Speed Read: Jonathan Fisher QC explores whether the corporate facilitation of duty or excise evasion would be captured by the new corporate facilitation offences in the Criminal Finances Act 2017.

At first blush, the answer to this question seems clear. Section 45(4) of the Criminal Finances Act 2017 defines a UK tax evasion offence to mean “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”. However, implicit in this definition is an enormously significantly question. It is the proverbial “elephant in the room”. What sort of conduct constitutes the offence of cheating the public revenue? In some cases, the answer is strikingly obvious. A cash trader who dishonestly declares half of his income and squirrels away the other half under his mattress is a paradigm example. Consideration of complex tax avoidance schemes require much greater attention, especially where they hover close to the boundary between avoidance and evasion. Tax practitioners are already alive to HMRC’s appetite for alleging that certain arrangements masquerading as tax avoidance amount to tax evasion because they are contrived and lack commerciality. What tax practitioners may not have considered yet is the type of financial obligation which falls within the category of “public revenue” or the designation of “a tax”.

In its consultation document dated 16 July 2016, HMRC indicated that taxes which fell within the common law offence of cheating the public revenue were income tax, capital gains tax, inheritance tax and VAT.[1] In fact, the list of taxes falling into this category is much wider. As I have noted elsewhere,[2] the expression “public revenue” embraces all the tax and duties now levied by HMRC, including those formerly administered by the Board of Customs such as VAT.[3] The history of the offence of cheating is rooted in the deliberate and dishonest “omission or concealment of a pecuniary nature to the prejudice of the King”[4], resulting in the development of the law which regarded “all frauds affecting the Crown and public at large” to become indictable as cheats at common law.[5]

Notwithstanding the impact of cheating on the public at large, dishonest conduct in relation to the non-payment of local taxes, such as council tax, would not be covered. As Mr. Justice Stamp explained in Lush v Coles [1967] 1 WLR 685:

“The public revenue” is an ancient term of art dating at least from the year 1816 when by the statute (56 Geo. 3, c. 98) “all the public revenues of Great Britain and Ireland were consolidated into a Consolidated Fund.” The expression “public revenue” then became the natural way of describing all the public revenues … The expression “the public revenue” is also used by text-book writers to describe and, in my judgment, signifies the public revenues of the kingdom, and not the receipts or revenues of a local authority. Money which is payable by a local authority out of its funds cannot in my judgment be appropriately described as “payable … out of the public revenue …”

In the absence of statutory extension, the offence of cheating the public revenue would also not apply to a fraud on the European Union since the revenues of the European Union are distinct from the public revenues of Great Britain.

Another question to consider is whether the corporate facilitation offence set out in section 45(1) applies where the evasion of import or excise duty is involved. Can an import or excise duty be properly categorized as public revenue for the purposes of the offence of cheating the public revenue at common law, or for a statutory offence which involves the fraudulent evasion of a tax in the UK? The question’s resonance lies in the conceptual difference between a duty on the one hand and a tax on the other. A duty is levied on the cost of goods imported from another country, or goods manufactured within the country on which an exceptional government charge has been imposed. By way of contrast, a tax is imposed on the amount of income generated or the value of property which is held by an individual, company, or trust.

In practice, a court is more likely to be impressed by the common denominators between an import or excise duty and a tax rather than their differences. Both duties and taxes constitute revenues generated by government for payment of public expenses, such as maintaining the rule of law and its institutions, defence, public infrastructure works, health, education, and social welfare – in short, the hallmarks of a civilized society. The revenues may be collected in different ways, but they combine to finance the government’s needs. Applying this analysis, a Court will be slow to determine that import or export duties fall outside of the ambit of the corporate facilitation offence.

But the Parliamentary draftsman has not helped a Court in this regard. Section 45(7) expressly provides that “For the purposes of this section “tax” means a tax imposed under the law of any part of the United Kingdom, including national insurance contributions under “(a) Part 1 of the Social Security Contributions and Benefits Act 1992, or (b) Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992”. The argument for the alleged corporate facilitator is not difficult to predict. If Parliament considered it necessary to make specific provision for payment of national insurance contributions, it must have recognized there was an ambiguity about the scope of section 45(1) which needed to be resolved. But Parliament made no such provision in the case of import or excise duties. This suggests they are not captured by section 45(1) after all. Otherwise, the provision in section 45(7) would be otiose.

The same issue arises where the corporate facilitation offence in section 46(1) involving foreign tax evasion is engaged. This is because section 46(5) defines “foreign tax evasion offence” to mean “conduct which (a) amounts to an offence under the law of a foreign country, (b) relates to a breach of a duty relating to a tax imposed under the law of that country, and (c) would be regarded by the courts of any part of the United Kingdom as amounting to being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of that tax.” To apply section 46(5) in an import or customs duty case, a Court would need to be satisfied that payment of an equivalent duty would constitute public revenue or a tax in the UK.

It is a pity that neither HMRC nor Parliament addressed these issues during the gestation of the corporate facilitation offences. The upshot is that when seeking to ensure their clients avoid the corporate facilitation offence, practitioners need to focus not only on differentiating between genuine tax avoidance schemes and tax evasion masquerading as a sophisticated tax avoidance scheme, but also the nature of the tax in question.