David Hartnett, outgoing Permanent Secretary for Her Majesty's Revenue and Customs (HMRC) offers his perspective on the compliance action by the HMRC and media treatment of tax cheats, particularly in the context of austerity measures which have been imposed in the United Kingdom, since the global financial crisis (GFC).
The UK offers an interesting parallel for the Australian experience, with increased sentences for white collar offenders being a trend also observed recently in the Australian court system. The low tolerance within the community for those that demonstrate 'poor tax morality' highlights the benefits and opportunities for cross-agency cooperation in a global context.
For many years, printed and broadcast media in the UK took little interest in tax crime. HMRC saw media reporting of tax crime as an important deterrent, but unless the delinquent taxpayer was a national name, newspapers and television weren't interested. So, while a popular jockey or comedian were worthy of many column inches when they were thought to have fiddled their taxes, other tax defaulters got no attention.
Tabloid journalism loves colourful tax stories. The tale of a lady of the night who was found with 1 million in Switzerland captured the imagination of journalists (who seemed to know a great deal more about her than the tax administration ever learnt). As did the man who buried his illicit cash in his uncle's grave. However, these stories were few and far between. Our focus - necessarily - was on the activities of organised criminals intent on taking huge sums of money out of the UK system through carousel fraud and cyber crime.
The introduction of a national austerity programme to reduce the UK's fiscal deficit has changed the environment, as has the huge increase in offshore bank information that is now available. The media today reports tax crime at a level not seen before. Avoiding and evading tax has become a national issue and public tolerance of such behaviours is at an all time low.
Many UK residents who had money hidden offshore provided false certificates of disclosure and statements of assets during tax investigations in an attempt to protect their funds. Growing evidence suggests that banks in low tax jurisdictions guaranteed their money was untraceable and so they never expected their illicit activities to be uncovered. However, whistle-blowers providing detailed information about offshore accounts and increased exchange of information have exposed them.
HMRC's policy in these circumstances is to mount a criminal prosecution if the evidence stands up to scrutiny. And the Courts have recently become much tougher in their sentencing with tax criminals now facing lengthier jail sentences.
The increased public interest in tax crime and tax avoidance in the UK has brought a new focus on tax morality and cheating on taxes is no longer seen as fair game. It has also generated increased scrutiny of HMRC's performance. The media and Parliamentary Committees expect tax crime to be detected and addressed faster than ever before.
As a result, HMRC has dramatically increased its investment in compliance activity. Today almost half the people in the department are involved in countering avoidance and evasion. Our big risk engines have helped to ensure that around 90% of the cases we examine produce additional tax, and we now recoup more than twice as much from investigations and enquiries as we did just five years ago.
It will be a few years yet before non-payment of taxes becomes socially unacceptable but the UK is certainly moving in that direction, and HMRC is determined to complete that journey.
ATO Second Commissioner on working with David
ATO Second Commissioner Jennie Granger collaborated with David for many years on international tax compliance strategies and activities particularly addressing sheltering income and assets using tax havens. She recently observed that (to the chagrin of those involved in tax avoidance):
On an international level, David has improved relationships with all our communities and better compliance with all our tax systems through practical international cooperation and building strong relationships between private and public sector. David leaves a longstanding legacy to all of us through his founding leadership role as one of the Commissioners who set up the Joint International Tax Shelter Information Centre (JITSIC) and leading the OECD Study of Tax Intermediaries.
Read about Jennie's appointment to the role of Director-General Enforcement and Compliance at Her Majesty's Revenue and Customs in this issue of Targeting tax crime.