New corporate criminal offence of failure to prevent facilitation of tax evasion to include evasion of non-UK tax

A new UK criminal offence for corporations who fail to take reasonable steps to prevent their agents from criminally facilitating tax evasion would apply even if it is non-UK tax that is being evaded. The proposed details of the new offence are set out in a consultation document published by HM Revenue & Customs (HMRC).16 Jul 2015

The proposed new offence aims to make corporations criminally responsible where they fail to take reasonable steps to prevent their agents from taking action to criminally facilitate another’s offence of tax evasion. It is proposed that it will apply to foreign corporations as well as UK ones.

Jason Collins, a tax expert at Pinsent Masons, the law firm behind Out-law.com, said: “The proposed legislation is extremely broad geographically, with foreign corporations falling within its scope, as well as UK corporations that facilitate the evasion of taxes overseas, even if there is no loss to HM Treasury in this country.”

“The proposed legislation allows HMRC to target a very broad range of organisations. It is not only banks that will be affected by the creation of the new criminal offence, but a long list of accountancy and law firms, trustees and financial advisers, and even support services like company formation providers, who should now be paying very close attention to the risks created by this legislation,” he said.

The legislation will be based on the Bribery Act 2010 which made it a criminal offence for a commercial organisation to fail to prevent bribery by a person associated with it.

The consultation document sets out five areas where corporations could be liable for the new offence if their agents have the necessary ‘mens rea’ or intention. In order to be caught by the regime the agent must intend to do the act of facilitation; believe that his act is capable of assisting the perpetrator to commit an offence; and know the essential matters that constitute the perpetrator’s offence.

The conduct that will be within the regime includes acting as a broker or conduit by “arranging access to others in the ‘supply’ chain and providing introductions” or “providing planning and advice on the jurisdictions, investments and structures which will enable the taxpayer to hide their money”.

Other conduct includes the “delivery of infrastructure” by setting up companies, trusts and other vehicles which are used to hide beneficial ownership; opening bank accounts; providing legal services and documentation which underpin the structures used in the evasion such as notary services and powers of attorney.

Corporations could also be liable if they are involved in “maintenance of infrastructure”. Examples given of this include providing professional trustee or company director services including nominee services; and providing virtual offices, IT structures, legal services and documentation which obscures the true nature of the arrangements such as audit certificates.

Those providing “financial assistance” could also be subject to the new offence. This includes helping those trying to evade tax to move their money out of the UK or to keep it hidden by providing ongoing banking services and platforms; providing client accounts and escrow services and moving money through financial instruments and currency conversions.

The government is introducing the new offence because it says that under the current law “it can be extremely difficult to hold the corporations to account for the criminal actions of their agents”. This is because under current law they would have to prove the involvement of the most senior members of the corporation and, in large corporations, decision-making is not necessarily centralised.

The document said: “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 believes that the corporation which employs this professional and fails to take reasonable steps to prevent their offending should also face prosecution.”

On the fact that new rules would apply to non-UK tax, the government said: “We believe that corporations with a presence in the UK should be obliged to take reasonable steps to prevent their agents being complicit in criminal tax evasion, wherever that tax is evaded. We do not consider that corporations should escape criminal liability just because the tax evaded is levied abroad. If the evasion of tax is a crime in the foreign jurisdiction then corporations should take reasonable steps to prevent their agents becoming complicit in the criminal evasion of those taxes.”

Jason Collins said: “The unintended effect of this is that banks might decide instead to close their UK-facing operations, which cannot be good for the UK. It may be better for the government to look at introducing this type of offence in concert with other jurisdictions rather than going it alone.”

It is proposed that the new offence will cover commercial organisations, not for profit companies and partnerships. It is proposed that it will apply whether the agents are operating in the UK or overseas.

Corporations who have taken reasonable steps to put in place adequate compliance procedures to prevent the criminal facilitation of tax evasion by their agents will be able to avoid prosecution. The document states that compliance with any applicable published guidance, its contractual terms for its staff, the training it provides, and any steps taken to monitor and ensure compliance would all be relevant to the assessment of whether a corporation has taken reasonable steps to prevent tax evasion.

Collins said: “This new measure looks likely to produce further red tape for a wide range of businesses who will be forced to put new policies and procedures in place for their employees and undertake careful due diligence on any third parties to whom they refer customers ”

The proposed new offence was first mentioned in February in an interview on the BBC’s Andrew Marr show, by the then chief secretary to the Treasury, Danny Alexander. It was subsequently announced in Parliament by Alexander on 19 March.

The consultation document asks for responses on the proposals by 8 October 2015.

At the same time as the consultation on the new corporate offence, consultation documents were also issued on strengthening deterrents for offshore evaders, civil sanctions for enablers of offshore evasion and a new ‘strict liability’ criminal offence for offshore evaders.