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Do Offshore Tax Amnesties Work

With the news that the latest offshore tax amnesty introduced by HM Revenue and Customs to persuade tax evaders to bring their wealth back under the taxman’s watchful gaze has only netted £140m of an expected £3bn, it’s time to ask whether offshore tax amnesties work, and whether there isn’t perhaps a better way to keep tax revenues in the UK.

The tax amnesty we’re referring to is the Liechtenstein Disclosure Facility which was introduced in 2009 and which David Hartnett, the UK’s permanent secretary for tax said could net the British taxman up to £3bn by the disclosure’s cut of date in 2015.

However, as the Telegraph reports today, the facility has so far only generated about £140m in tax revenues for the British government.  So why are the figures so low, are tax amnesties effective, who evades tax anyway, and isn’t there a better way of ensuring that everyone pays their dues?  We investigate…

When the Liechtenstein tax amnesty was announced, ironically there were those tax experts who said that it was wholly unfair because it negatively prejudiced and disadvantaged tax evaders who had instead used other havens for their tax dodging activities!

Whilst there is truth in this fact it did promote a feeling of incredulity – because as a bottom line there’s the argument that anyone knowingly structuring their financial affairs in an illegal manner to unfairly benefit from the tax enhancement of their position doesn’t really deserve to be treated fairly and on a level playing field…

To date it has been reported that HMRC has managed to yield about £140m – whilst their own revised estimates saw them hoping to drag in £3bn by 2015.  This estimate was based on a positive initial take up of the amnesty coupled with data apparently retrieved from a whistleblower who formerly worked in a Liechtenstein bank.

It may therefore be fair to say that HMRC could be a little disappointed by what they have been able to net so far.  However, there is much speculation that they are about to extend a further tax amnesty to tax evaders in Switzerland, and as a result it is alleged that Swiss bankers are advising clients to wait until this disclosure facility comes out in case it is more beneficial and/or extends the deadline for disclosure.

One has to assume that if this is true, that tax evaders who use Liechtenstein also use Switzerland!  This isn’t hard to believe when you start to understand that those who use such methods to hide their wealth can afford the best advice and they can afford to pay whoever they need to in order to find them a way around the law.  Chances are funds have been moved more than once in a bid to remain under the radar.

The terms of the current amnesty in Liechtenstein are considered generous – and it is likely to be hoped by those affected that any Swiss disclosure facility is equally ‘soft.’  Aggressive commentators on tax evasion of course believe any such amnesty should not exist, and that the full weight of the law should come down on those who illegally avoid paying their dues.

However, we oppose this argument – after all, as stated, those who evade tax so spectacularly clearly have the financial means available to them to keep on hiding their wealth.  It is only through generous amnesty offerings that they will even consider coming clean.

This is our argument against the OECD attempting to crackdown on tax competitiveness on a global scale too.  You cannot create a level playing field of tax when you have countries like Germany and the UK charging up to 50% income tax – they are not going to drop their tax rates to a ‘nice’ flat rate of say 10% are they?

Rather the erosion of tax competitiveness will result in unfairness on a global scale.  If countries want to ensure that revenue is not lost through tax avoidance and evasion they need to reconsider how much they tax their citizens in the first place.  The UK would do far more to ensure the longevity of strong tax revenues if they reduced all taxes that all citizens are exposed to.

We agree that HMRC together with the likes of the EU and the OECD are right to tackle blatant tax evasion – but the eradication of tax competitiveness globally will have a massive negative impact.  Many individuals who move abroad to live and work currently discover that they can legitimately structure their financial position and utilise offshore structures and solutions for the tax-advantaged growth of their wealth…unfortunately however they are often lumped together with the illegal tax evaders HMRC is cracking down on with the likes of the Liechtenstein tax amnesty, this is done in a bid to brainwash everyone into believing that all tax reduction techniques are illegal.

At Expatra we believe that illegal tax evasion is wholly wrong – however, we also believe that no one should have to pay more tax than they owe, and where expatriates can go offshore and diversify how they save and invest their wealth and perhaps benefit from legitimate tax saving or deferral advantages, their options should be promoted and explored.

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