The Pandora Papers are back – and with a vengeance

ticking time bomb (2)

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Many of you may have heard of or recall ‘The Pandora Papers’ and may have assumed that issues around these have been resolved or ‘gone away’.  Wrong!

How does this affect my clients?

Entrepreneurial clients seem to have a thirst for anything offshore.  Bank accounts in the Caribbean, property in Europe or companies set up in the Channel Islands can all have their uses.  Legitimate uses to facilitate the payment of goods or services being traded.  But do they know what they are doing or are they ticking time bombs for you and your client?

Here’s a summary of The Pandora Papers and how your clients could still be affected today and in the future.

What are the Pandora Papers?

The Pandora Papers released in 2021 followed the release of the Panama Papers in 2016 and the Paradise Papers in 2017.  As a result, HMRC received a plethora of documentation which is still being pursued today.  Or rather simply reviewed and no action taken, until now.

What is the problem?

In many countries (including the UK), having offshore accounts or being owners of foreign corporations is not illegal.  However, not declaring those holdings and/or using them to avoid taxes or hide transactions that in turn leads to the non-declaration of income and gains, are.

What sort of documentation?

We are talking loan agreements, financial statements, emails, Trust Deeds, and other paperwork used in the creation of various arrangements that avoided or evaded taxation in the taxpayer’s home jurisdiction.  Not everything related to UK people and entities.  But there has been sufficient for HMRC to have set up various taskforces to consider and take action.

On top of which, information is now in the hands of HMRC.  The reviewing process is over, let the battle with HMRC commence.

What sort of information does HMRC now have?

Anything and everything.  Names, addresses, PO boxes, account numbers, passwords – the list goes on.

The information may not be supported by actual documentation.  If it were, the two together could result in criminal prosecution.  But one without the other makes it less clear as to what went on and why and may well be “capable of simple explanation” without any connection to tax avoidance or tax evasion.

What sort of arrangements have been discovered?

A typical scenario is where UK taxpayers divests themselves from income generating assets or assets that can generate gains over the long term.  Such assets are held in another name, partnership, company or trust.  Often all of these are found within the same “arrangement”.  There is no intention for either the income or the gains to be declared to HMRC or any UK tax to be paid on them.

This is fraud – being both deliberate concealed.

If no criminal proceedings are commenced (often a big “if”), then such a matter falls within the territory of Code of Practice 9 to be resolved on a civil basis.

So where are we today?

Some cases have been “dealt with” or are in the course of being “dealt with”.

But for some, HMRC are continuing to investigate.  HMRC may already be in regular dialogue with UK taxpayers and their advisers.  But it is unlikely HMRC have divulged everything to the other side.  They never do.  Full disclosure by the taxpayer is required – not full disclosure by HMRC.

HMRC can be thwarted by not being able to piece together the full picture.  But they may not have been up front and confronted taxpayers with what they do hold.

So, this can lead to ticking time bombs – to explode at some future date.

If this is the case, I would prefer to have a controlled explosion, wouldn’t you?

What should be done today?

Do not bury your head in the sand.

Ignoring HMRC will not mean HMRC will go away.

Nudge letters have flushed out the “low hanging fruit” and the level of penalties were low.  HMRC are now preparing to crack open the larger cases.  Penalties can start at 200% of the tax and are mitigated down (not 100% nor the other way around).

How I can help

I can advise you how your client can control the inevitable explosion of such a ‘ticking time bomb’.  It will help your client sleep better at night and potentially improve the outcome for your client with HMRC.

Anyone seeking help can call me on 07979 313 010 or…

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