Amnesties

The US Internal Revenue Service is offereing an “amnesty” to its non compliant citizens. The deal, displaying similar principles to those of the UK 2007 Offshore Disclosure Facility, appears to be geared towards encouraging those citizens living outside of the USA to declare their non US source income and gains. Some commentators suggest that non disclosure of such sources is widespread.

The US IRS seems to be following the UK line of not widely promoting the offer; there is, as yet, no obvious mention on the IRS website. In the UK, the lacklustre enthusiasm for promotion displayed by HMRC is generally thought to have contributed to the poor take up of the 2007 ODF . In the USA, where there is a different culture of mandatory tax return filing, the reach of the professional intermediaries is far greater than that of their UK equivalents but it nevertheless remains curious to offer a deal but then not to widely publicise it.

In the UK, we continue to await the formal announcement of a second amnesty. There is evidence that HMRC has been clearing the decks internally, in order to accommodate more investigation based work, and there are various targeted initiatives coming to the fore with, for example, HMRC having trawled the Land Registry in looking for ghost landlords.

There is, however, nothing solid to suggest a general offer of a new deal. The best we have currently is an expectation, according to the FT, that HMRC will shortly be going live with its Liechtenstein focused initiative. This, however, is most likely going to be an initiative which is not going to sell well from a wider Revenue promotional point of view. Being a civil law jurisdiction, Liechtenstein would not have the ready appeal of the other far more obvious jurisdictions (IOM, Jersey and Guernsey), with which many UK based persons would be more familiar.

The attractions to a cash strapped UK government in offering an amnesty are only too obvious, but the prospect of a high take-up looks far from good in the current economic climate. The 2007 ODF terms were hardly user friendly for the layperson, and whilst advisers have no difficulty in interpreting the need for the Revenue to reserve its powers to commence criminal prosecutions, there is a risk that recalcitrant taxpayers are unduly deterred from coming forward by these provisions.

It is difficult to contemplate how HMRC might be able to make a better fist of a new ODF, and especially at a time when people are going to be far more inclined towards hoarding their cash, or be unable to liquidate their investments. Borrowing from the banks would be a non starter.

With the sensible view being that there could only ever be one more amnesty in the UK in the foreseeable future, it might prove that there will be no ODF 2, and that any further amnesty thoughts have been discounted for the timebeing. The Revenue might instead choose to pursue only targeted initiatives, with mini-campaigns being seen as a more effective use of the Revenue’s resources.

If so, such campaigns, which largely involve the Revenue coming to the taxpayer, rather than the other way around, will reflect a higher penalty weighting in the financial settlements which are reached with those caught by the Revenue. Non compliant taxpayers are, therefore, well advised to consider the merits of getting in first, thereby entitling them to the lower penalty weighting which would be given with a genuinely voluntary disclosure.