2019: What lies ahead – Uncertain times linked to increased disputes and investigations
Economically and politically there will be uncertainty in 2019. Brexit, the Trump Administration’s trade disputes with China and others, and the World Bank’s forecast that growth will slow in all major advanced economies causing impending recession, are signed all major causes of that concern. Companies and high-net worth individuals worldwide should be considering how these events may play out and impact them from a legal perspective.
History shows that economic turmoil brings a rise in commercial disputes, regulatory litigation and investigations. When the economy is strong parties are inclined to settle, or even overlook, disputes. A quick, commercial solution can be pragmatic, particularly where there is an on-going relationship or if litigation would affect profitable work flows or be a distraction. When the economy is down, survival is threatened and businesses can take an embattled position, often in a Darwinian fight for survival. The 2007 to 2009 financial crisis resulted in a surge of litigation in the financial services sector and beyond, some of which is still continuing a decade on.
Almost all predictions for 2019 indicate a recession is coming. This will fuel litigation over who is at fault and who should pay for the consequences. A recent Citi Private Bank survey stated that roughly three-quarters of law firm leaders believe that demand for legal services will increase over the next year, while at the same time they expect the global economy to worsen or (at best) remain the same.
In the UK the outlook is perhaps even rougher due to the additional complication of Brexit. Businesses operating in the UK must be prepared to respond to structural change and disruption in the markets. It is an optimum time for them to strategically review their operations and commercial relationships. Options for resolving issues prior to litigation or arbitration being commenced should be explored, such as mediation or alternative dispute resolution mechanisms, in order to seek to avoid protracted formal legal proceedings. Restructuring scenarios should also be considered. Pre-litigation and litigation specialist law firms are best placed to advise commercial clients on strategic planning so that worst case scenarios can be avoided.
Despite contingency planning such scenarios can still be realised; there are always elements outside a business’ or client’s control. The most important decision a company or individual can make in advance is who they should call if disaster strikes. Specialist dispute resolution and investigations firms are the most experienced in helping clients through crisis situations. Those with their own team of forensic accountants and data experts are particularly well positioned as they provide a solution to both disputes and investigations matters. Smaller specialist firms have further advantages over bigger outfits; they are more agile with a reduced chance of conflict and can usually start acting straight away, which is crucial when matters are time sensitive.
An increase in regulatory investigations is another trend businesses and individuals should prepare for. In challenging economic times regulatory bodies are under increased pressure to deliver results; no stone is left unturned. Companies and individuals must ensure their businesses are in order. Proposing settlements or self-reporting could be beneficial for some; the new Profit Diversion Compliance Facility announced last week by HMRC aims to encourage multinational enterprises to align their transfer pricing policies through self-disclosure. Lawyers with strong relations with HMRC and experience in dealing with such enquires can be invaluable to achieving the best possible outcome.
Contentious regulatory disputes will continue. The SFO, FCA and HMRC among others, have shown themselves willing and able to take matters to court. 2019 has begun with the trial of four Barclays banking executives for fraud and other charges related to the last financial crisis brought by the SFO. Clients should turn to firms with specialist investigations teams who can guide them through such probes and minimise the financial, reputational and operational damage they can cause. Such firms often have former employees from these regulatory bodies working for them who can support clients through the investigation stage and onto trial stage if needed.
For 2019, it is hard to predict what will happen in the next week, let alone over the course of 12 months. This uncertain environment is very challenging for businesses. To ensure they are in the best possible position to achieve their commercial aims over the next year, businesses must plan ahead. Time spent now on researching the leading dispute resolution and investigations law firms to call in a crisis, and seeking expert legal advice in advance of disputes or investigations, may be the best investment a business makes in the year ahead.
The End is Nigh for the Non-Dom Regime
Published in ThoughtLeaders4 Private Client Magazine, Helen McGhee expert analysis of the current state of non-dom tax regime and it's future.
HMRC Makes Changes to COP9
On 14 June 2023, HMRC published a substantially rewritten Code of Practice 9 (“COP9”). Helen McGhee and Megan Durnford set out the key changes implemented as a result of this publication.
Pandora Papers: HMRC issues nudge letters
The Pandora Papers leak of almost 12m documents back in 2021 purportedly exposed the secret accounts and dealings (including potential tax evasion/ avoidance and money laundering) of 35 world leaders (including the late HM Elizabeth II), as well as many politicians and billionaires. The data was obtained by the International Consortium of Investigative Journalists in Washington DC and led to one of the biggest ever global financial investigations.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.