Taxation 2020-2021: Assessment 1 Report on Tax Evasion & Avoidance

This report provides a detailed overview of tax evasion, tax avoidance, and money laundering, with a focus on the UK context. It begins with an introduction defining these concepts and differentiating between tax avoidance and tax evasion, emphasizing the legal and ethical considerations. The report then presents case studies illustrating tax avoidance and tax evasion schemes, highlighting the actions taken by HMRC and the legal outcomes. It further explores current legislation related to money laundering, including the Money Laundering Regulations 2019, POCA 2002, and the Criminal Finance Act 2017, detailing the actions required to report suspicious activities and the role of organizations like the NCA and JMLIT. The report concludes by emphasizing the importance of compliance with tax regulations and the ongoing efforts to combat financial crimes, including tax evasion and money laundering.

2020 –
2021
Taxation
Assessment 1 – Report
Writing

Table of Contents
Introduction........................................................................................................................................1
Tax planning is drawing a fine line between tax avoidance and tax evasion................................2
Case Study on Tax Avoidance..........................................................................................................2
Case Study on Tax Evasion..............................................................................................................2
Current legislation dealing actions to take for the money laundering..........................................3
Conclusion and Recommendation....................................................................................................5
References...........................................................................................................................................6

Introduction
This report will be discussed more detailly about Tax Evasion, Tax Avoidance, and Money
Laundering. Tax avoidance is perhaps the term in the field of tax that is often confused and
misused. It is believed that academics, practitioners, and governmental authorities seldom use
the term, but rather prefer terms such as 'tax avoidance' or 'tax evasion’. (Kimani, 2018).
For both illegal non-payment and illegal underpaid tax, tax evasion applies. In addition, the IRS
will only decide what taxes are due based on details that must be provided by third parties, such
as W-2 data from an employer or 1099s. Not only can a person be responsible for paying taxes
left unpayable, but they may also be found guilty of official charges and will have to serve prison
hours. (Kagan, 2020).
The word "money laundering" is rumored to come from Capone, as it set up city-wide launders
to cover the source of alcohol sales' cash. The drug trade has been one of the main means of
laundering money as the 20th century has progressed. At the time, the drug trade itself was the
main problem, money laundering was an unfortunate side effect. (KYC-Chain, 2019)
1

Tax planning is the legal procedure to minimize tax liabilities to organize the affairs. A broad
spectrum of excise duty and provisions is possible to theoretically limit the tax burden without
falling into the more complex sector known as tax avoidance. (An introduction to tax planning,
2020?).
The main discrepancies are the lawfulness of tax avoidance versus the illegality of tax evasion and
whether there is a conscious intention to circumvent taxes lawfully owed, in any wise deceiving tax
immediately. Failed tax avoidance activities are not to be viewed as evasion because there is an
intent to be misleading. "There is" not only a thin line between evasion and avoidance but a foggy,
grey area. A study conducted showed that tax experts overwhelmingly accepted that "any tax advice
provided to a customer that follows the law letter is ethical." While the simple dividing line between
avoidance and evasion is that avoidance is illegal, this line should not be mistaken as an ethical line.
(de Colle and Bennett, 2014).
A big argument against the tax avoidance plan affiliated with stock markets has been won by HM
Revenue and Customs (HMRC). Root2 came to victory when it refused to submit to the tax
authorities a mass promotion system for tax fraud known as Alchemy. The win could lead to £110
million being recovered. The scheme sought to extract profits in the form of winnings from bond
betting from owner-managed businesses. The program was structured to ensure that gains are tax-
free rather than taxable revenue. In the scope of the Tax Avoidance Scheme Reclamation (Dotas),
HMRC lodged a complaint against Root2, forcing promoters to notify HMRC of tax avoidance
schemes it develops and markets. The Court of First Rank concluded with the HMRC that the
developer did not comply with the conditions of the Dotas. Commenting on the win, Penny
Ciniewicz, HMRC Center Managing Director, HMRC Consumer Compliance Group: "It is a big
achievement, giving a stern warning to tax avoidance advocates that if you do not cooperate, we
will prosecute you. 'Most tax evasion plans are not working. It added that 'designers and supporters
of avoidance schemes should now come forward if they did not already announce a scheme for us
The Dotas regulations make the HMRC aware of schemes and problems so that we can review and
question them' The HMRC said it will aim to impose a 'substantial sanction' on the promoter's
operation. "We hope they should take steps without revealing their prevention mechanisms and
misleading consumers of the importance of notifying them”. (Lobo, 2017).
A lawsuit was won by HM Revenue and Customs (HMRC), which helped rich people escape
taxation by causing fake tax losses asserted against other consumers' income to lower their taxes
(HMRC). The Upper Tribunal's Decision affirmed the First Tier Tribunal Decision (FTT) which
was largely related to the tax status of the £60m dividends that Helios received in April 2006 to the
partnership. Mercury Tax Association funded the scheme as a limited partnership. It was registered
in Jersey and claims to work in the UK. The scheme established that consumers contribute an
2

amount used to purchase dividend rights of a business registered in the Cayman Islands. However,
the corporation created an artificial loss and used it to help consumers escape tax by requesting a
refund for the costs of the rights but not earning income from their business earnings. It was
claimed by the HMRC that the win would shield £18m from taxpayers' funds and would have more
repercussions for other users of the Liberty system. Penny Ciniewicz, HMRC's General Manager
for Consumer Observance, said It is a tremendous success and will carry millions of pounds. We
also warned people extensively of the financial repercussions of using tax evasion schemes. More
and more people come out and decide what they owe when they know the game is over." (Staff,
2017).
There is a fine line between avoidance and evasion. Many tax avoidance schemes established by
accountants and marketplaces to the affluent and wealthy have been harshly criticized and are being
blocked by HMRC. Jimmy Carr, Gary Barlow, Starbucks, Google, and Amazon are only a handful
of the faces that you will find in the newspapers with respect to tax avoidance and evasion. Gary
Barlow and other celebrities have participated in an Icebreaker program, which seeks to support and
supply sponsors, but potentially create losses. Barlow and 2 of his Bandmates, along with the band's
former promoter, paid HMRC over £20m after donating £66m to the scheme. They were penalized
for finding it to be a "violent" tax evasion plan. (Dodd, 2020)
The current Money Laundering Legislation 2019, which entered into force on ten January 2020,
incorporates the EU Fifth Money Laundering Directive in the United Kingdom and follows a high-
level consultation in summer 2018. This legislation includes some restricted, yet significant
amendments to existing Money Laundering, Terrorist Finance, and Funds Transfer. This involves
broadening the reach of the controlled market, improvements in customer service, and expanded
due diligence and in particular a current obligation to submit to the House Firms on inconsistencies
between customer due diligence details and information on individuals with substantial control
records. POCA 2002 states that a person may conduct a money laundering crime where he or she
either conceals, disguises, moves, or disguises illegal property from England or Wales or even Scots
or Northern Ireland. Or enter an arrangement that he knows, or suspects encourages the purchase,
retention, use, or controversy of the property. Besides money laundering offenses, further offenses
refer to the failure to disclose allegations of money laundering, and "screening offenses" (section
333) are only applicable in the controlled market. (UK law and guidance, 2020?).
The actions to take for the money laundering activity can be explained through an example, If the
Money Laundering Laws govern your business, you have the moral responsibility to try and detect
practices connected to money laundering and terrorism funding that might affect your business. If
you have any knowledge of or suspected such practices, you should give it an Irregular Activity
3

Report (SAR) to the National Crime Agency (NCA). Depending on the situation, filing a SAR of
suspicious behavior may take a few forms. It could be because a customer attempted to make an
exceptionally large cash deposit or tried to incorporate a weird transaction. The transaction does not
appear economically relevant or may create an alarm regarding the volume or existence of several
transactions. Regardless of the essence of a company's operation, it has a duty to send a SAR if it is
subject to the Money Laundering Regulations. Further Orders of Information is a further move, if
the NCA receives a SAR from a controlled sector individual and feels it must be more advised
about whether money laundering has been conducted, they may appeal to a Potential Information
Order Court of Magistrates (FIO). Section 12 of the Criminal Finance Act has created the FIOs. The
target of an FIO must have detailed details pertinent to the investigation. The FIO decides if the
information can be supplied within and within what time frame. If the order is not met, the
consequence will be a fine of £5,000. In 2016 the UK Law Enforcement Agencies Joint Money
Laundering Intelligence Taskforce (JMLIT) was set up between veterans from major financial
institutions. JMLIT and Section 11 are more expected to share data on alleged money laundering
between lawmaking authorities and the controlled market more regularly and potentially faster.
Within 84 days from the notice of information sharing by controlled persons, a Joint SAR must be
sent. An unexplained rich order (UWO) is a new trend in civil rehabilitation and one of the core
facets of the Criminal Finance Act 2017. The UWOs attempt to counter money laundering problems
in the UK through the authorities. The Serious Fraud Office, the National Police Department, the
Crown Prosecution Service, the Public Prosecution Chief, HM Revenue and Customs, and the
Financial Conduct Authority use these programs. The protocol for UWO requires the court
imposing a temporary freezing order to prohibit anything from occurring with the property before
the hearings are concluded. If a person fails without fair cause to comply with UWO, the property
may be considered for civil restoration under Section 5 of the Crime Proceeds Act 2002 (POCA).
(A Brief Summary Of Money Laundering And How To Respond To Allegations, 2020?)
4

Conclusion and Recommendation
Tax avoiders never ask about complying with taxation. You just want to differentiate between tax
avoidance and tax evasion. The first one is unconstitutional, as you would like to say. In this case,
they assume that tax evasion is appropriate since it is legitimate. (Murphy and Barber, 2020?)
While illegal, money laundering does not lose prominence. Furthermore, technical advancements
have contributed to the smuggling of money by limiting the identification opportunities. A major
alteration is required in the way money laundering is combated and approached. (Turner, 2011)
Tax evasion is very severe in big corporations in the UK in the modern century. Tax avoidance has
four factors. Firstly, while fiscal framework changes have been carried out year after year, there are
still loopholes in the British tax system. Companies use subsidiary offices to move UK revenue to
other tax-paying nations. The study indicates that the big British corporations should pay taxes to
the Government and society with zeal. Moreover, the government will improve UK tax legislation
to manage loopholes in the tax system better. The condition of tax avoidance is to be improved in
the future of culture, environment, and technological growth. Britons should continue to prosecute
tax avoidance, tax evasion and money laundering. (Tax Evasion in the UK | Essay, 2018)
5

References
de Colle, S. and Bennett, A., (2014). State-induced, Strategic, or Toxic?. Business and Professional
Ethics Journal, 33(1), pp.53-82.
Dodd, V., (2020). Tax Avoidance & Tax Evasion - What's The Difference?. [online] Skillcast.com.
Available at: <https://www.skillcast.com/blog/tax-avoidance-tax-evasion-difference#:~:text=There
%20is%20a%20fine%20line%20between%20avoidance%20and%20evasion.&text=They%20were
%20penalised%20because%20HMRC,any%20penalties%20it%20deems%20fit.> [Accessed 12
November 2020].
Ifa.org.uk. (2020?). UK Law And Guidance. [online] Available at:
<https://www.ifa.org.uk/technical-resources/aml/uk-law-and-guidance#:~:text=The%20UK%20anti
%2Dmoney%20laundering,and%20the%20Terrorism%20Act%202000> [Accessed 12 November
2020].
Kimani, E., (2020). Tax Avoidance: Meaning, History & Rational. [online] Available at:
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209299> [Accessed 25 October 2020].
Kagan, J., (2020). Tax Evasion. [online] Investopedia. Available at:
<https://www.investopedia.com/terms/t/taxevasion.asp> [Accessed 25 October 2020].
KYC-Chain. (2019). The History Of Money Laundering - KYC-Chain. [online] Available at:
<https://kyc-chain.com/the-history-of-money-laundering/#:~:text=It%20is%20rumored%20that
%20the,introduced%20into%20the%20financial%20system.> [Accessed 25 October 2020].
Lobo, D., (2017). HMRC Wins Landmark Stockmarket Tax Avoidance Case. [online] Wealth
Manager. Available at: <https://citywireasia.com/news/hmrc-wins-landmark-stockmarket-tax-
avoidance-case/a1059391?section=wealth-manager> [Accessed 14 November 2020].
Murphy, R. and Barber, B., (2020?). The Missing Billions The UK Tax Gap. [ebook] Available at:
<https://www.tuc.org.uk/sites/default/files/documents/completedownload.pdf> [Accessed 15
November 2020].
Plummer-parsons.co.uk. (2020?). An Introduction To Tax Planning. [online] Available at:
<https://www.plummer-parsons.co.uk/taxation-services/personal-tax/personal-tax-planning/
introduction-tax-planning#:~:text=Tax%20planning%20is%20the%20legal,area%20known%20as
%20tax%20avoidance.> [Accessed 14 November 2020].
6

Rahmanravelli.co.uk. (2020?). A Brief Summary Of Money Laundering And How To Respond To
Allegations. [online] Available at: <https://www.rahmanravelli.co.uk/expertise/anti-money-
laundering-investigations/a-brief-summary-of-money-laundering-and-how-to-respond-to-
allegations/> [Accessed 14 November 2020].
Staff, V., (2017). HMRC Wins £18M Offshore Tax Evasion Case - Private Banker International.
[online] Private Banker International. Available at:
<https://www.privatebankerinternational.com/news/hmrc-wins-18m-tax-evasion-battle/> [Accessed
14 November 2020].
Turner, J., (2011). Money Laundering Prevention. Hoboken, N.J.: Wiley.
UKEssays.com. (2018). Tax Evasion In The UK | Essay. [online] Available at:
<https://www.ukessays.com/essays/economics/tax-evasion-uk-6313.php> [Accessed 15 November
2020].
7