Legislation to criminalise failure to prevent tax evasion published

Bachir El Nakib

Plans to criminalise companies that fail to put in place measures to prevent the facilitation of tax evasion by their employees and representatives has moved one step closer, following the publication of legislation by the UK government.13 Oct 2016

Measures set out in the Criminal Finances Bill, which had its first reading in parliament today, will impose heavy administrative burdens on businesses once in force, according to tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com.

"This will be a huge challenge for businesses, so companies need to plan ahead," he said.

"These proposals very deliberately target the most senior executives in a business. Although the offence is committed by the company, which board member wants their CV to include presiding over a company which gained a criminal record?" he said.

The new offence will particularly affect banks and trust companies, according to Collins. However, it will extend to all sectors including infrastructure and energy businesses operating in developing countries, particularly those that rely heavily on external consultants; high tax sectors such as alcohol and tobacco and businesses that handle large amounts of cash, he said.

"It is important that businesses carry out an initial risk assessment - and supplement this with regular ongoing assessments, external audits and implementing robust policies, to ensure they are doing everything reasonably possible to prevent criminal activity," he said. "This will prove a big burden to companies, but will be vital to their defence if investigated."

The new offence is expected to come into force some time in 2017, before the first automatic exchanges of information under the common reporting standard(CRS) take place in September 2017. It 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.

The government has said previously that organisations will be liable for the actions of "all persons who provide services on their behalf", but not those that act entirely independently. This will cover third parties providing services to a client of the organisation if the organisation has an element of control over the provision of those services, but not to the actions of third parties that they refer their clients to.

The offence will apply to non-UK based, as well as UK based, corporations which fail to prevent their representatives from criminally facilitating a UK tax loss. It will also catch UK-based corporations which fail to prevent their representatives from criminally facilitating a tax loss overseas. This will include those jurisdictions where compliance with tax codes is less rigidly followed than in the UK, according to Collins.

"HMRC has indicated that the government is most likely to pursue a prosecution where the tax evasion involves a developing country – especially in Africa," he said.

"Although not all parts of a multinational's business might be affected by the non-UK tax evasion offence; in practice, operating two standards might look like the facilitation of non-UK tax evasion is being endorsed so long as you are not caught," he said.


The Criminal Finance Bill is due to have its second reading debate in the House of Commons on 14 October.

Source: http://www.out-law.com/en/articles/2016/october/legislation-to-criminalise-failure-to-prevent-tax-evasion-published/