Increased penalties for offshore tax evasion
A new penalty regime comes into force for tax periods commencing on or after 1 April 2011 where the failure is linked to an offshore matter. The new regime introduces the possibility of larger penalties for taxpayers who fail to provide a full account of their income tax or capital gains tax liabilities.
The regime is linked to the tax transparency of the territory in which the income or gain arises. There are three separate categories which correspond to the three new penalty levels:
- Where the income or gain arises in a territory in ‘category 1’, the penalty rate will be the same as under existing legislation
- Where the income or gain arises in a territory in ‘category 2’, the penalty rate will be 1.5 times that in existing legislation – up to 150 per cent of tax
- Where the income or gain arises in a territory in ‘category 3’, the penalty rate will be double that in existing legislation – up to 200 per cent of tax
Taxpayers who currently have undisclosed taxable income (for example in accounts in offshore banks) are advised to take advice before the new penalty regime comes into force.