HMRC have issued a consultation document which includes draft legislation and guidance for a new corporate criminal offence of failure to prevent the criminal facilitation of tax evasion, as outlined in HMRC’s response document of 9 December 2015.
The consultation seeks stakeholder views to ensure that the offence is both effective at meeting the stated objectives, and not unduly burdensome.
The government’s hope is that UK prosecutors will have an easier job pursuing businesses which help clients or employees to evade taxes. This has been accelerated by the recent Panama disclosures.
The new proposed corporate offence aims to overcome the difficulties in attributing criminal liability to corporations for the criminal acts of those who act on their behalf. Whilst the consultation refers to the application of the new offence to “corporations”, the draft legislation refers to a “relevant body” to encompass the broad range of legal persons to which the new offence will apply.
Attributing criminal liability to a corporation normally requires prosecutors to show that the most senior members of the corporation were involved in and aware of the illegal activity, typically those at the Board of Directors level. This has a number of impacts:
In large multinational organisations decision making is often decentralised and may be taken at a level lower than that of the Board of Directors, with the effect that the corporation can be shielded from criminal liability. This also makes it harder to hold such organisations to account compared to a smaller organisation where decision making is centralised. The existing law can act as an incentive for the most senior members of a corporation to turn a blind eye to the criminal acts of its representatives in order to shield the corporation from criminal liability. The existing law can act as a disincentive for internal reporting of suspected illegal activity to the most senior members of the corporation. Under the proposed rules, employers will face fines and criminal charges for aiding or facilitating tax evasion. Assuming the legislation is effective, directors and the like will no longer be able to turn a blind eye.The offence as outlined in the consultation response document will have three stages:
Stage one: criminal tax evasion by a taxpayer (either a legal or natural person) under the existing criminal law (for example an offence of cheating the public revenue, or fraudulently evading the liability to pay VAT); Stage two: criminal facilitation of this offence by a person acting on behalf of the corporation, whether by taking steps with a view to: being knowingly concerned in; or aiding, abetting, counselling, or procuring the tax evasion by the taxpayer; Stage three: the corporation’s failure to take reasonable steps to prevent those who acted on its behalf from committing the criminal act outlined at stage two.Under the proposed rules, businesses will be required to show that they took reasonable steps and precautions to ensure that staff members did not engage in, facilitate or aid any tax evasion.
The effect of the new rules would encourage greater oversight of staff and tax affairs, while also removing a senior board members excuse of ignorance to tax evasion.
This consultation runs from 17th April to 10th July 2016.
