Commercial awareness hot topic: war on tax havens

Will Hodges examines the chancellor's controversial new approach

In an interview for any business-related job or internship, or at a more informal recruitment or networking event, there's a good chance you'll have to show your commercial awareness by discussing a hot topic in business.

You might be asked for your opinion on an issue or series of events, or given an opportunity to talk about something you're interested in.

So while you don't need to memorise the current share price of each FTSE company every day, it's a good idea to make sure you're always familiar with some key current stories and ongoing issues in the business world - and have some thoughts of your own about them.

Current hot topic: war on tax havens

Chancellor George Osborne has announced plans to stop UK citizens from evading paying tax by holding undeclared income in accounts in tax-free or low tax locations such as the Cayman Islands, the Isle of Man, Jersey, Guernsey and Switzerland. This tactic is one commonly used by wealthy individuals.

In a recently published white paper, Osborne outlined plans to make it a criminal offence to hold undeclared funds offshore.

In addition, the move shifts the burden of proof from HM Revenue & Customs (HMRC) to individuals, meaning that offshore account holders will now have to prove they do not intend to evade tax by holding income overseas.

Power to the HMRC

The move follows other recent efforts by the government to extend the powers available to the HMRC.

These measures include increased funding to HMRC and plans to allow the service to access the bank accounts of individuals owing money to the government directly. Those suspected of tax evasion will also be forced to pay the disputed amount before their case is heard in court.

Many have welcomed the new measures. "The use of overseas tax havens has become common practice for a number of high net worth individuals over the past decade," says Geraint James, a tax solicitor from Bristol.

"Though many will see this primarily as a public relations exercise, the fact of the matter is that the enforcement of stricter regulations to counteract tax evasion in this country has been long overdue."

However, some feel that the new powers invested in the HMRC undermine the rights and privacy of citizens.

Speaking to the Financial Times, Andrew Tyrie, chairman of the Treasury Select Committee, said: "We must be vigilant to ensure we don't lose the essential balance between the powers that HMRC needs and protecting individuals. Parliament needs to pay attention when these powers are extended."

Refilling the coffers

Tax evasion is estimated to cost the government around £9 billion a year, while the total value of unpaid taxes is thought to be £32 billion.

At just under 7 per cent of current tax revenues, this "tax gap" deprives the Treasury of a vital source of income as it looks to narrow the government budget deficit.

According to the Tax Justice Network, £12-19 trillion in potential tax revenue is held in offshore accounts worldwide.

While tax evasion is a global issue, Europe is the part of the world most affected, with £1.5 trillion estimated to have been lost through undeclared income by individuals and companies in 2012, compared with £453 billion in north America.

The problem is biggest in Italy, probably due to particularly high tax rates, where £142 million is reportedly lost each year.

What do you think?

How effective do you think these measures will be?

Is the government right to take action in this way, or are global initiatives a better approach?

Do you think individuals' right to privacy is at risk as a result of these measures?