Plans for 'strict liability' offshore offence included in new package of measures targeting tax evaders and advisers

Out-Law News | 19 Mar 2015 | 2:51 pm | 2 min. read

The UK government will press ahead with plans to create a new 'strict liability' criminal offence for the "worst cases" of offshore tax evasion, among a package of new measures targeting those who illegally evade tax and their advisers.

Details of the plans, which include two new criminal offences and higher penalties, were included in a policy paper published by the Treasury and HM Revenue and Customs (HMRC) that also set out the action taken to tackle evasion, avoidance and non-compliance of over the course of this parliament. The government will consult on the details of the new regime before introducing any of its proposals, according to the paper.

Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said that the announcements "upped the ante" on those that might use the financial and professional services industry to hide assets. However, whether they were enacted in the form set out in the policy document would depend on who was in government after the General Election in May, he said.

The UK government consulted on the creation of a strict liability offence of offshore tax evasion in autumn last year, following its announcement the previous spring. In order to prove that this new offence had been committed, HMRC would only have to demonstrate that a taxpayer had failed to correctly declare income or gains. Currently, it must also be able to prove that this was done with the intention to defraud.

According to the Treasury's policy paper, given the "significant increase" in the number of countries that have committed to begin exchanging financial information about taxpayers with offshore accounts in 2017 or 2018, there will have to be a "further consultation" before any new offence is introduced. This consultation would also consider "appropriate defences and thresholds", the Treasury said.

Existing civil penalties would also be toughened under the plans, linked to the size of the assets concerned rather than the tax at stake. The government will consult further on new civil penalties for "enablers" of tax evasion, including "a new collateral penalty under which enablers will pay a fine equivalent to that paid by the individual that they helped to evade tax" and public naming of those involved. A new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion would also be introduced, following consultation, it said.

"This measure is targeted at employers – principally banks – fiduciaries and professional services firms," said tax expert Jason Collins. "Those employers, and their employees, might say that they already have to report suspicious activity by their clients under existing anti-money laundering rules. However, an AML report has the effect of exonerating the person making it from criminal liability and some might say that this merely encourages systematic reporting so as to 'pas the buck' to the law enforcement agencies."

"The corporate offence would mean that banks and other employers have to pay greater attention to their employees' and customers' activities. The territoriality of this measure is not yet clear: in particular, whether it would apply to activity taking place only in the name of UK employers. It is possible it may operate like the UK's anti-bribery laws, which can criminalise the activity of foreign corporates in some circumstances. The new offence goes some way to explaining why many banks are reportedly reviewing their offshore businesses," he said.

"Tax evasion is a crime like any other," said Danny Alexander, the chief secretary to the Treasury, announcing the new measures. "If people help a burglar, they are accomplices and criminals too. Now it will be the same for those that help tax evaders."

"We're making it a crime if companies fail to put in place measures to stop economic crime happening in their organisations. We're also making sure that the penalties on those that facilitate evasion are large enough to punish and deter," he said.

In addition, Alexander said that regulatory bodies responsible for professional standards in the tax and accountancy provisions needed to "maximise their role" in setting and enforcing clear standards around enabling and promoting tax avoidance.