The new offence will apply to a body corporate or partnership (wherever incorporated or formed). Where a partnership is charged, it will be as a body and not in the name of any individual partners, and any fine will have to be paid out of the partnership assets.

The government believes that relevant bodies should be criminally liable where they fail to prevent those who act for, or on their behalf from criminally facilitating tax evasion. The plans were first announced in the Budget in 2015. HMRC has now issued draft government guidance and a summary of responses to the consultation, while the Criminal Finances Bill is set for its first debate in parliament shortly.

The HMRC guidance is based on six principles: risk assessment, proportionality of risk-based prevention procedures, senior board level commitment, due diligence, communication (including training), and monitoring and review.

There will be two separate offences under the new rules to be set out in the Criminal Finance Bill, effectively creating a clear distinction between UK tax evasion and extra judicial tax evasion committed in foreign tax jurisdictions.

The new offences will be committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of a tax, and this will be the case whether the tax evaded is owed in the UK or in a foreign country.

The legislation does not hold relevant bodies to account for the crimes of their customers, nor does it require them to prevent their customers from committing tax evasion.

The draft guidance states that ‘the new offence, however, does not radically alter what is criminal, it simply focuses on who is held to account for acts contrary to the current criminal law. It does this by focussing on the failure to prevent the crimes of those who act for or on behalf of a corporation, rather than trying to attribute criminal acts to that corporation’.

In the response document, there appeared to be some row back on original proposals and stakeholders welcomed the addition of S.2 (2)(b) and the recognition that there will be circumstances where it is reasonable for a business not to have put any preventative measures in place.

The new offences require that:

• there is criminal tax evasion at the taxpayer level under the existing law, and
•  a person associated with the corporation criminally facilitates the commission of this offence by the taxpayer.

A small number of respondents thought it would be beneficial to list all statutory tax evasion offences. Having considered this option, the government decided that this would create confusion and detract focus from the core elements which businesses need to focus on.

In terms of the statutory or common law tax evasion offences, the updated clauses encompass all statutory offences that involve deliberately and dishonestly cheating the public revenue, regardless of the category of tax which the offence applies to. It is the deliberate and dishonest non-payment of taxes that affected corporations should focus on, not individual tax offences, as these elements encompass all relevant tax offences.

Concerns rejected

In total, 32 responses to the consultation were submitted by key stakeholders including professional bodies representing accountants and tax advisers, including ICAEW and CIOT, to the City of London Law Society, law firms, legal bodies and banking and financial institutions.

There were concerns that the level of knowledge a corporation would be expected to have of tax regimes in other jurisdictions was not commensurate with real life practice, making it ‘difficult for relevant bodies to assess whether both the underlying offence and the facilitation offence would be criminal acts overseas’.

However, HMRC rejected this premise, stating that 'it is not the case that the overseas tax evasion offence requires a corporation, or an individual within a corporation, to have a detailed knowledge of any country’s tax regime’. It stated that a company operating in France should be in a position to advice UK clients on the corresponding French tax rules. As a result, the organisation should ensure that it has tough risk assessment procedures in place.

Another respondent to the consultation expressed concern that ‘there is no need for a successful prosecution to have been made in respect of the overseas offence means that if the other conditions for the new offence are met, a UK entity could be liable even where on any realistic view of the position there has been no criminality and none has been proven in the UK or overseas’.

However, HMRC said that this was factually incorrect, stressing that ‘the overseas fraud offence cannot be committed by a 22 corporation without criminality by a taxpayer and an associated person which is proved in a UK court to the criminal standard of “beyond all reasonable doubt’.

Geographic reach

The geographic reach of the legislation also raised red flags with concerns about the cross-jurisdictional liability and the subsequent negative impact on a UK-based corporation. Stakeholders were concerned that ‘ their overseas corporations, particularly those based in countries with a weaker compliance culture, would not put in place procedures to prevent their representatives from facilitating tax evasion’.

Next steps

The government has published the updated draft clauses for the new corporate offences, which will form part of the Criminal Finances Bill. This Bill will amend the Proceeds of Crime Act 2002.

The government has also published updated draft guidance for the new offences. This guidance remains draft guidance and may change to reflect changes to the legislation during the parliamentary process. HMRC is also calling for feedback on the draft guidance.

The government bill was presented to parliament on 13 October but there was no debate at this stage.

The date for the second reading debate of the Bill is yet to be announced.

The 45-page Tackling tax evasion: draft guidance on corporate offence of failure to prevent the criminal facilitation of tax evasion is available here

The summary of responses to the consultation, Tackling tax evasion: legislation and guidance for a corporate offence of failure to prevent the criminal facilitation of tax evasion, is available here  

The Criminal Finances Bill is available here