The Isle of Man can’t spot tax evasion when it’s doing it

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As some will be aware, there has been considerable correspondence on this site recently from those from tax havens who have tried to justify the actions of these places. One of these series of correspondence (for they are lengthy) came to this conclusion:

Richard - I feel bound to rise to the challenge you set.

There is a very good reason why offshore centres do not want to disclose - if you are avoiding tax (note- avoiding, not evading) then disclosure may prompt the relevant Revenue Authorities to investigate and find out how you are doing it. Once they know how you are doing it, they can legislate to stop you. i.e. what they don't know can't hurt you, what they do know just might!

Yes, non-disclosure can assist evaders as well and the IoM (I don't actually know about others) makes it an offence to assist anyone in the evasion of their proper liabilities. I think most of us "offshore operators" take the view that if you can't do it legitimately you don't do it at all. Apart from anything else, the penalties of being caught at it far outweigh any gain you might make i.e. evasion is bad business.

Unfortunately the commentator clearly shows how little he knows about UK tax law. As HMRC's site says:

On 1 August 2004 statutory provisions came into effect requiring arrangements that enable a person to obtain a tax advantage ('schemes') to be disclosed to HM Revenue & Customs (HMRC).

[For most taxes] The obligation to disclose rests principally with promoters of schemes. However, the obligation moves to the scheme user when they devise their own scheme; the person promoting the scheme is based outside the UK; or the promoter is unable to provide relevant information about the scheme to HMRC because they are bound by legal privilege.

Let's be clear about what this person is saying. In their opinion nondisclosure of tax avoidance is not tax evasion. Actually, what is now very clear under UK law is that nondisclosure of tax avoidance is very definitely tax evasion, because there is a law requiring disclosure of tax avoidance schemes. That law applies to schemes created outside the United Kingdom, where the obligation to make disclosure is simply passed to the person using the arrangements. So in this case, the failure of the Isle of Man adviser to tell a UK based client that they must disclose the scheme that has been created to the UK tax authorities immediately puts that client in the position of having evaded a UK taxation obligation, and exposes them to penalty.

And that is, of course, assuming that the nondisclosure only hid an avoidance arrangement. Who knows? Nondisclosure can, of course, just as easily hide tax evasion. If you have to rely upon nondisclosure of tax avoidance to make the scheme work the assumption should always be that it is tax evasion, and any wise client and adviser should know that.

So let me be blunt: if this is the basis of tax planning in the Isle of Man, it is promoting tax evasion to its very core, and tax advisers there are so ill informed they either do not know it, or consciously participating it without making their clients aware of it. It's not an attractive scenario.