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As tax advisers we find ourselves dipping more and more into criminal law and things don’t seem as though they are going to change (for the better at least) any time soon.
It is in this context that this blog update firmly sits. Here we will consider two substantial changes which, in different ways, will have significant repercussions if one falls foul of them. We will discuss:
In respect of the first, businesses involved in financial sectors or making payments where there are associates involved should be clear of procedures they need to take place. For instance, we are already seeing this in the recruitment world where agencies are involved in the food chain.
In the second, those who have accounts or are transacting offshore will need, more than ever to make sure their houses are in order. As a strict liability offence, the Prosecution does not need to prove the usual intent to obtain a conviction.
The historical regime
There are a variety of provisions by which tax evasion (offshore or domestic) may be prosecuted. For example, the offences of ‘cheating the public revenue’ and ‘being knowingly concerned in the fraudulent evasion of tax’ are but two.
However, all of these offences, like the majority of criminal offences require the Crown to prove mens rea. In other words, as well as committing a particular act (the actus reus) one must also have the required intent or, in some cases, demonstrate recklessness.
Classically, therefore, tax evasion has been a crime of dishonesty
The same considerations apply to the prosecution of companies in relation to tax evasion regardless of whether they have been directly involved in the activities or whether they have simply ‘helped out’ or facilitated it.
As such, The Crown has been required to:
The new world
The new world took effect from 30 September 2017.
The new rules involve two new departures from the traditional position. The first is a new strict liability offence of offshore tax evasion (See below). In other words, there is no requirement on the part of the prosecution to prove dishonesty.
Secondly, is the CFO offence.
Please note that this second offence applies regardless of whether the this takes place in the UK or offshore.
The CFO – Criminal Finances Act 2017, ss44-52
As described above, this offence has largely been introduced to counter the Crown’s problems in identifying the ‘directing mind and will’ of the Company and also proving to the criminal standard (being ‘sure’ or ‘beyond reasonable doubt’) that he or she was sufficiently proximate to the events in question.
The new offence is modelled on Bribery Act 2010, s7 so such concerns are now removed:
45 Failure to prevent facilitation of UK tax evasion offences
(1)A relevant body (B) is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with B.
Section 44 sets out the circumstances in which a person is associated with B:
(4)A person (P) acts in the capacity of a person associated with a relevant body (B) if P is—
(a)an employee of B who is acting in the capacity of an employee,
(b)an agent of B (other than an employee) who is acting in the capacity of an agent, or
(c)any other person who performs services for or on behalf of B who is acting in the capacity of a person performing such services.
Section 45 sets out what is meant by a UK tax evasion offence:
(4)In this Part “UK tax evasion offence” means—
(a)an offence of cheating the public revenue, or
(b)an offence under the law of any part of the United Kingdom consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.
(5)In this Part “UK tax evasion facilitation offence” means an offence under the law of any part of the United Kingdom consisting of—
(a)being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax by another person,
(b)aiding, abetting, counselling or procuring the commission of a UK tax evasion offence, or
(c)being involved art and part in the commission of an offence consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.
(6)Conduct carried out with a view to the fraudulent evasion of tax by another person is not to be regarded as a UK tax evasion facilitation offence by virtue of subsection (5)(a) unless the other person has committed a UK tax evasion offence facilitated by that conduct.
It should therefore be noted that the associate must be knowingly involved in the facilitation of an offence that would constitute UK tax evasion. At this level, the mens rea is preserved.
Reasonable steps defence
A defence is provided in s45:
(2)It is a defence for B to prove that, when the UK tax evasion facilitation offence was committed—
(a)B had in place such prevention procedures as it was reasonable in all the circumstances to expect B to have in place, or
(b)it was not reasonable in all the circumstances to expect B to have any prevention procedures in place.
Clearly, there is a vast degree of subjectivity in terms of whether (2)(a) above is satisfied. HMRC has produced detailed guidance on the matter. This is important as, if one broadly follows this guidance, then one would suggest it would be difficult to be prosecuted.
The second of the new offences, a new offshore offence, is found at Finance Act 2016, s166.
This has effect for the 2017/18 tax year and, as such, will be in point once the usual filing deadlines have elapsed.
A UK taxpayer will commit an offence if, in relation to offshore income, assets or activities, he or she:
A stated above, this is a strict liability offence meaning that the Prosecution do not have to prove any intention to evade tax.
Mere carelessness will be enough.
One must therefore fall in to an exemption or provide a defence.
This is interesting as the rules potentially raise a conflict with Article 6(2) of the European Convention on Human Rights (“ECHR”) which provides for a presumption of innocence. If there is no justification for this burden of proof to be ‘reversed’ then this could be ‘read down’.
Exemptions and defences from the strict liability offence are as follows:
The offence is one which is only triable on a summary basis and, as such, cannot be tried on an indictment. This has the usual consequences in that:
These new rules have been criticised.
This is largely because, conceptually, tax evasion is wholly inconsistent with a strict liability offence. HMRC’s definition of ‘evasion’ includes words such as ‘concealing’ ‘hiding’ and ‘evading’. None of these are required under this new offence. It is also inconsistent with HMRC’s investigations policy and Code of Practice 9 (“COP9”).
Furthermore, with the boom in international cooperation and specifically the Common Reporting Standard (“CRS”) this new weapon is one that is needed less than ever.
One should also bear in mind the new Requirement to Correct rules which will apply from 30 September 2018. This means one must bring offshore affairs up to date. If not, the penalties start at 200% of the tax liability.
If you have any queries about these new criminal tax offences, or other matters, then please do not hesitate to get in touch.