14 June 2023
The International Consortium of Investigative Journalists (ICIJ) released nearly 12m documents in October 2021, linking hundreds of world leaders, government officials, billionaires, and celebrities to the use of offshore trusts, shell companies and tax structures in tax havens across the world. It followed the previous Panama Papers (2016) and Paradise Papers (2017) leaks by the same organisation and became known as the Pandora Papers. The Pandora documents came from 14 offshore financial service providers and it was the largest of the offshore information leaks.
Having taken time to review the papers, which may be an indication of the age or accuracy of the information obtained, HMRC has now begun the first step in its response strategy. HMRC issued an initial tranche of hundreds of nudge letters in early June 2023 to taxpayers who, it advises, are named in the Pandora Papers. It seems clear this is only the start of HMRC compliance activity in this area, from which it will be hoping will reap significant rewards. The tone of the letter demonstrates the intended direction of travel, referring to offshore penalties of up to 200% of the tax due and even prosecution in cases of dishonesty.
The letter itself provides the recipient with 30 days to consider whether they have told HMRC about all their UK tax liabilities and, if there is a disclosure to make, to come forward and discuss it with HMRC. Bearing in mind the complexity of offshore structures and the nuances of the tax systems in the tax haven jurisdictions involved, this begs the question as to whether there is sufficient time to provide an accurate response in such a tight timescale. Moreso with the resultant penalty or prosecution consequences of unwittingly getting it wrong.
In cases involving deliberate behaviour and/or fraud, the most appropriate route for taxpayers to take to regularise their position may be to use the contractual disclosure facility (CDF)/Code of Practice 9. This is the only settlement mechanism to provide the taxpayer with guaranteed immunity from prosecution provided a full and complete disclosure is made. Offshore tax disclosures can be fraught with difficulties at the best of times and specialist advice is needed in such cases to avoid the many potential pitfalls.
Now that HMRC has opened Pandora’s box, the outpouring of trouble is only just about to begin for those named in the papers. Such taxpayers would be well advised to contact their advisers to discuss disclosure before HMRC contacts them.