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We will consider one of the approaches that are applied by the British inspectors to determine tax liability in case the data stated in the declaration seem unreliable or inadequate for the inspectors. The decision on application of one or another approach is made depending on the circumstances of a specific case. As to the method for calculation and recalculation the inspector can chose it at his discretion. This decision depends on the fact whether the taxpayer does business and if he does then of what nature, what other information on taxpayer the inspector has, what accounting the taxpayer does etc.37 the inspector can take several of the http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageVAT _ShowContent&propertyType=document&columns=1&id=HMCE_PROD_ http://www.hmrc.gov.uk/large-business/consultation-framework.pdf http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageVAT _ShowContent&propertyType=document&columns=1&id=HMCE_PROD_http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageVA T_ShowContent&propertyType=document&columns=1&id=HMCE_PROD_ approaches simultaneously for instance, use accounting documentation as a main source of the information, taking at the same time into account the living standard of the taxpayer to estimate the rate of his real income.

In other words the inspector can use any method or logical argumentation, which he considers as necessary, on condition that it is persuasive enough to be regarded in the court.

Thus, considerations of lifestyle and personal welfare of a taxpayer can fully or partially belong to the procedure of the detailed investigation.

Within the framework of comparison of the income declared and lifestyle two aspects can be singled out.

How the information on personal welfare and living standard of a taxpayer can be obtained How this information can be used to prove untrustworthiness of tax declaration and to increase tax liability Information on existence of the income declared can be fairly easily obtained in Britain for instance, purchase of expensive cars or yachts can be tracked through the main distributors with the subsequent submission of data to the corresponding bodies of taxation department, where it will be compared with the data of the tax declaration in order to proof whether the income declared corresponds the standard of well- being that allows purchasing of such luxury item38.

Besides, precise information can be obtained for one or another case that has already been chosen for such an investigation. Such information can be presented in the form of simple observations; for instance, the inspector can note that the taxpayer lives in a house that is evidently expensive.

At this point, it will be perhaps appropriate to make a few short comments as to the general policy and procedure for consideration of tax declarations that is in practice of the taxation bodies of the Great Britain39.

The majority of the tax declarations are not subject to such an examination. However there are some categories of taxpayers that are chosen for particular examination40. These include:

New companies;

Taxpayers that have a record of evasion from paying taxes;

Taxpayers representing fields of activity that are highly subjected to risk, for example, construction (such risky categories are subject to thorough examination from time to time);

Cases when the information obtained gives grounds to suppose that data presented in tax declaration are unreliable;

Taxpayers chosen at random.

Information on such a policy of taxation service with the special accent on the last point is open to the public and is widely distributed for every taxpayer to understand that his own declaration can be subject to rapt attention at ay moment41. Such a policy when tax declaration are subject to thorough investigation selectively means that in the cases chosen for thorough consideration the inspector can make a really full investigation, which is more effective from the point of view of resources management than superficial inspection of a greater number of declarations.

If earlier it was found that the taxpayer conceals the information on his incomes (for instance on interest on bank deposits), inspector later acts in concordance with the established procedure banks should submit information on all the cases of interest payments to the British citizens that exceed the fixed sum which is quite small. Such cases happen quite often and can be a result of negligence or oversight. If this is the case, agreement of the sum for which the tax liability should be raised proceeds without difficulties and is perhaps accompanied with a small fine for information concealment.

In some cases, however, the inspector can come to the conclusion that the income that had not been included in the declaration and revealed during the inspection is only a part of by far more serious problem.

For instance, interest on the deposit is so high that inspector raises a natural question: how a taxpayer with a http://www.hmrc.gov.uk/guidance/480.pdf http://www.hmrc.gov.uk/rewrite/draft-income-tax-bill.pdf http://www.hmrc.gov.uk/rewrite/draft-income-tax-bill.pdf http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageLibra ry_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_PROD_http://www.hmrc.gov.uk/large-business/consultation-framework.pdf http://www.hmrc.gov.uk relatively modest income could have saved such a sum at a bank account. Thus, inspector will be interested where these means come from.

At this stage he will probably ask a taxpayer a straight question on the source of the money and in case logical explanation is given, perhaps testified by indirect or other evidence, this will perhaps be the end of the investigation.

However if the explanation is unsatisfactory or some other aspects causing doubt remain the investigation will proceed.

The taxpayer is warned that concealment of the income from the bank deposits while filling the tax declaration is regarded as a serious tort and is suggested to assist full investigation of his financial situation. It will be explained to him that in case it is found that the data that he has submitted do not comply with the facts there will be serious sanctions up to imprisonment. If he agrees to assist the tax service will not insist on the maximum fine envisaged by the law but will satisfy with more moderate sanctions.

Usually the period of time for which the level of taxpayers well-being can be thoroughly examined by the tax service is 6 years42. This refers to the cases of simple negligence or unintended underestimation of income. However in case intended (active) fraud is revealed during this time, it can be prolonged for 12 years and in exceptional case even for longer time.

At this stage it will be suggested to taxpayers to confess all the inconsistencies of the previous tax declarations. They will also be asked to give all the information on the means, that is declare his full fortune, including bank deposits, investments and private property (a house, a car etc.). Confession of taxpayers and agreement for thorough investigation is allowed, the tax-payers pledge to assist the inspectors.

Then the inspector examines the property attentively, paying special attention to the initial cost and the date of purchase and compares the incomes mentioned in the declarations of the previous years with the level of well-being.

In case inconsistencies are found the taxpayer is asked to explain them and is reminded that only in case of frank confession and complete assistance tax service will not insist on application of sanctions envisaged by the law at the full rate43. Certainly a taxpayer cannot know what information about his finances the tax service has.

In some cases a taxpayer can continue to deny some violations. He can try explaining the capital origin by a gift or prize in gambling. If the inspector finds such an explanation unconvincing, he will continue investigation and will probably ask to submit detailed information on large gifts, sums, dated etc.

A taxpayer should realize that all he has said will be studies and checked. Commonplace answers not testified by any evidence will not enable escape from the thorough investigation44.

At the end of the investigation two options are possible.

Inspector is satisfied with the fact that during filling the declaration a taxpayer has not overlooked any incomes, that is he agrees with the explanations of a taxpayer or taxpayer confesses some negligence and inspector is satisfied with that.

Inspector does not believe the taxpayer he estimates additional income of a taxpayer and calculated tax liability.

In the first case the question is obviously settled. As to the second case, the inspector then prepares official estimation of the income for taxation purposes, in response to which the taxpayer will most likely appeal it would be illogical of him to agree with the facts that he has firmly denied up to the last moment. After that appeal and court procedures come into force.

At this point it is worth noticing that on the one hand inspector does not have to present thoroughly documented evidence. At the same time it is not a mere suspicion not supported with any real facts. Inspector should demonstrate that figures and circumstances indicate incomes concealment and absence of corroborated explanation from the taxpayer. On the other hand, taxpayer is not to prove his innocence, but it is ex http://www.hmrc.gov.uk/guidance/480.pdf http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageVAT _ShowContent&propertyType=document&columns=1&id=HMCE_PROD_ http://www.financeandtaxtribunals.gov.uk/taxAppealsModernisation.htm http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageLibra ry_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_PROD_http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal_nfpb=true&_pageLabel=pageVAT _ShowContent&propertyType=document&columns=1&id=HMCE_PROD_ pected that he will be able to submit plausible answers to the corresponding questions. Thus, it would be perhaps just to establish that the sides have equal status.

Unfortunately, such a short excursus does not give a full answer to a complicated question of burden of proof that is employed in the Great Britain. However it is evident that both sides should present their arguments in court the fact that means that the arguments should meet the requirements set for evidences. In the following issues of a monthly review we will continue to study the question raised at the stages of appeal.

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