Don’t punish accidental tax evaders

The government’s determination to tackle tax evasion via offshore accounts is evident in its commitment to increasing international tax transparency, but it is in danger of veering seriously off course.

Taking evasion action

The government has been a key player in developing a common approach to automatically exchanging financial account information on a wide scale – now referred to as the common reporting standard. However, it risks getting it wrong with its push for a ‘strict liability’ (without the need to prove criminal intent) criminal offence for offshore evaders.

Tax evasion needs to be investigated and, where proven, punished. But the law must be based on sound legal doctrines. One of these is the principle of mens rea (guilty mind). For a criminal conviction, it is generally necessary to prove the accused acted with criminal intent. Exceptions to this rule are found in a small number of strict liability offences, normally where there is potential for an immediate threat to public safety. It is difficult to see how non-declaration of tax fits into this category.

Raise the bar

UK and international taxation can be incredibly complex. There is a risk that someone may fall within the scope of the new offence without any intention or knowledge on their part and end up with a criminal record, and potentially a prison sentence, because of it; for example an elderly person who does not realise funds are taxable in the UK because they have already been taxed in an overseas jurisdiction, or someone who inherits an offshore bank account without any direct knowledge of it.

A statutory minimum threshold of tax evaded is proposed, but we think, at £5,000, it is not high enough. £25,000 would be more appropriate. There will also be a statutory defence of reasonable care, with the burden of proof on the taxpayer. This will be essential to limit the scope of the offence but it would be a stronger safeguard for the taxpayer if HM Revenue & Customs has to prove reasonable care had not been taken.

Despite the inclusion of a threshold and defences, someone who has no intention to evade tax could still be found guilty of a criminal offence.

John Cullinane is tax policy director for the Chartered Institute of Taxation