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Corporate offence for failure to prevent the criminal facilitation of tax evasion

26/04/2016

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Under the draft legislation, the new offence would be committed where a person “associated” with the corporation, criminally facilitates tax evasion. “Associated persons” is widely defined, encompassing both employees and independent contractors, while “corporation” includes a body corporate or partnership. The language essentially mirrors the recently created offence under the Bribery Act 2010 where a corporate fails to prevent bribery on its behalf, and extends the same concept to tax evasion.

It is noteworthy that the new offence can be committed even where no gain accrues to the corporation and applies to all bodies corporate and partnerships operating in the UK, regardless of whether they operate commercially or for other reasons.

An unusual feature of the legislation is that it extends to the facilitation of overseas tax evasion. A UK based corporation that fails to prevent those who act on its behalf from criminally facilitating a tax loss overseas, where the jurisdiction suffering the tax loss has laws in place equivalent to those in the UK, will be guilty of the new offence.

The overseas tax fraud element will be a separate offence from the UK tax fraud element. New protections are included to avoid the offence being used indirectly to enforce punitive or discriminatory foreign taxes. To that end, before proceedings for the overseas tax fraud element can be issued, the personal consent of the Director of Public Prosecutions or the Director of the Serious Fraud Office must be obtained. Such consent would only be forthcoming in cases where the prosecution is deemed to be in the public interest.

The Government recognises that the new offence has parallels with the Bribery Act 2010, having adopted in the draft guidance the same six principles to guide corporate conduct as is contained in the Bribery Act 2010 guidance. Of particular significance is “Principle 1: proportionality of reasonable procedures”. A corporation that puts in place reasonable procedures to prevent persons associated with it from criminally facilitating tax evasion, which are proportionate to the risk, will not be guilty of the new offence.

For a link to the consultation, which closes on 10 July 2016, please click here.

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