The SFO warned last week that companies suspected of paying bribes to win work overseas may be forced to hand over their tax records, in the hope that these may yield evidence of such bribes.  This gives rise to a couple of issues which taxpayers and their advisers would do well to keep in mind.

HMRC’s power to disclose

If subject to an SFO request to hand over tax records, can this be successfully resisted, or can the SFO simply go off an get them straight from HMRC instead?   

Although there is a general prohibition on HMRC disclosing information to other government departments contained in section 18 of the Commissioners for Revenue & Customs Act 2005, this is subject to a number of exceptions, including where other legislation creates a “gateway” through which disclosures can be made.  For disclosures by HMRC to the SFO and other enforcement and intelligence agencies, such a gateway is created by section 19 of the Anti-Terrorism, Crime and Security Act 2001.  This provides that HMRC may disclose information for, amongst other purposes, “any criminal investigation whatever which is being or may be carried out“.  This effectively gives HMRC carte blanche to disclose information to the SFO in almost any circumstances, given that a criminal investigation into the taxpayer affected need not even have commenced.   

Note however that this is subject to the requirement in section 19 that information should only be disclosed where HMRC are satisfied that the disclosure is proportionate to what the department making the request is seeking to achieve.  In circumstances where the SFO are investigating bribery offences, it seem unlikely that HMRC would ever deem disproportionate a request for tax records as evidence in such an investigation.     

Tax effect of an SFO investigation

The SFO also expressed the view that some companies may be claiming tax deductions for overseas bribes (this was allowed under English law until 2002).  If a company has paid bribes (given the wide ambit of the new Bribery Act this is surprisingly easily done), claimed a deduction for sums expended and finds itself subject to an investigation by the SFO, then it is likely to become apparent to HMRC that there has been an under-declaration of tax.  It would therefore be prudent, in such circumstances, to make contact with HMRC voluntarily and submit amendments to the relevant returns.  

My colleague Robbie Constance considers the SFO’s announcement from a different angle on our sister site, the RPC Regulatory Blog.