Israel is the taxman’s new best friend
SENIOR OFFICIALS from HM Revenue & Customs visited Israel in December last year to relay their message of zero tolerance towards offshore tax evasion. They met senior officials from the Israeli Tax Authority to build on an open dialogue and to make a clear statement of intent for the two jurisdictions to further build their relationship. This is relevant to Israel, given the upcoming automatic exchange of banking information between Israel and the UK. Some 101 jurisdictions have committed to data exchange in 2017 or 2018 under the common reporting standard. Israeli banks have warned most of their UK clients that they will be exchanging information with HMRC about bank accounts open as at January 1, 2017.
The new worldwide disclosure facility opened on September 5, 2016. This is a last opportunity for taxpayers with UK undeclared tax liabilities to come forward voluntarily to resolve their tax affairs. The clear incentive is to disclose now, before information is exchanged under the common reporting standard. REQUIREMENT TO CORRECT In the Finance Bill 2017, HMRC legislated a new statutory requirement to correct past tax returns. This encourages taxpayers with offshore financial interests (including offshore structures and trusts) to review their tax affairs to ensure their UK tax returns are complete and correct for all tax years to April 5, 2016. Again, this is a final chance to resolve historical issues before information is exchanged under the common reporting standard. The window of opportunity to correct these tax returns by making a full disclosure ends on September 30, 2018.
There are tougher new penalties for failure to correct, if you have no reasonable excuse. The penalty is 200 per cent of the tax liability, which can be mitigated to a minimum of 100 per cent of the tax liability. HMRC can also charge an additional asset-based penalty, calculated at up to 10 per cent of the asset’s value should the tax exceed £25,000 in any one year. Taxpayers with offshore properties may be hit hard by this additional penalty. Further penalties can be levied if offshore assets are moved between jurisdictions. WAIT-AND-SEE APPROACH The risks of non-disclosure and the wait-and-see approach are higher than ever. Firstly, HMRC has tipped the scales in its favour, in relation to the likelihood of identifying cases for investigation, particularly following the implementation of the common reporting standard. Secondly, HMRC has upped the ante with regard to the consequences of not disclosing. It can open formal civil investigations which will inevitably lead to higher penalties and a longer process. It may also launch criminal investigations with a view to prosecutions, particularly when the new “strict liability” offences come into force, as it will no longer need to prove the taxpayer intended not to declare all the tax due.
HMRC has sent a clear message that the days of any safe havens for tax evaders are numbered. Its visit to Israel and recent legislation fully backs up this objective.
Claire Shelemay has been with BDO for more than 10 years and moved to Israel three years ago. Her expertise relates to solving tax issues for UK residents with offshore assets (in particular, those relating to Israel) and Israelis with UK assets, 00 44 785 490 4554/ 00 972 5 8795 3599, firstname.lastname@example.org