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The "Stop Tax Evasion Programme" (STEP)

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Tuesday 01 July 2014

The States of Guernsey relies on monies raised through general revenue - mostly income tax - to fund public services in the Island, such as Education, Health, etc. Whilst the vast majority of Guernsey taxpayers pay the tax that they are required to pay, a minority do not. Tax evasion is illegal.

The illegal activities of this minority imposes an additional unfair burden on honest taxpayers (which may include the evader's family and friends) by preventing money that should be paid in tax from reaching public services that need these funds to operate properly. The Income Tax Office is committed to tracking down people cheating the tax system.

To raise public awareness, and involvement, in this we are launching the Stop Tax Evasion Programme - STEP, for short.

The Income Tax Office introduced a Compliance and Investigation Unit in the late 1980s to address domestic tax evasion, and also tax avoidance. Since then the activities of the unit have raised more than £35.4m in unpaid tax, penalties and late payment surcharges from those 4,300 persons who chose not to pay the amount of tax that the Income Tax Law required them to pay.

What is STEP?

STEP is simply the name given to a collection of actions that the Income Tax Office is taking to address tax evasion. Some of these have been in place for some time, some are relatively new and some are planned for introduction in the future. The purpose of STEP is to raise public awareness of what the Income Tax Office is trying to achieve and to get the public involved in tackling the problem of tax evasion and stopping the impact it has on honest taxpayers.

Within the Income Tax Office, a dedicated unit - the Compliance and Investigation Unit (CIU) - has the overarching responsibility for detecting and dealing with domestic tax evasion. Not only are the officers in CIU experienced investigators, they also have information from a number of sources which enables them to identify persons who may be evading tax.

Examples are:

Such information is currently received by mail and by telephone.

New Initiatives

During the last decade the number of ways in which the Income Tax Office can receive information to assist other countries has increased significantly. It is somewhat ironic, therefore, that Guernsey will be exchanging information in relation to, say, a resident in an EU Member State, in respect of a bank account that they hold in Guernsey, yet the Director of Income Tax does not automatically receive details of interest paid to Guernsey residents by Guernsey banks.

In December 2013, the States agreed a proposal by the Treasury and Resources Department to introduce a new reporting regime for Guernsey banks under which they would provide to the Director details of interest paid to individuals resident in Guernsey. The primary purpose for obtaining this information is to facilitate the more efficient processing of taxpayers' affairs and reduce the reporting burden on taxpayers (for some, we will be able to remove the need for them to complete a tax return each year). These opportunities will be taken, where possible, as new processes are designed under the Income tax Office Improvement Programme, which is currently underway.

The first year for which interest details will be reported will be 2014.

It is probable that, when the Income Tax Office receives details of interest for 2014, it will discover that some people will not have declared this in their income tax return (that they will be required to complete in 2015) or their previous income tax returns disclose no interest from the account. In those cases, it is probable that an investigation will be launched into the tax affairs of those individuals.

It is in the best interests of the Income Tax Office, and any individuals affected, if any such discrepancies in tax returns for prior years can be corrected with the minimum of delay and inconvenience. For that reason, the Director is introducing the Bank Interest Reporting Disclosure (BIRD) facility. BIRD will run from the date of this media release up to and including 31 March 2015.

Any person who, during that period, reports to the Director any failure to disclose Guernsey bank interest, for any year up to and including 2013, may take advantage of the favourable provisions of the facility, which are that the matter may be resolved upon payment of:

  1. the tax due in respect of the interest which was not disclosed, and
  2. late payment surcharges on the tax.

No penalties would be charged and no referral would be made to HM Procureur for consideration of prosecution in connection with any income tax offence related to that omission.

If, at the same time as disclosing any irregularities in relation to Guernsey bank interest, the person concerned wishes to make any additional disclosures of errors in prior tax returns, that will be acceptable, and such disclosures will also be dealt with under BIRD, so long as the person concerned is not, at the date of disclosure under BIRD, and has not previously been, subject to an investigation of his income tax affairs by the Director and the disclosure is considered to be "full and complete".

The BIRD facility applies only to offences under income tax legislation and has no impact on actions which may be taken in relation to any wider criminality.

Further information concerning BIRD is now available on the Income Tax Office website using the following link: http://gov.gg/article/112995/Bank-Interest-Reporting-Disclosure-BIRD

The States has also agreed that the Director should be able to obtain, from Guernsey financial institutions, details of interest paid by Guernsey resident individuals in respect of mortgage loans. As with bank interest, this information will be provided, for the first time, for 2014. There have been cases, dealt with by the Income Tax Office, where individuals have claimed interest relief for more than they have been entitled to. Once again, therefore, it is probable that, once details of interest paid is received by the Income Tax Office, more cases will be subject to investigation on the basis of a false claim for a deduction.

As with the BIRD facility, in relation to interest paid by banks, the Director considers it is in the best interests of taxpayers and the Income Tax Office to ensure that any such cases are dealt with promptly.

For this reason, the Director is also introducing the Excess Mortgage Interest Relief Disclosure (EMIRD) facility. The EMIRD facility will run to the same time frame and with the same conditions, with suitable adaptations, as the BIRD facility.

Further information concerning EMIRD is now available on the Income Tax Office website using the following link: http://gov.gg/article/112999/Excess-Mortgage-Interest-Reporting-Disclosure-EMIRD

To bolster the existing Tax Evasion Hotline telephone number and email address, an online form is being made available on the Income Tax Office website (www.gov.gg/ciucontact) to provide an alternative method for people to provide information concerning tax evasion activity to the Income Tax Office, in confidence.

Rob Gray, Director of Income Tax, said:

"Tax Evasion is a crime, but it is sometimes rationalised as harmless because it is only the "taxman" that is suffering. That is not true. Every tax evader cheats every honest taxpayer in the Island - including his own family and friends - because tax revenues are used to fund vital public services such as health, education and public and social welfare.

It is vital, therefore, for the social and economic wellbeing of the island, that the Income Tax Office does all that it can to make it harder and harder for tax evaders to continue to escape detection.

In recent years, the Income Tax Office has expanded considerably the sources from which it can obtain information to help in this, including agreements with many other countries, and increasing liaison with law enforcement. These and the new initiatives being introduced - such as receiving details of interest received from and paid to local institutions - will only increase the ability of the Income Tax Office to detect these people.

Being discovered as having cheated on your taxes can be an expensive experience - not only is the back tax payable but there may also be late payment surcharges and penalties. In many cases, the total amount payable will be significantly more than the amount of tax evaded. In some cases, a prosecution can be the result.

I recognise that there may be some people who, having now realised that the Income Tax Office will be receiving even more information about them in the future, may be worried that errors in their income tax affairs will be brought to light. The BIRD and EMIRD facilities are being introduced to enable those people who now want to do the right thing to be able to put their income tax affairs in order as quickly, and as cost effectively, as possible.

Let there be no misunderstanding, however, that anyone who, in the future, is discovered to have evaded tax, and who has chosen not to take advantage of these two disclosure facilities, will be subject to whatever penal provisions are available in the Income Tax Law, including the possibility of being referred for prosecution.

As tax evasion is something that touches on every taxpayer in the island, I also ask members of the public to help the Income Tax Office in this by passing on any information that they have which could be useful in detecting tax evasion committed by others, either through the Tax Evasion Hotline telephone line, email address or the online reporting form."

ENDS

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