The taxman cometh

The taxman cometh

The government has issued its long-awaited consultation on a planned new criminal offence for companies and partnerships whose ‘agents’ facilitate tax evasion. While it looks to be aimed primarily at banks, lawyers, accountants and trust and company service providers, its wide scope is likely to also impact on financial advisers.

The new offence is part of a package of measures designed to clamp down on those who evade, or help others to evade, UK tax by hiding assets offshore; but it is not limited to offshore evasion.

Over the next couple of years, HM Revenue & Customs will receive more information than ever before about UK residents with assets held offshore.

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More than 90 jurisdictions have committed to the adoption of the common reporting standard, which will require financial institutions in one signatory country to report on financial accounts maintained for residents of the other signatory countries, with the first exchanges by ‘early adopters’ taking place next year.

Despite this, the government still feels it needs more weapons in its armoury. This time, possibly prompted by the revelations in the BBC Panorama programme in February about the activities of some banks operating in Switzerland, HMRC has in its sights the organisations whose staff or other ‘agents’ it thinks are facilitating evasion by others by helping to hide assets.

It is intended that the legislation will be based on the Bribery Act 2010, under which a commercial organisation is guilty of an offence if one of its ‘associated persons’ pays a bribe, and the company cannot show it had adequate procedures to try to prevent such a payment from being made. This has led to organisations having to put in place detailed anti-bribery policies and procedures.

The tax offence will criminalise organisations who fail to take reasonable steps to prevent their ‘agents’ from criminally facilitating the evasion of tax. Under current law, the organisation would only commit an offence if the ‘agent’ is senior management and therefore represents the ‘directing mind’ of the organisation. Agents are likely to include employees but also contractors and other authorised intermediaries (whether in the UK or not).

The offence will be committed by the company or partnership alone - not its board of directors or partners personally. It is likely to have severe reputational consequences for any organisation which is convicted, but HMRC’s main focus is to engineer a change in behaviour and to ensure that organisations take the issue seriously and cannot simply ‘turn a blind eye’ to what their agents are doing.

The offence will apply wherever the company is geographically located if the tax evaded is UK tax. The offence will also apply to any UK corporation whose agents facilitate foreign tax evasion so particular care needs to be taken around foreign operations.

We do not yet have the draft legislation so it is not clear what the precise scope of the new offence will be. However, from what we can glean from the consultation document, the main areas where financial advisers could be exposed are likely to be in relation to the activities of ‘rogue’ employees or where clients are referred to other businesses who provide services to facilitate tax evasion.