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Businesses need to gear up for new corporate criminal tax evasion facilitation offence, experts say

Businesses need to start considering the procedures they need to put in place to avoid falling foul of the new  offence of failure to prevent facilitation of tax evasion, according to experts at HM Revenue and Customs (HMRC) and Pinsent Masons, the law firm behind Out-Law.com.19 May 2016

The government intends to include the offence in its planned Criminal Finance Bill, listed in the Queen's Speech as part of its legislative agenda for the coming parliamentary session. The same bill will also be used to take forward planned changes to the proceeds of crime laws and Suspicious Activity Reports (SARs) regime, but does not at this stage include plans to criminalise failure to prevent other economic crimes, as announced at last week's anti-corruption summit in London.

Speaking an event hosted by Pinsent Masons this week, Jennie Haslett of HMRC said that, although the offence will be contained in legislation probably introduced into Parliament  in  the autumn, it will not come into force until sometime in 2017, before the first automatic exchanges of information under the common reporting standard (CRS) take place in September 2017.

The offence will apply to companies and partnerships, but there will be a defence if organisations are able to show that they have put "reasonable procedures" in place to prevent the facilitation of tax evasion by their representatives.

Jennie Haslett said that the most important first step for organisations was to carry out a risk assessment of their possible exposure, and that procedures needed to be proportionate to the risk identified. She said that this could mean that in some very low risk businesses no procedures will be necessary. In higher risk businesses, the level of training given to staff in different divisions or roles could also vary depending on the risk level of their activities, Haslett said.

"Each organisation needs to work out where it might be in the interests of a member of staff to facilitate another person's tax evasion and make sure adequate procedures are in place to contain that risk" said tax expert Jason Collins of Pinsent Masons.

The new criminal offence was first announced by the government as part of the 2015 Budget, and is based on provisions in the 2010 Bribery Act which criminalised businesses that failed to prevent bribery by their employees or agents. Haslett, who is leading the consultation process begun by HMRC last month, stressed that a corporation would only be liable if three factors were in place: criminal tax evasion by a taxpayer under the existing law; criminal facilitation of the offence by an 'associated person' of the organisation; and the corporation having failed to prevent the representative from committing the criminal facilitation.

"The offence only bites if the taxpayer at stage one is involved in fraudulent tax evasion, rather than, say, mistakes or avoidance," Jason Collins said. "Fraudulent evasion requires an element of dishonesty - the taxpayer must know they have a liability, and dishonestly take steps to evade paying it."

"Equally, the facilitator must know that the taxpayer is engaged in fraud - so knowingly assisting avoidance, or unknowingly assisting evasion would not be caught. However, turning a blind eye or acting recklessly can amount to knowledge – and the authorities will look at the matters after the event and ask how the member of staff or other associated person could have missed the fraud taking place" he said.

In response to a question raised by a member of the audience at the Pinsent Masons event, Haslett and Chris Draycott of HMRC, who is advising on the legal aspects of the proposals, confirmed that the UK tax evasion offence would apply to the evasion of any tax, duty or levy that could give rise to an offence of cheating the public revenue.

It is proposed that there will be two new offences, one applying to evasion of UK tax, which will apply to organisations based in the UK or offshore, and one relating to overseas tax. The overseas tax evasion offence will apply where the facilitation is carried out by a person associated with a UK based organisation or where any part of the facilitation takes place in the UK.

"The offence would allow the UK to prosecute offshore corporations in connection with both UK and non-UK tax evasion," aid tax expert Jason Collins. "This would of course present practical difficulties, but HMRC clearly has criminal jurisdiction to do so – and might make it a matter of public record if it began proceedings against an offshore company which did not submit to those proceedings."

“But more fundamentally the wide definition of 'associated person' means that HMRC might look for connections to a UK entity both when looking at UK and non-UK tax evasion. A multinational business will have to review its global operations to identify where it might have risk under both the UK and non-UK parts of the offence," he said.