HomeFWJ TakeawayTax disputesDisguised remuneration and APNsHMRC Nudge Letters & the Pandora Papers

HMRC have recently stepped up its investigations in to the world of offshore finance following the leak from the Pandora Papers. In this Blog, HMRC expert Andy Lynch and barrister Joshua Carey set out their view of what this all means.

In a recent article published in Taxation Magazine, the tax intelligence publication from LexisNexis, our HMRC expert Andy Lynch and specialist tax barrister Joshua Carey discuss the background to the recent activity by HMRC and what it can mean for anyone holding offshore assets. The full article published on 27 June 2023 is set out below.

If you are in need of any help on HMRC claims, investigations or initial enquiry letters, let our team help. Or contact Andy Lynch directly today.

Taxation Magazine article in full


The Pandora Papers refer to a massive leak of financial documents in October 2021, by the International Consortium of Investigative Journalists (ICIJ); the same organisation responsible for the Panama Papers leak in 2016. This leak involves more than 11.9 million files, comprising of approximately 2.94 terabytes of data which were obtained from 14 offshore providers such as Appleby and Estera.

The Papers provide insight into the offshore holdings of politicians, celebrities, business leaders, and other influential figures from over 90 countries, and detail how these individuals and entities use offshore companies, trusts, and other mechanisms to potentially evade taxes, and conceal assets.

These revelations shed light on the opaque world of offshore finance and have sparked discussions about tax avoidance, wealth inequality, and the need for greater transparency in global financial systems. Journalists from around the world collaborated to analyse and report on the leaked information, uncovering various cases of potential wrongdoing and prompting investigations by authorities in multiple jurisdictions.

The effect of CRS.

The Common Reporting Standard (CRS) is an international framework for the automatic exchange of financial account information between participating jurisdictions. It was developed by the Organisation for Economic Co-operation and Development (OECD) to combat tax evasion and promote tax transparency globally. While the CRS has had some impact on the Pandora Papers leak, it is essential to understand its limitations.

Improved transparency: The CRS requires financial institutions to collect and report financial information of their clients who are tax residents in other participating jurisdictions. This increased transparency has made it more challenging for individuals to hide their offshore assets and income.

Limited scope: Despite the CRS’s efforts to enhance transparency, it is not fool proof. The Pandora Papers revealed that some individuals were still able to exploit loopholes or use complex structures to evade detection and highlighted the existence of offshore structures that may not have been reported under CRS due to legal and technical considerations.

Compliance issues: The Papers shed light on potential non-compliance with CRS obligations with some individuals potentially not having fulfilled their reporting obligations. This has highlighted the need for stricter enforcement and monitoring of compliance with the CRS.

Ongoing challenges: The CRS is a relatively recent initiative, and its full impact is still evolving. The leak shows that there is more work to be done to strengthen the framework, close loopholes, and address the challenges associated with cross-border tax evasion effectively. Furthermore, the refusal of the USA to sign up for CRS, and the one-way nature of their own FATCA legislation further complicated these challenges.

Overall, whilst the CRS has contributed to increased transparency and the fight against tax evasion, the leak underscores the ongoing complexity and evolving nature of offshore financial activities. It also highlights the need for continued efforts to enhance international cooperation, strengthen regulatory frameworks, and improve compliance and enforcement mechanisms to ensure greater transparency in global financial systems.

HMRC’s approach so far.

Analysis and investigation: HMRC have carefully analysed the leaked documents to identify individuals or entities with potential tax evasion or non-compliance and will have initiated information exchange requests with other countries to gather more comprehensive data about their offshore activities and financial holdings.

A recent HMRC press release details a campaign of ‘Nudge letters’ which began on 5 June, to encourage identified taxpayers to disclose any offshore assets/income. Our view is that it if a taxpayer receives a nudge letter then it can be assumed that HMRC know where the bodies are buried. The message from HMRC is clear, disclose or we will come after you. 

Likely outcomes for those disclosing.

If taxpayers choose to proactively disclose offshore assets to HMRC, there are a number of ways to do this.

  • The Contractual Disclosure Facility (CDF). This facility allows for HMRC to offer an immunity against prosecution in return for a full and frank disclosure of all instances of tax fraud and non-deliberate behaviour. Care needs to be taken if this option is chosen because attempts to mislead or conceal anything further as part of this process may lead to HMRC commencing criminal action about the attempt to mislead or conceal.
  • The Worldwide Disclosure Facility (WDF). This allows the disclosure a UK tax liability stemming from offshore income/assets, however where there is fraud involved CDF is the most appropriate option, as disclosures made under the WWD do not grant immunity against prosecution.

A willingness to regularise tax affairs can help mitigate penalties in terms of cooperation, quality of disclosure and payment of the tax due. The earlier the disclosure, and the greater the assistance, the more likely it is that the penalties were be reduced.

Likely consequences of non-disclosure.

As mentioned earlier in this article, taxpayers in receipt of a nudge letter should assume that HMRC are in receipt of information relating to their offshore assets, therefore choosing not to disclose can have severe consequences in terms of penalties, increased professional fees and even criminal prosecution.

Non-disclosure of offshore assets can also lead to reputational damage and result in legal consequences beyond the tax liabilities, as they could face civil lawsuits, or asset freezing order and/or forfeiture.

HMRC’s ability to manage potentially large-scale disclosures.

There is no doubt that HMRC have been stretched to the max resource wise in recent years, dealing with the furlough scheme, catching up with their debt management processes and the increase in tax fraud in general. However, we believe that HMRC has committed significant resource to these anticipated disclosures and are prepared to act swiftly as when required. Potentially, there is a big tax grab here, which would be heartily welcomed by the Treasury.

What advice should practitioners be giving their clients.

We do not consider non-disclosure of offshore assets as an option for any taxpayer as the consequences can be extremely severe and potentially threaten liberty.

Even if there are no offshore tax consequences following the receipt of a nudge letter, engagement with HMRC is encouraged, otherwise they could potentially open up an enquiry into client’s a tax affairs, which can be costly and time consuming.

The effect of this leak coupled with CRS and greater cross jurisdictional cooperation means there are very few places to hide these days. In short, if HMRC are asking questions of your clients in relation to the Pandora Papers, it’s fair to conclude that they already know the answers.

Andy Lynch is a tax disputes partner at Francis Wilks & Jones and can be contacted on 0207 541 0390 or andy.lynch@fwj.co.uk.

Joshua Carey is a barrister at Devereaux chamber.

Whatever the nature of your HMRC enquiry, contact our tax dispute team for help. Or contact Andy Lynch today for immediate assistance.

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