1. John Whiting (JW) and Gary Ashford (GA) talk to Dave Hartnett (DH), Permanent Secretary for Tax at HMRC, about the New Disclosure Opportunity and Liechtenstein Disclosure Facility. Dave comments on a range of issues around NDO/LDF raised by CIOT members.
2. Introduction and welcome from JW
3. JW: Dav, perhaps I can just start off with a little context as it were. I think practitioners see this as a major issue, something they definitely want to help people get right, and really get it sorted. Is that the stance with the Revenue – this is a big thing, it needs sorting out and then we can all move on.
4. DH: I think John it’s not just Revenue and Customs, It’s actually all over the world at the minute. I think tax havens and other places where people hold offshore bank accounts have become much more transparent, and tax administrations have realised for the first time that more and more information is now accessible and that there’s a lot of money hidden offshore.
5. JW: We know that it’s a worldwide push and it’s an effort of no hiding place.
6. DH: Absolutely. And it’s an interesting number I would just share with you. We ran a disclosure regime in 2007 involving date from five big banks and two tiny ones. The two tiny ones were outside the UK and we got a lot of information but disclosures were actually made which relate to 134 banks, not just the seven banks on which we had served information notices. And that really opened our eyes to the scale of the issue.
7. JW: And of course things move on, so Gary, let me hand over to you. Do you want to pick up some of these issues?
8. GA: I would certainly concur with Dave’s comments there that from my experience on the ODF, on the majority of cases that I came across, there were accounts in other banks, so it certainly was a deterrent effect, on the ODF last time round and a lot of people came forward from that. But looking at some of the questions Dave that we’ve got for you today, I suppose one question that people would ask is what was the thinking behind the advertising campaign and do you think it has been successful so far?
9. DH: Well, we didn’t have much advertising with the ODF in 2007, and this time we wanted a lot more. And we’ve used the national media with conventional adverts, but I think some of the interviews that I and others have done with broadcast media, have been more effective. I’ll get to my appearance on YouTube before you do. That got a huge amount of hits, but actually what we found in 2007 and this time is that the most effective way of all is dropping letters on people’s doormats saying, we know where you are, and we know that you’ve got an offshore bank account.
10. GA: And why specifically the NDO campaign? There’s another facility out there, the Liechtenstein Disclosure Facility. Why did HM Revenue and Customs choose not to cover that facility at the same time, in terms of advertising?
11. DH: Right, I think we need to think Liechtenstein for a moment or two here. I never imagined and I’m sure tax administrators all over the world never imagined someone would walk out of a Liechtenstein bank with a huge amount of account data, but that’s what happened, and we learned more about Liechtenstein accounts than the whole world had known before. But the UK has no branches of Liechtenstein banks operating inside it. There are no agencies and we have no way of forcing information out of Liechtenstein banks. But the Liechtenstein government, I think in a very enlightened way, wanted to change the reputation of their country for being one where tax secrecy was everything. And put, at its simplest, we negotiated an arrangement with them on the back of the tax information exchanges agreement, and that agreement had to be attractive to the Liechtenstein government, and it had to be attractive to their banks and it had to be attractive to investors there. And we didn’t feel a need to advertise in particular because, under these arrangements, Liechtenstein banks will be writing to all their customers with a UK link, and the Liechtenstein government will be arranging for an audit of the banks to make sure that happens.
12. GA: Thank you. Now bringing us back to the New Disclosure Opportunity (NDO), we obviously saw an extension of the deadline to the 4th January, and that’s helpful. However, given the Christmas period, one wonders whether that may have been an opportunity to extend that opportunity beyond the 4th of January. Do you have any thoughts on that?
13. DH: well we thought quite hard about how long we should extend it, and the answer actually lies in why we were extending it. I know that a growing number of banks felt that they wanted to write to their customers with some connection with the United Kingdom. And some quite big offshore banks told us they couldn’t write to their customers by the 30th November, and we therefore agreed to extend, because, I think this is a very simple issue in that it’s really better if people come forward to make disclosure than if we find them later. If we find them later, they’re going to pay a lot more.
14. But we wanted to keep broadly the structure of the New Disclosure Opportunity and the big banks that need more time told us that mid, late December would be good for them. We decided to run it over the Christmas period just in case there were any hiccups. But we had to end at some stage, because we didn’t want to move the 31st January or the mid-March date, and that’s why it’s that date early in January.
15. GA: Okay, thank you. And you mentioned the revenue writing to individuals in terms of information. Are you able to tell us details of how many letters you’ve sent?
16. DH: Yes, about 35,000 so far, but it’s an ongoing process. Lots more people can expect a letter to drop onto their doormat. For the time being, those letters will be very friendly, very warm, letting people know we’ve got information about them, and apologising if we are troubling them needlessly because they have already disclosed their offshore account, but if they haven’t, reminding them of the time within which they’ve got to do that. But I think once we get past the time for people to come forward, those letters are much more likely to be invitations to interviews, and meetings to discuss the accuracy of tax returns.
17. GA: you say that this is work in progress. Clearly the Chancellor mentioned in the PBR the information notices, so presumably this is a continuing process.
18. DH: Absolutely. We issued 308 notices in August of this year and probably another 10 or 15 earlier in the summer of 2009. Some information is now coming in from the banks and jolly useful it is too. But there’s a lot more to come, and if we have to issue more notices we’ll seek the tribunal’s consent and try to do so.
19. GA: Thank you. And we talk about the deadline on the 4th January for notification for the New Disclosure Opportunity. What is the landscape going to look like on the 5th January? You say that there’s going to be a change in approach in terms of letters, perhaps, over a period of time, but on the 5th January what do you think the world will look like?
20. DH: Well it won’t come to an end, that’s for sure. Not that I know but I think that it’s going to be a number of weeks before people really see a difference. We will start sending out different sorts of letters, but it’s going to be the end of March before we really begin risk profiling individuals, looking at where we think there are significant disclosures that should have been made, and I think people will then see a growing number of investigations.
21. GA: And turning back to the PBR, there was reference to new legislation requiring notification of opening a new bank account. Are you able to share with us some of the thinking and the timing of that?
22. DH: Absolutely. We’ve been surprised that some people seem determined to frankly hold out and not make a disclosure when they can see announcements that have been made for penalties for incorrect tax returns, and that some of them will face a penalty of 100 per cent. But we needed to make things more secure from a tax administration perspective going forward and our minsters accepted that argument and so people are going to have to make a notification going forward of an offshore account which hits £25,000 balance or is newly opened with that sort of money. Now people who don’t do that and whose tax returns are wrong will face a penalty of up to 100% of the tax for not notifying us plus up to 100% of the tax for an incorrect return. That’s a big penalty.
23. GA: And naming and shaming starts on the 1st April 2010 so we understand. Presumably that’s another reason to disclose now?
24. DH: The first naming and shaming will actually happen after the 5th April 2011 but I would have thought that was a great reason to disclose. This is a significant deterrent and people will literally find their names and other details on the front pages of newspapers and on our website because they haven’t come forward, made disclosures and made their peace with us.
25. JW: The real message is, you’re getting serious.
26. DH: Absolutely. I think this has been a contagion, if you like, of hiding money offshore and you see it in different degrees for different places. We learnt through the ODF in 2007 that the average settlement with us was about £11,000 but it was around £50,000 for people with a Swiss bank account and into six figures for people with a Liechtenstein bank account and we can do that sort of profiling for other countries as well.
27. GA: And that leads me on to one of my other questions. Obviously you have achieved a good result in terms of negotiation with the Liechtenstein authorities. Do you anticipate similar discussions with other jurisdictions?
28. DH: Well that’s a really interesting question. We are in discussion with other countries. Would we give them exactly the same terms or seek to negotiate exactly the same terms? It really depends on two things. Have we got any levers that would allow us to gain access to banking data in those countries, that’s the first consideration. If the answer is no there are none at all, well, we’d think hard about what to do. But what we don’t want to do either is to undermine the Liechtenstein Disclosure Facility by suddenly giving someone a choice between the Liechtenstein facility and, I’d better not name any countries, say the ‘Ruritanian facility’.
29. GA: And this is the 24 million dollar question that advisers on the ground receive, is that if someone has an offshore bank account not through a UK branch and not in Liechtenstein and they potentially could move the money into Liechtenstein, are they open for the Liechtenstein Disclosure Opportunity? Your frequently asked questions covers that now, which is helpful, but there are pitfalls that that person needs to understand when they’re thinking about doing that type of facility, of moving money from one country into Liechtenstein to take advantage of the Liechtenstein facility?
30. DH: Well I think there are two things I want to say. The first is the basic principle that they should follow is that disclosure is better than non-disclosure. When we catch up with people who haven’t made disclosures at the very least that is going to be very expensive indeed, and at worst it will mean potentially going to jail and I don’t think anyone wants to do that. But I believe everyone needs advice particularly if there’s significant sums of money involved and we’ve had a few questions recently about the money-laundering implications of all of this. We’ll be putting some more advice up on our website shortly but I mean these are issues which a good professional adviser should be able to handle.
31. JW: Dave all these questions are coming in from our members and there’s actually quite a few more so it’s very pleasing that you’re putting up more guidance and will be taking up some of the more detailed points with your colleagues. I mean this genuinely seems to be something both sides are learning from as we go along and issues keep coming up. Is this a fair comment?
32. DH: I think it probably is fair comment. I think the number of practitioners who are now being approached by either existing clients or new clients, by people who say “Really sorry, didn’t tell you” or “Actually I’ve got a problem, I’ve got money hidden offshore”. That number is growing regularly and I think it is important that practitioners recognise, well two things; one, they’ve got certain obligations to us in relation to existing clients but it’s every bit as important for them to be convinced and believe that disclosure is the right way forward.
33. JW: Of course I have to say some of the questions one gets are from somebody who suddenly discovers that they’ve got a few pounds in an overseas account, and do I really have to tell the Revenue about that?
34. DH: Well my message to people with a few bob in a Liechtenstein account is sleep easy, drop us a line and tell us, but I have never seen a Liechtenstein account with just a few bob in it.
35. JW: It’s usually not Liechtenstein, it’s other places. But the honest answer is just send you the note?
36. DH: Absolutely and we’ve made it clear that all we are interestedin doing is collecting the tax in relation to very small amounts of money.
37. JW: So drawing this to a close Dave, you still inevitably get the hub advice that ‘oh, we know the Revenue are pursuing this but I know of Ruritania or somewhere where I can open an account and hide it’. I hasten to add these aren’t CTA’s, they’re not members of the CIOT who are going to be propounding this, but what would your message be to somebody who says that ‘there’s always a country that you can conceal your money in’?
38. DH: Well I think my message is very simple; the world is getting smaller. Tax administrations are co-operating more and more but I asked one of my colleagues what I should say and she said to me I should quote Geena Davis. I had to ask her who Geena Davis was but the quote is, and I think it is very apt – it’s not meant to be very frightening it’s just very apt – “Be afraid, be very afraid if you want to keep hiding your money offshore”.