TTOG3520 - Code of Practice 8: consideration of potential tax avoidance in case registrations: the balance between avoidance and evasion
It is important for Investigators to be able to identify cases where they suspect that fraud is being perpetrated.
It is accepted that an individual or a company may properly take steps to achieve a legal tax advantage of a type which may be considered legitimate tax planning or legal interpretation. Due to the complex nature of some tax planning, it is often difficult to distinguish avoidance from evasion and the Investigator, when considering a case for registration, has to attempt a provisional judgement.
A Code 8 Investigator may investigate the role of a particular offshore company. It may have been set up properly; it may engage non-UK resident staff to undertake genuine commercial activity; the invoicing may be properly administered and reflects a true picture of the work usually performed and the contractual obligations entered into. This scenario may succeed in its intended aim and the profits from the enterprise may escape UK taxation.
Matters however might be quite different. An offshore company may exist in name only and may be controlled by UK residents but this fact is kept secret. It may not undertake any work whatsoever and may exist merely to facilitate the purchase and onward sale at profit of an UK property. When the transaction is completed the profit or gain crystallises offshore and no return is made to HMRC.
It is unlikely that the latter transaction outlined above would be entered into by anyone other than to obtain a taxation advantage. This type of scenario is likely to be of interest to the Code 8 Investigator. But if, for the avoidance to succeed, it becomes necessary to hide, conceal or misrepresent the transactions which have taken place, then it is likely that the avoidance will have been converted into evasion and the case should be considered as appropriate for Code 9 or by the Criminal Investigations.
Investigators must be alert to the possibility of a case working under Code 8 developing into Code 9 or a criminal investigation.
Similarly, some widely sold avoidance schemes have been based on misleading HMRC, the users of the scheme or, indeed both. Even where a scheme has been disclosed under DOTAS, there remains the possibility of investigation for fraud and appropriate referrals to CI or for COP9 investigation should be considered.