Criminal Finances Act 2017

Jonathan Fisher KC and Anita Clifford

Document

Page 73

CHAPTER 8 Corporate facilitation of tax evasion offences

Introduction

8.1 Part 3 of the Criminal Finances Act 2017 creates two corporate criminal offences for cases where a person associated with a company or partnership facilitates the commission by another person of a tax evasion offence. The first offence, set out in section 45, applies where UK tax is involved. The second offence, set out in section 46, applies where foreign tax is involved. The inclusion of these offences in the Criminal Finances Act 2017 was an odd choice, since the thrust of the Act is focused on provisions that enhance the legislative response to organised crime. The two new criminal offences are more narrowly focused, directed at continuing efforts to close the gap between tax owed and tax collected, known as ‘the tax gap’.1 The legislative intention is to capture cases where tax professionals employed by banks and firms of accountants have assisted taxpayers to evade payment of tax in a manner that crosses the boundary from tax avoidance, which is a lawful activity, into the territory of tax evasion, which is unquestionably not. Pursuant to Regulation 3 of the Criminal Finances Act 2017 (Commencement No. 1) Regulations 2017, the offences came into effect on 30 September 2017. 8.2 As the Explanatory Notes record, it has always constituted a criminal offence to facilitate deliberately another person’s tax evasion, and certainly a banker, an accountant or, for that matter, any other person, who deliberately facilitates a client to commit a tax evasion offence will be guilty of a criminal offence.2 However, because of the complicated legal rules which apply to the attribution of criminal responsibility to a company or partnership that employs the banker or accountant, prior to the introduction of the two new criminal offences the company or partnership would not be criminally liable for the actions of an employee unless the employee was one of the people controlling the company or partnership activities.3 The issue is acute for a prosecutor where a person facilitating tax evasion is employed by a large multinational company where decision making is decentralised and important decisions are taken at a level lower than the board of directors. The traditional approach to attribution of corporate criminal responsibility operates as an incentive for senior employees in a multinational company to ignore the criminal actions of its representatives, and it creates an uneven playing field in comparison to smaller businesses where the board of directors is more actively involved in the daily activities of the business. 8.3 The Explanatory Notes make clear that the purpose of the new criminal offences in Part 3 is to hold these companies and partnerships to account for the actions of their

Page 74

employees. But most significantly, rather than focusing on attributing the criminal act to the company, the offences concentrate on – and criminalise – the company’s failure to prevent those who act for or on its behalf from criminally facilitating tax evasion when acting in that capacity.4 Therefore, where a person acting for or on behalf of a company or partnership criminally facilitates a tax evasion offence by another person, the company or partnership will be guilty of the corporate failure to prevent the facilitation of a tax evasion offence, unless the company or partnership can show that it had in place reasonable prevention procedures (or that it was not reasonable to expect such procedures).5 8.4 Although the Explanatory Notes envisage the commission of the new criminal offences by bankers and accountants, the application of the legislation is much wider. All companies and partnerships have a potential liability under this legislation where an employee facilitates another person in the commission of tax evasion, and if the enforcement authorities robustly prosecute the offences, it will be difficult to delineate the boundaries of criminal responsibility in certain situations. The new offences are wider in scope than the position under section 7 of the Bribery Act 2010, which introduced a corporate criminal offence where a company failed to prevent the payment or receipt of a bribe. Unlike the position under section 7 where payment or receipt of a bribe must be made with the intention of obtaining or retaining business for the company, there is no equivalent requirement to establish corporate benefit under the new corporate tax evasion offences. An employee who facilitates the commission of another person’s tax evasion may be motivated by self-enrichment, but this is another matter. 8.5 Also, under section 7 of the Bribery Act 2010, corporate criminal liability is dependent upon an employee committing the bribery, corporate criminal responsibility under the new corporate tax offences is two steps removed from the predicate criminality. There is a distinction to be drawn between a company or partnership failing to prevent an employee from committing a substantive offence and a company or partnership failing to prevent one of its employees from facilitating a criminal offence committed by another person.

Failure to prevent the facilitation of UK tax evasion

8.6 Section 45(1) provides that:

A relevant body (B) is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with B.

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.