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Unaccepted methods of tax planning. UK practices of crime and punishment

Following the introduction in 2013 of Action Plan on Base Erosion and Profit Shifting (BEPS Project) OECD actions in this area have become more systematic. According to the BEPS Plan, the purpose of the radical restructuring of international tax regulation system is to force companies to “pay more taxes and, moreover, where profits are formed, as well as to deprive them of possibility to hide their income in “tax havens” (in fact “aggressive” tax planning).
Under the OECD, such schemes are beneficial majorly to the largest transnational corporations, “which pay up to 5% of income taxes, and for small companies the tax rate is 20-30%, which is extremely unfair.”
The implicit idea of the BEPS Plan is to prevent using artificial tax schemes that have no other business purposes but to reduce taxes. One of the most important mechanisms is creating an integrated system for the exchange of financial and tax information.
The United Kingdom is for today undoubtedly at the forefront of fighting aggressive tax planning. In implementing its own strategy to improve tax transparency and combat tax evasion used by global enterprises, the UK has also initiated appropriate measures at the international level, particularly within the OECD.
In 2008, with a direct UK participation was issued a Study into the Role of Tax Intermediaries. At present the UK has the largest number of agreements within CRS Multilateral Competent Authority Agreement (as of February 2019 it can receive data about UK taxpayers from 95 countries and send to 68 ones respectively).
Criminal Finances Act 2017 which came into force in September 2017 has significantly expanded the powers of regulatory authorities and allowed to file criminal charges for “failure to prevent tax evasion” against any legal entity with a presence in the UK, as well as related persons (partners, consultants, contractors, etc.). Alongside, the law has opened a way for further tightening tax policy.
Among the measures taken in 2017-2018 are the following:
  • Introduction in July 2017 of rules making equal “tax intermediaries” with their clients in responsibility for tax avoidance (the size of penalty can reach up to 100% of the amount of avoidance). One of the purposes is to bring out of the shadow “tax consultants who often deliberately offer illegal tax schemes to their clients.”
In 2012 Her Majesty`s Revenue and Customs (HMRC) revealed a 2 scheme. Using of it has allowed more than 1000 wealthy persons, primarily the  celebrities, to “save” about £168 million on taxes. In the scheme the salaries of individuals in the UK were channelled through shell corporations in an offshore jurisdiction (Jersey) with lower salaries. The difference was compensated by the issuance of loans that were not taxable.
In 2016 HMRC revealed a formally legal tax avoidance scheme through investments in the film industry worth about £700 million. Dozens of bankers and a number of athletes and celebrities have invested in Ingenious Media Holdings Plc. in order to receive a tax deduction due to the company`s total losses. Ingenious Media itself used artificial overstatement of losses. In August 2018, more than 500 investors filed a class action lawsuit accusing Ingenious Film of fraud.
Even before the adoption of the rules concerning the responsibility of tax intermediaries, at the end of 2016, the Royal Bank of Canada refused to provide services in tax planning.
By the way, in the United Kingdom tax avoidance schemes are often arranged by large taxpayers directly with tax authorities.
In 2016, a Formula One case has become public. Formula One had been using a scheme to legally avoid huge corporate taxes (£945.6 thousand with £305 million of profit) by repurchasing loans from similar companies. It was argued that this strategy was part of a system of agreements with HMRC.
  • The requirement for large UK companies and multinational enterprises which present in the UK (starting from September 2017). The tax strategy should explain the tax vehicles of a certain business, including the use of preferential taxation.
  • Creating an and the requirement for UK companies and partnerships to disclose beneficiaries or , as well as .
In order to counteract the aggressive tax planning in the UK there is an extensive system of bodies to detect and investigate violations of tax legislation both within the country and abroad. It includes the Fraud Investigations Service (FIS) and its Offshore Co-ordinated Unit, Affluent Unit (more than £1 million wealth) and the High Net Worth Unit (more than £10 million wealth).
In February 2019, a former Derbyshire company boss who tried to hide money in an offshore bank account was sentenced and ordered to repay the stolen cash or face five years in prison. A businessman tried to evade £277,616 in tax.
Between 2004 and 2010, Mark Williams paid €1 million owed to his kitchen sales firm APCA UK Ltd to a Spanish bank account. APCA Ltd had issued invoices to an Italian company for commission due on sales of their kitchens in the UK.
The FIS criminal investigation found that the businessman declared no overseas income on his tax returns, nor did he reveal the existence of the bank account.
Similar measures are also taken by the European Union, consistently implementing policies to combat aggressive tax planning in line with the OECD recommendations.
In March 2018, amendments were adopted to The Directive on Administrative Cooperation in the field of Taxation (DAC6).
The purpose of innovations is to oblige all “tax intermediaries” (legal, audit firms, tax consultants, insurance companies, etc.) to disclose the content of tax planning schemes of their clients in cross-border transactions. The information should be provided to the local tax authorities, once a quarter it is planned to exchange between tax authorities of the EU members.
It is assumed that from July 1, 2020 the rules will be valid throughout the European Union. However, currently bankers, law firms and tax consultants point out that «retrospective reporting is potentially absurd». As experts say, this decision of the European Commission “has completely changed the rules in the industry.”
The object of interest of the European tax authorities today are both large and medium-sized businesses and individuals.
The cases of using by global giants Apple, Google, Amazon, Starbucks, McDonald's, FiatChrysler, etc. some European low-tax jurisdictions for corporate purposes (Ireland, the Netherlands, Luxembourg, etc.) have been widely-known.
Following the investigations in August 2016 the European Commission has ordered Apple to pay back the Irish state up to €13 billion in taxes (earlier, due to the tax deal between Apple and Ireland, the tech firm paid income tax at just 0.005%).
The European Commission estimated that since 2008 the Dutch tax ruling allowed Starbucks to avoid tax of between €20 million and €30 million.
The investigation of these cases has ultimately put an end to the widely used tax avoidance schemes such as Double Irish/Double Irish with Dutch Sandwich
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