Corporate Crime: Failing to prevent tax evasion

The November 2015 Autumn Statement confirmed the Government’s intention to take forward its controversial proposals to introduce a new corporate criminal offence. The Government consulted earlier in the year on the scope of a new offence taking the form of "failing to take reasonable steps to prevent the facilitation of tax evasion". A number of questions remain over the scope of the final details.

However, it is clear that the proposals will require all businesses to put in place adequate compliance procedures to ensure that their agents do not facilitate tax evasion and that they can avail themselves of the "reasonable steps" defence. Businesses will also need to review legacy business practices to assess their risk of prosecution. Accordingly, it will be important for businesses to carry out a review and risk assessment of their business in advance of the rules coming into force.

Background

On 16 July 2015, the Government released a consultation document inviting comments from interested parties on its proposal to introduce a new corporate criminal offence. The proposed new offence would take the form of  “failing to take reasonable steps to prevent the facilitation of tax evasion”.

The stated purpose of the proposed new offence is to make it easier for the Government to hold companies to account for the actions of their agents, where those agents facilitate tax evasion, but without the direct involvement or knowledge of senior management. In the same way that a professional who dishonestly assists a customer to evade tax is guilty of the tax offence in which he or she becomes complicit, the Government argues that the corporation which employs this professional and fails to take reasonable steps to prevent their offending should also face prosecution.

However, the consultation raised a number of detailed issues concerning the scope of the proposed offence. In particular:

• whether the offence should only apply to the evasion of all taxes or a more limited range of taxes
• whether the offence should apply only in circumstances where the agent was acting for the benefit of the corporation, and
• whether the offence should apply to both UK and non-UK corporations and both the evasion of UK taxes and non-UK taxes.

In addition, the scope of the defence of having taken reasonable steps to prevent the facilitation of tax evasion and the nature of what would amount to adequate procedures for a company to put in place to meet this test raises difficult questions and will clearly require significant guidance from HMRC.

Autumn Statement

The Autumn Statement has now confirmed that, despite significant industry reservations concerning the scope of the proposed offence, the Government “will introduce a new criminal offence for corporates which fail to prevent their agents from criminally facilitating tax evasion by an individual or entity”.

However, the Government did not indicate whether this offence would appear in the Finance Bill 2016. Draft clauses for Finance Bill 2016 are due to be released on 09 December 2015 and it remains uncertain as to whether these will include draft provisions in respect of the new offence or whether the Government intends further consultation on the detail.

Tax evasion

More generally, the Autumn Statement shows the Government’s continuing commitment to tackle offshore tax evasion against the background of significant increases in international tax transparency.

HMRC consulted during 2015 on a set of measures to impose a tougher approach and response documents and draft legislation setting out the detail of measures to be implemented are still awaited. However, the Autumn Statement confirmed that the Government will introduce:

• tougher civil penalties for offshore evasion, including increasing penalties for deliberate offshore tax evasion, enhanced provisions for naming offshore tax evaders and the introduction of a penalty based on the asset value for the most serious cases
• new civil penalties for those who enable offshore evasion, including public naming of those who have enabled the evasion, and
• a new criminal offence for failing to declare taxable offshore income and gains, which removes the need to prove intent for the most serious cases of failing to declare offshore income and gains.

Each of these measures will be enacted in Finance Act 2016 and draft legislation is expected to be released on 09 December 2015.

Update

For details of the draft legislation and guidance, see “The new corporate offence of failure to prevent tax evasion”.