HMRC To Proceed With ‘Facilitating Evasion’ Offense

The UK Government has confirmed that it will legislate for a new criminal offense for corporations that fail to take adequate steps to prevent the facilitation of tax evasion.

Tax authority HM Revenue and Customs (HMRC) has published responses to four consultations on anti-evasion measures announced at the March 2015 Budget. It confirmed that, in addition to the new criminal offense, the Government will introduce a penalty for offshore evasion based on the value of the asset on which tax was evaded, and a new penalty regime for those who enable evasion. It will also establish a further criminal offense that removes the need to prove intent where a large amount of tax has not been paid on offshore income and gains.

International law firm Pinsent Masons said that while the proposed criminal offense for corporates is most squarely directed at financial services and professional services firms, all sectors will be brought within its scope. It explained that companies that commit the offense will have a criminal record, which may hamper their ability to win public contracts. However, Pinsent Masons cautioned that HMRC would encounter significant challenges if it did decide to prosecute overseas firms that played a role in allowing the evasion of UK taxes to take place.

Jason Collins, Partner and Head of Tax at Pinsent Masons, said: “It will be very hard for the UK to force an overseas company to turn up in a UK court to face prosecution. You can’t extradite a company. HMRC may resort to ‘prosecution by press release’ – i.e., by issuing criminal proceedings which, because they are in the public domain, will mean the foreign company has to decide whether to respond in the public domain.”

“This is the sort of legislation of which US lawmakers would be proud. It is a bold attempt by the UK to extend the arm of its law beyond its borders. It needs to be matched with resources to police the offense otherwise it will become a damp squib. What does worry us is that HMRC’s use of this threat may put off some foreign companies from offering their services in the UK for fear of falling foul of the new rules.”

“The US’s very aggressive approach to aggressive tax avoidance and tax evasion has put off some financial services firms from exposing themselves to doing business in the US. This offense may lead to the same thing happening in the UK.”