Recent figures published by HMRC show the number of settlements under the Contractual Disclosure Facility (CDF), also known as the Code of Practice 9 (COP9) procedure, has fallen by almost 20% in the two years to March 2019.
It might be thought that the huge amounts of information received by HMRC from over 100 countries under the Common Reporting Standard (CRS) since October 2017 means they have no need to offer the CDF to taxpayers and can pick off the cases they like for prosecution.
However, the reality is more likely to be a little different. HMRC appears to have used CRS information relatively sparingly until the deadline for Requirement to Correct (RTC) offshore tax issues expired on 30 September 2018, waiting to see how much tax could be collected from voluntary disclosures by taxpayers.
However, in the last 12 months we have seen an upsurge in the use of “nudge letters” where HMRC indicates it has received information about offshore income or gains and invites the taxpayer to consider a voluntary disclosure. In some cases, the amounts are large and the issues are complex and this may result in an application for the COP 9 CDF procedure being made by the taxpayer.
In smaller and simpler cases, using the Worldwide Disclosure Facility (WDF) may be a more appropriate route.
However, in cases which HMRC believes very large amounts of tax are at stake and where it suspects serious tax fraud, the CRS report may prompt further research by HMRC’s Fraud Investigation Service (FIS) that leads to a registration of the case for investigation under COP9 or, in some cases, criminal investigation. In recent years, HMRC has been criticised for the absence of criminal prosecutions in corporate cases, particularly larger companies, and we would also expect increased effort from HMRC in targeting larger cases for criminal prosecution.
In conclusion, it seems likely that a reversal of the recent downturn in the number of COP9 cases will be seen in the near future, as the increased use of CRS information by HMRC translates to settlements under the CDF and proactive applications for COP9 CDF by well-advised taxpayers in advance of any HMRC intervention; proactive disclosures result in lower penalties.
HMRC will want to increase the number of tax fraud prosecutions by using CRS data but it simply does not have the resources to make criminal investigation the normal route. Therefore, when significant amounts of tax are at stake it will make sense for both taxpayers and HMRC to make appropriate use of the COP9 CDF procedure.
The team at Trident Tax has many years of experience in COP9 cases, including time spent as HMRC investigators. If you would like to discuss the COP9 CDF procedure, please contact us.