Out-Law News 2 min. read

Isle of Man offshore account holders will be able to disclose tax affairs from April

UK taxpayers with offshore accounts in the Isle of Man will be given the opportunity to disclose their financial affairs to the tax authorities before that information is automatically shared with HM Revenue and Customs (HMRC), the UK Government has announced.

The disclosure facility, which will run from April 2013 until September 2016, is part of a package of measures announced by the two governments to tackle offshore tax evasion. It will offer guaranteed penalty rates to taxpayers who voluntarily disclose liabilities arising from April 1999 to HMRC. Taxpayers who do not use the facility will be subject to "significantly higher penalties" once the automatic information exchange begins, the Government said.

However tax expert Phil Berwick of Pinsent Masons, the law firm behind Out-Law.com, warned that the arrangements were not as generous as similar arrangements made between the UK and other territories. In particular, he pointed out that those who used the new facility to disclose past tax evasion would not necessarily be immune from prosecution.

"Taxpayers contacted by an Isle of Man intermediary will need to consider all their options - in many cases, the Liechtenstein Disclosure Facility (LDF) will provide a better outcome," he said. "Taxpayers should be aware that the Isle of Man facility does not offer immunity from prosecution, unlike the LDF, which is still available. Given the increased appetite for prosecution by the authorities, taxpayers must consider their preferred disclosure route carefully."

"There is good news and bad news with the Isle of Man facility. The bad news is that there are numerous restrictions to entry of the Isle of Man facility. The good news is that the LDF can be used instead and will offer, for many, significantly better terms," he said.

The LDF enables taxpayers with UK tax irregularities connected to a bank account, investment or structure in Liechtenstein to settle their tax affairs on favourable terms. Those who do not currently have an account in Liechtenstein, but have an offshore account located elsewhere, can now bring themselves within the LDF by acquiring a bank account or similar connection in Liechtenstein. The LDF is now expected to bring in as much as three times more than the £1 billion in undeclared tax HMRC had originally estimated it would recover under the scheme.

Under the new information-sharing arrangement between the UK Government and the Isle of Man, a "wide range" of financial information on UK taxpayers with accounts on the island will be automatically reported to HMRC on an annual basis. The arrangement will come into force at the same time as the Isle of Man agrees measures to implement the US Foreign Accounts Tax Compliance Act (FATCA), which is aimed at preventing similar tax evasion by US residents with offshore accounts.

The disclosure facility will begin on 6 April 2013, and will not be open to account holders whose tax affairs are already under investigation. Under its terms, unpaid tax dating before April 2009 will be subject to a 10% penalty charge. A 20% penalty rate will be applied to tax due from later years.

"Under the facility, tax must be paid at the time of the application, unless HMRC agrees otherwise," Berwick said. "This exposes taxpayers to a greater risk of discovery by HMRC, as it means that all the relevant computations must be carried out in advance of the application being submitted."

Chancellor of the Exchequer George Osborne said that the new agreement build on the UK's growing network of tax information-sharing agreements. A similar deal with the Swiss authorities is set to bring in over £5 billion over the next six years, according to Treasury figures, while negotiations to establish similar arrangements with Jersey and Guernsey are ongoing.

"The Government is committed to tackling tax evasion and this agreement will greatly enhance HMRC's ability to clamp down on those who try to hide their money offshore," he said. "I welcome the progress made with the Isle of Man and look forward to working on this new standard in the automatic exchange of tax information."

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