalties.

The categories are listed at http://www.hmrc.gov.uk/news/territories-category.htm

When this action is coupled with action requiring UK banks to report offshore holdings of assets by UK residents (except super-rich foreigners living in the UK who remain outside the scope of the UK's standard tax scheme) and the requirements of counter-money laundering laws, the overall pattern is one of an information net rapidly closing around all assets held offshore by UK taxpayers.