How to best obtain cooperation from clients to meet tax compliance standards? - Laurence Lancaster

Laurence Lancaster, Barrister-at-Law, Group Head of Tax at Sovereign Group discusses how to best obtain cooperation from clients to meet tax compliance standards.

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1. How to best obtain cooperation from clients to meet tax compliance standards?

Video transcript

1. How to best obtain cooperation from clients to meet tax compliance standards?

I think it does depend on the type of client with whom that you’re dealing. You do get clients who are quite happy and accept that the modern approach to dealing with all of this is that you have to have full disclosure and full transparency. And with those clients, it’s fairly straight forward and they don’t really need educating. They’re quite happy to accept the modern approach. However, there are still clients who come through the door who adopt the old approach, which is very much tax planning involves nondisclosure, tax planning must be under the radar. It’s a precondition for successful tax planning that the revenue authorities in the state in question where they’re a resident will not find out about what it is they’re up to. And for those type of clients, it’s really those who need educating and need to be informed about how the new regime works. I think there are two key points that they need to be made aware of. The first is that with CRS and all of the other regimes in place in FATCA, the purpose of which is to exchange information between revenue authorities, it’s far more likely that a tax arrangement, a structure is going to come to light than what it used to be. So, although this approach of nondisclosure has never worked, technically in the past, of course, it was less likely that it would be discovered. So that’s the first point. It’s more likely that it’s going to be discovered. The second point is if it is discovered and it’s noncompliant, which of course it’s likely to be, then the penalties are far more severe. Bearing those two points in mind, they’re likely to be caught and if they are caught, there’s going to be the tax to play plus penalties and potentially imprisonment. It’s far better for them to do things correctly and I think the best way of doing things correctly is to obtain tax advice. Typically, that would be independent professional tax advice that covers all aspects of the tax planning, including the disclosure and provided that is in place, then it won’t be possible for the client to have committed tax evasion because they wouldn’t have this guilty state of mind. As far as they’re concerned, they’re acting in accordance with advice. Second, certainly as far as the UK regime is concerned, as long as you have got tax advice by a suitable professional, you won’t be subject to penalties. So ultimately, and as long as you disclose at the correct and appropriate time, all you’re looking at really is a dispute with the revenue, and there may not be a dispute of course, but all you’re looking at is this dispute over what tax you need to pay. You’re not in the domain of tax evasion or noncompliance and effectively that’s where you want to be. Ideally, they agree with you and nothing more involved, but it may be that they don’t agree with you and it’s up to you to either stick to the filing position and battle it out with them or you give in and then you just accept their assessment. But that’s far better than if you’re suffering penalties of 100% of the tax and potentially, as I’ve said, criminal sanction as well.

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