UK Uses International Cooperation Powers to Combat Tax Evaders

Individuals who stored their money overseas could evade tax in the past because authorities had little chance of finding out. But countries now have growing powers to obtain information about these “secret” accounts and to prosecute individuals who still try to dodge their civic duty.

These powers are in line with public sentiment. Research by the UK tax authority, HM Revenue & Customs, shows that 86% of the population believe that not paying one’s tax is not acceptable. HMRC also found that 14% of the tax gap comes from evasion. Those who do evade also have to remember that in the UK at least, HMRC regularly publishes the names of deliberate defaulters.

The UK government will use an additional 400 specialists by the end of 2029 to 2030 to tackle offshore tax compliance and has established a new “Complex Cross Tax and Offshore” team.

Such activity is undertaken by tax authorities because every country needs a certain amount of money to function. How much depends on what its government wants to do and what it expects the electorate to pay for.

Some people disagree with the amount they are being asked to contribute and, quite legitimately, vote with their feet.

Others, for whatever reason, decide to stay put, but don’t bother to pay their taxes. To be clear, we are talking about people who seek to evade tax, not those who argue for various reasons that their tax bills should be lower.

Exchanging Tax Information

The question for tax authorities is, how do they catch these criminals?

The authorities have made great inroads thanks to initiatives such as the US Foreign Account Tax Compliance Act (FATCA) that obliges foreign banks to report information on their US clients to the US tax authority.

Other countries quickly followed the US’ lead, with the UK bringing in the Crown Dependencies and Overseas Territories regulations for Jersey, Guernsey, Isle of Man, Cayman Islands, British Virgin Islands, among others, to obtain the same information for UK residents from these overseas territories.

Additionally, the EU has its Directive on Administrative Cooperation in tax matters and the OECD has the Common Reporting Standard.

Now, when an individual holds an account with an overseas bank, that institution automatically will share information about their account with their home country.

It is telling that HMRC called its campaign against offshore tax evasion “No Safe Havens” and has been making use of the information for several years. HMRC sends out “nudge letters” that have details of an overseas bank account but no corresponding declaration in a tax return from an individual—the latest campaign was last year.

Before automatic exchange of information, HMRC would learn about money hidden offshore only by accident. A UK company could pay an individual who then transferred the money in an offshore bank account. If that individual didn’t declare the receipt of the money to HMRC, the tax authority would find out only if they had a reason to ask the company why they had made the payment, or if someone who knew the individual decided to tell HMRC. Such informants may now be paid for this information.

The automatic exchange of information has been such a success that the same process now applies to other industries such as internet platforms, with eBay and Airbnb giving information to tax authorities that in turn exchange the information with authorities in different countries.

Even with the common reporting standard and other information sharing initiatives, tax authorities can be forgiven for thinking that they are playing a game of whack-a-mole as they introduce one set of rules and the tax evasion industry promptly comes up with new structures.

This led the Organization for Economic Cooperation and Development to bring in their Mandatory Disclosure Rules, which, when enacted by the relevant country, require people who design and sell schemes to get around the common reporting standard or to hide beneficial ownership to report the schemes. The UK rules include a penalty of up to £1 million ($1.34 million) for non-disclosure.

However, only 19 countries, including the UK, have so far formally signed up to these rules.

UK Two-fold Response

The UK recognizes that even though there are substantial financial penalties, more options are needed, and its answer is two-fold.

The first is criminal prosecution of professionals who sell these schemes to facilitate tax evasion, whether personally or through prosecuting the business. This is something we are seeing HMRC do domestically now, and hopefully they also will do for foreign tax evasion.

The second answer is to enhance international links. An example is the Joint Chiefs of Global Tax Enforcement, known as J5, where HMRC works with its counterparts in Australia, Canada, the Netherlands and the US; another is the Joint International Taskforce on Shared Intelligence and Collaboration, known as JITSIC, which works closely with more than 50 tax authorities across the world to combat tax avoidance and evasion by sharing information and working cases together.

More than 140 countries are part of the OECD Inclusive Framework, having signed up to a minimum standard of international tax rules, including the exchange of information.

No time in history has been better for tax authorities to find hidden money and profits. With technology, they are only going to get better, and HMRC needs to show that the powers it has have real teeth and invest in the staff and technology to prosecute the architects of international tax evasion and stamp out this crime.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

(A version of an AI summary at the top of this story was removed.)

Author Information

Andrew Parkes is national technical director at Andersen LLP in the UK; he was formerly at HMRC, including as a UK Competent Authority and delegate to JITSIC.

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