Following a consultation by Her Majesty's Revenue and Customs (HMRC) on making failure to prevent the facilitation of tax evasion a corporate offence, the offence has been incorporated into Part 3 of the Criminal Finances Bill, which was presented to Parliament on October 13 2016.
There are parallels between the proposed legislation and Section 7 of the Bribery Act 2010, under which failure to prevent bribery is a corporate offence. As will be apparent, it is easier to prosecute companies for these types of offence where there is no mens rea (intent) and it is sufficient for the bribery to have been committed by an individual acting on behalf of the company.
The proposed offence of failure by a company to prevent the facilitation of tax evasion by associated persons is divided into the following stages:
- Stage 1 – criminal tax evasion by a taxpayer (under the existing criminal law);
- Stage 2 – criminal facilitation of criminal tax evasion by a person acting on behalf of the corporate; and
- Stage 3 – failure by the corporate to take reasonable steps to prevent those who acted on its behalf from committing the criminal act set out in Stage 2.
As drafted, the offence has extra-territorial jurisdiction and includes both UK tax offences and overseas tax fraud offences where the overseas offence would amount to an offence in the United Kingdom. This latter element is included because the government has stated that it believes that companies with a presence in the United Kingdom should have to take reasonable steps to prevent their agents being complicit in tax evasion, wherever that tax is owed.
The proposed legislation incorporates a statutory defence of having in place "such prevention procedures as it was reasonable in all the circumstances to expect [the company] to have in place… or it was not reasonable in all the circumstances to expect [the company] to have any prevention procedures in place". While this has similarities to the adequate procedures defence under the Bribery Act 2010, the proposed language is deliberately different.
It remains to be seen how HMRC will finally seek to interpret and apply the prevention procedures deemed to be reasonable. While the existing draft guidance provides some detailed information on the principles required for reasonable prevention procedures, they will continue to be debated in Parliament.
For further information on this topic please contact Kathleen Harris, Stuart Baker, Michael J Atkinson or James McSweeney at Arnold & Porter LLP by telephone (+44 20 7786 6100) or email ([email protected], [email protected], [email protected] or [email protected]). The Arnold & Porter website can be accessed at www.arnoldporter.com.