The UK's tax authority, Her Majesty's Revenue & Customs (HMRC), has just closed its consultation on a new corporate criminal offence: failure to take reasonable steps to prevent tax evasion.
The offence will have three stages:
- Stage one: illegal tax evasion by a taxpayer;
- Stage two: criminal facilitation of that evasion by a person acting on behalf of a corporation ("representative");
- Stage three: the corporation's failure to take reasonable steps to prevent criminal facilitation of tax evasion.
The consultation document states that the offence will apply in three situations:
- Where a UK based corporation fails to prevent representatives from facilitating a UK tax loss;
- Where a UK based corporation fails to prevent representatives from facilitating a tax loss overseas, where that jurisdiction has laws equivalent to the UK.
- Where a non-UK based corporation fails to prevent representatives from facilitating a UK tax loss;
The following should be noted in respect of each of the three stages:
Evasion of any tax is captured.
While the tax evasion must amount to criminal conduct, there is no necessity for prosecution of the taxpayer.
As with the definition of "Associated Person" under the Bribery Act, in relation to "representatives", a corporation will be responsible for a person (natural or legal) who performs services for or on its behalf. The person does not have to be an employee or contractor. Unlike the definition of "Associated Person" under the Bribery Act, a representative does not need to be acting for the benefit of the company.
Again, there is no necessity for prosecution of the representative.
This is the stage that has garnered most attention: what constitutes "reasonable steps"?
Following the model of the guidance published with the Bribery Act, guidance on preventative procedures is to be published with the statute, which is to be formulated around six principles:
- top level commitment
- risk assessment
- due diligence
- monitoring and review
What constitutes reasonable prevention procedures will be dictated by "the size of the corporation, the nature and complexity of its business and the jurisdictions in which it operates". By way of further assurance it states that "the Government is open to considering a system whereby affected bodies can produce their own guidance on what constitutes "reasonable procedure"…"
Whatever concerns stakeholders have regarding the form of the legislation (the practical benefit of extending the offence to tax evasion overseas was, for example, questioned by a number of respondents to the consultation) focus must now be on involvement in the development of relevant guidelines, without which the application of this legislation could be unpredictable. Stakeholders should take some comfort from the fact that the Government has expressly recognised that this legislation should not be "overly burdensome".
Louise Delahunty, a partner in our white collar & regulatory defense practice; and Alex Radcliffe, an associate in our anti-corruption and asset recovery practice, have more information if you need it.