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	Tax experts in demand
	KATRINA LE VESCONTE Director, Walbrook Tax Advisers

AS OF 1 August, UK advisers who set up tax avoidance schemes for UK taxpayers will have to disclose details of these to the Inland Revenue. This new requirement, unveiled in the Chancellor’s most recent Budget, has ruffled a lot of feathers among our onshore colleagues.

But what will this mean to us? Jersey may be outside the jurisdiction of the Inland Revenue, but clearly there are implications for the local industry. Efficient, legitimate tax planning has always been a key attraction of international finance centres like ours, and expertise in this area has become one of Jersey’s core strengths. That may never have been more important than it is now, as demand for specialist tax services increases. The disclosure requirement is really only the latest example of the UK Exchequer stepping up efforts to tackle what it sees as unfair tax planning. The main difference is that until now it has only really been those of us working offshore that were feeling the heat. The Inland Revenue has been adopting a far more proactive stance for more than a year now. This follows the announcement of a new compliance and enforcement package, which was unveiled in the 2003 Budget. This was part of an ‘ongoing commitment to create a modern and fair tax system’, and the Treasury had high expectations. By its own forecast, the initiative would raise additional revenues of at least £1.6 billion over three years. From the outset, the new resources were largely directed towards tackling fraud as they saw it. However, that soon went a stage further. In a move clearly designed to turn up the heat on tax avoidance, the Offshore Arrangements Project was set up in August last year, specifically to look at companies and individuals with connections in finance centres such as Jersey. One estimate suggests it has identified 30,000 offshore companies owning UK property that may warrant further investigation. In many instances their existence is pretty much the extent of the taxman’s knowledge of these entities. The Inland Revenue therefore needs more information before it can satisfy itself they are tax-compliant. One tactic used to date has been to target offshore trust companies that have not filed certain tax returns in the past. The fact that many have not should in no way be considered as proof of non-compliance with UK rules. In any event, for years we have been legally obliged to report any suspicions that funds arise by way of illegal activity, including of course tax evasion. If anything, we are well ahead of the UK in this respect. The problem, however, is two-fold. Firstly, there has never been a statutory obligation to complete some of these returns, either on the part of offshore trustees or on their UK-based clients, who of course have to file their own personal returns. More important, however, is the complexity of the returns. Completing this paperwork requires relevant tax expertise, and that simply does not exist within many trust companies. This has effectively been seen by the Inland Revenue as an open invitation to come knocking. Dealing with its enquiries now, which could involve assessing tax liabilities on transactions that took place years ago, is going to require considerable expertise. Anyone who does not have this in-house will have to seek it elsewhere. That is where specialist tax advisers come in.

One of our primary roles is to educate firms and trustees in their compliance obligations, as well as what it would be helpful to disclose. The Inland Revenue is not going to be entitled to everything it asks for, so managing the release of information under non-statutory enquiries needs to be carefully considered. There may be legitimate reasons for non-disclosure where the information being requested serves no purpose in complying with a legal obligation. Trustees also have a duty to act in the best interests of beneficiaries, so it is a balancing act that will require acquiescence to certain requests and a polite ‘no thank you’ to others. However, as noted above, this is not the only factor that is likely to keep tax advisers busy in the future. The new disclosure requirement on UK providers is equally likely to be a key driver for further growth. We face no such requirement, given that the Inland Revenue has no powers of enforcement here. However, in such instances the duty of disclosure then falls to the UK taxpayer. Providers, onshore and offshore, therefore need to know from the outset that the schemes they promote and operate on behalf of clients are watertight, and any reporting obligation have been met. This is of course further complicated by the fact that details of what the Inland Revenue regards as disclosable is still very much unclear. Hence the further need for specialist tax advice – not least because if a UK taxpayer fails to meet their obligations because their offshore provider did not advise them properly, it is always possible that they will hold the provider responsible.

Quite whether all this activity manages to raise anything like the £1.6 billion the UK Chancellor forecast during the first three years remains to be seen.

article © Jersey Evening Post Limited. website © 2004 Guiton Group

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