Non doms and exchange of information after the 2010 Budget

As from April 2011 there will be a new penalty regime where there is a loss of tax connected with offshore activities. It's widely drawn to include any loss of tax relating to income tax and capital gains tax, and is obviously aimed at UK residents avoiding UK tax by keeping quiet about overseas income or capital gains. In the case of non doms of course if they're claiming the remittance basis they won't be subject to UK tax on the overseas income or gains provided the income/proceeds aren't remitted to the UK. If they're not claiming the remittance basis they'll be taxed under the arising basis and subject to the same provisions as everyone else. The 2010 Budget notes state that as from April 2011, the penalty regime will be modified so that penalties will be increased by a factor of 1.5 if the tax loss is connected to a jurisdiction which does not exchange information with the UK automatically, (as opposed to on request), and by a factor of 2 where there is no exchange of information whatsoever. So if there is an income tax or CGT loss from a country which the UK does not have any exchange of information treaty the penalty will be doubled. If there is an exchange of information treaty but it only applies to specific requests by HMRC you're looking at a penalty of 150%. This shows the difficulty HMRC has in identifying taxpayers with untaxed overseas assets or income in countries where there is no automatic exchange of information. Some of the tax haven jurisdictions won't have exchange of information treaties with the UK and therefore you'd need to be very careful if there was a loss of tax connected to any of these countries. Having said that due to the OECD clampdown we're now seeing more and more countries signing these agreements. Nevertheless it's interesting to note that of the G20 country members, only a few automatically exchange information with the UK (the US, Germany, France and Italy and the European Union if you count it as a country), and a loss of tax connected with any of these would therefore avoid the 150% and 200% penalty increases. Three countries have no information exchange agreement with the UK at all (Brazil, China and South Korea), and the rest of the members exchange information only on request (which would then bring into play the possibility of a 150% penalty increase). Not corporation tax It's also worth noting that the new penalty regime applies to income tax and capital gains tax. Corporation tax is not covered. As such based on the current provisions this creates a "loophole" where the increased penalty regime will not apply where the non-compliance is related to the profits of a company.