Speedread: Although there have not been any prosecutions to date, the introduction of the corporate facilitation offences is not a damp squib. The offences are sufficiently wide to embrace evasion of duties as well as income and corporation tax, which in a post-Brexit era will have additional traction. But also, HMRC has very recently published guidance on self-reporting which has ramifications for the reasonableness of prevention procedures which need to be put in place.
Since the introduction of the corporate facilitation of tax evasion regime in September 2017, there has been very little concrete action by HM Revenue & Customs. Indeed, not one prosecution has been brought to date. However, in March this year the Revenue confirmed that is has criminal investigations underway (albeit “less than five”) in relation to the domestic offence – i.e. the facilitation of UK tax evasion.
If those investigation(s) lead to successful prosecutions, the regime will serve as a powerful disincentive to facilitators and drive a change in corporate behaviour. In the meantime, the limited scope of the offences serves as a warning to companies not to be complacent, as does the new self-reporting regime introduced by the Revenue this year. The corporate offences have certainly not been forgotten; on the contrary, there are indications that the Revenue is just getting started.
Scope of the offences - a warning against complacency
First, even as matters currently stand, companies would be wise to proceed with caution. With no case-law upon which to rely, it has not been possible to test the reach of the existing regime, and the offences appear to be drawn widely.
A clear example of the uncertainties in this area is exemplified by one question which has received little attention to date – which taxes are within the scope of the domestic offence?
At first blush, one might think that not all taxes have been captured. Certainly, the reach of the common law offence of “cheating of the public revenue”, is not all-encompassing. Local taxes are not to be caught, as they do not form part of the “public revenue”, per the decision in Lush (Inspector of Taxes) v Coles (1967) 44 TC 169. But the status of duties is unclear. There is a long-standing debate amongst tax practitioners as to whether the imposition of a duty amounts to a tax.
However, companies should not stop reading too soon, as section 45(4)(b) effectively bridges the gap. Whilst it neatly draws in the key statutory UK tax evasion offences (e.g. fraudulent evasion of VAT under section 72 Value Added Tax Act 1994) it also catches the fraudulent evasion of duty under section 170 and 170B Customs and Excise Management Act 1979. In the post-Brexit era, those offences could well become relevant for companies which have not, historically, been required to be familiar with the complexities of customs and excise law.
In other words, unless the offence relates to a local tax (which is highly unlikely in a corporate context), companies will struggle to mount a technical argument that the predicate offence is outside of scope because it relates to the wrong type of tax. Certainly, the Revenue guidance considers that all categories of taxation (other than Scottish Devolved Taxes) are caught. Moreover, in today’s climate such arguments are unlikely to be met with much sympathy by the Courts.
Self-reporting – the benefits and the dangers
Secondly, the Revenue has been developing some additional machinery to capture incriminating information: on 21 February 2019 it published additional guidance, intended to encourage voluntary self-reporting. Self-reporting barely featured in earlier guidance, and it may well be that the initiative was taken because there has, to date, been a deficit of information concerning the commission of the two offences.
Companies will be wondering whether to self-report or not, and the answer is delicate. On the one hand, the guidance is clear that self-reporting will be considered by prosecutors when deciding about prosecutions (for example, about deferred prosecution agreements). This is an obvious steer in large, high profile cases. It is less clear how it will be applied in the smaller cases.
The disadvantages of self-reporting are self-evident. The guidance gives no promise or commitment that there will not be a criminal prosecution if full disclosure is made. To this extent, the note struck is in stark contrast to that used in Code of Practice 9 which applies where the Revenue offer to settle tax evasion by way of civil settlement. Moreover, albeit in a slightly different context, R v Skansen Interiors Limited (2018) is a clear example of a case where a small company which went into administration was prosecuted for a Bribery Act offence, notwithstanding that it had self-reported. Unless they are operating in the regulated sector, companies will, therefore, wish to think very carefully before self-reporting their facilitation of a tax evasion offence. Although companies will wish to consider whether they wish to self-report in order to avoid the commission of money laundering offences under sections 327 to 329 of the Proceeds of Crime Act 2002, companies operating outside of the regulated sector are not obliged to make a suspicious activity report under section 330.
Finally, an interesting point emerges from the new self-reporting guidance – the Revenue makes a point of saying that the possibility of the company making a self-report is something which could be included in the company’s “reasonable prevention procedures”, which could be relevant if the company was ever charged with a tax facilitation offence. Solicitors and accountants may wish to advise their clients to add to their procedures a reference to the importance of individual employees/agents/service-providers self-reporting any concerns to the company. That said, this is a potential double-edged sword – if an employee refers tax evasion issues to the company and the company fails to follow through on that report, it may be seen as an aggravating rather than a mitigating feature.
This bulletin is based on a presentation made by Bright Line Law at a breakfast briefing on 9 April 2019.