Santiago Lapausa, head of tax, economist and partner at Marbella-based law firm JC&A Abogados, has warned that, despite Gibraltar’s fraught relationship with Spain, information sharing can access data back to 2014.

This is notwithstanding the fact the two governments have neither a bilateral tax information exchange agreement nor a double tax treaty between them.

According to Lapausa, many employees of Gibraltar firms, who live in Spain, have received letters from the taxman querying tax returns going back to 2014.

“The Spanish tax authorities are sending notifications to frontier workers requesting them to file and pay income tax as residents in Spain for year 2014, based on information provided by the Government of Gibraltar about income earned there in said year,” said Lapausa in a blog posting.

“The Spanish tax authorities have strengthened their research for residents who failed to declare income earned in Gibraltar or claimed pretended residency in Gibraltar, implementing a number of new measures and adopting new IT tools over the last years.”

Domestic legislation

Lapausa observes that it is in fact domestic legislation and EU exchange rules that are providing the real ammunition.

“The letters sent to frontier workers could be the result of this research, but they literally say ‘according to the information provided by the tax authorities in Gibraltar…’ when there is no exchange agreement prior to 2016,” he said.

“The reason behind this is that Gibraltar has committed to exchange certain information in compliance with EU Directive 2011/16 and is indeed exchanging automatically information to Spain on workers who have given an address in Spain, based on Gibraltar Taxation (Mutual Administrative Assistance) Act 2014-06.”

Whatever the precise source, the move from Spain will add pressure ahead of any deal on Gibraltar resulting from Brexit.

The accountancy and tax advisory firm has been made aware of correspondence from HM Revenue and Customs arriving as late as mid-September, barely days ahead of a 200% penalty regime launching on 30 September.

Fiona Fernie, a tax dispute resolution partner at Blick Rothenberg, said: “The letters have been in a number of different formats, according to whether HMRC has specific information about offshore assets and what the source of that information is.

“However, the thrust of all the letters is the same – if taxpayers have undeclared offshore income and gains, which should have been reported for UK tax purposes, it is important that they make a disclosure before 30 September 2018 to avoid the possibility of draconian penalties being imposed under the Requirement to Correct (RTC) legislation.”

After September, RTC becomes Failure to Correct (FTC), with penalties as high as 200% of the underpaid tax and 10% of the value of the asset offshore, depending on the circumstances.

Too little too late

Fernie said: “HMRC has indicated that these letters are ‘designed to help’ taxpayers understand their obligations and avoid falling foul of the legislation that was introduced by Finance (No 2) Act 2017. Although there is also a leaflet issued by HMRC, it was only issued in August 2018 and has only been circulated week commencing 17 September – so, is it too little too late?

“While those of us in the profession are very familiar with the terms of the RTC legislation, to date there has not been a huge amount of widespread ‘advertising’ of the new legislation.”

In the dark

She added: “There are plenty of taxpayers who are still completely in the dark, which is very worrying since the legislation does not just affect those who have deliberately not disclosed offshore income and gains – it also catches those who have failed to disclose such sources completely innocently.

“This means that the ‘nudge letters’ and the leaflet may be insufficient to ensure that taxpayers review and make any amendments to their tax reporting prior to 30 September.”

Poorly timed nudge letters

“After all, many of the letters we are seeing have been issued at the height of the holiday period,” continued Fernie.

“By the time taxpayers returned from vacation and realised that they may have an issue, there may not have been enough time left to carry out the necessary review and make a disclosure to HMRC before the deadline.

“The Finance (No 2) Act 2017 received Royal Assent on 16 November 2017.  Wouldn’t it have been more helpful if HMRC had started ‘nudging’ taxpayers then?”

Under pressure

HMRC is under pressure to raise revenue through tax investigations, forcing it to overstep the mark , say critics.

Grist to the mill is also expected to be added by a report looking into HMRC’s extensive new powers.

The UK tax authority is also being sued by law firm Mishcon de Reya for compromising an expat client’s data in what will be a vital test case impacting those with offshore tax affairs.

The report, made public by local news organisation Tamedia following a seven-month court battle, said Abramovich posed a “threat to public security and a reputational risk” because of a “suspicion of money laundering and presumed contacts with criminal organisations”.

Abramovich, a Russian national, who has subsequently successfully applied for Israeli citizenship, wanted the application kept private.

UK visa

Abramovich was effectively kicked out of the UK, despite ploughing millions into Chelsea, when he failed to get his visa renewed and subsequently withdrew the application.

The reasons for the UK visa withdrawal are unknown but it has come at a time of tightening immigration rules for international high net worth individuals.

Plans for a new stadium have since been postponed and Abramovich has reportedly said he has no interest in living in a country where he can’t do business.

A lawyer for the oligarch quoted in UK newspaper The Guardian described the Swiss allegations against his client as “entirely false”.

Abramovich has never been charged in Switzerland and the accusations made in the report have not been verified.

AFH Private Wealth will be led by Laurie Beevers, a former WHIreland chief executive, who headed the Colwyn Bay office of Beaufort.

He will join ex-WHI Birmingham director Richard Smith, who will operate from AFH’s Worcestershire headquarters, while Beevers and his colleagues will continue to work from their Wales office.

Beaufort collapsed after it was indicted for fraud in the US.

AFH experience

Smith said: “Having worked at AFH since 2015, I know how valuable the group’s in-house expertise is for clients. I’m sure that the new services we’ll be offering as AFH Private Wealth will add to AFH’s already attractive client proposition.”

Beevers, who brings the consolidator new specialisms in probate valuations and inheritance tax portfolios, added: “We’re really excited to be joining AFH for the launch of its new private wealth venture.

“Richard and I have decades of experience between us, and we’re really looking forward to putting that to work for AFH’s clients.

“I’m also excited to be introducing my clients to the AFH experience – I’m sure they’ll appreciate it.”

Staged payments

Commenting on the move, AFH chief executive Alan Hudson said: “This acquisition will strengthen AFH Private Wealth Limited, adding new clients, together with their significant portfolios.

“I am pleased that this transaction will provide the clients of Beaufort’s Colwyn Bay office with greater security for the future and access to the AFH Group proposition.”

Under the terms of the acquisition, the group will pay £250,000 ($328,000, €279,000) to Beaufort’s administrators, funded from cash reserves.

Following an initial payment of £50,000 the balance will be paid on the achievement of certain milestones.

The Colwyn Bay offices serves 650 clients.

According to the US indictment, Jack Stephen Pursley, also known as Steve Pursley, conspired with another individual to move the untaxed earnings from a co-conspirator’s business bank account in the Isle of Man.

The Houston, Texas-based attorney is charged with one count of conspiracy to defraud the United States and three counts of tax evasion.

The indictment alleges that Pursley received more than $4.8m and an ownership interest in the co-conspirator’s ongoing business for his role in the fraudulent scheme.

The charge further alleges that, for tax years 2009 and 2010, Pursley evaded the assessment of and failed to pay the income taxes due by, among other means, withdrawing the funds as purported non-taxable loans or returns of capital.

The co-conspirator was not named by the US Department of Justice.

Pursley allegedly used the money to buy a second home in Vail, a Colorado ski resort, and property in Houston.

If convicted, he faces a maximum of five years in prison for the conspiracy count and five years in prison for each count of tax evasion, on top of any confiscation and supervised release orders.