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UK corporate criminal offence for tax evasion facilitation will be introduced this year, says government

The UK government is to speed up its planned introduction of a new criminal offence for businesses that fail to stop their representatives from facilitating tax evasion following the so-called 'Panama Papers' leak, the prime minister has announced.

It plans to publish legislation "this year" to create the new offence, which was first announced by the government as part of the 2015 Budget. The planned offence is based on provisions in the 2010 Bribery Act which criminalised businesses that failed to prevent bribery by their employees or agents, and companies would have a defence if they could show that they had put "reasonable procedures" in place to prevent non-compliance by their representatives, according to plans published by the government late last year.

Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com, said that the planned legislation "could have a similar impact to the Bribery Act in changing corporate behaviours".

"There is a clear need to ensure that corporates are accountable for their staff and that their board of directors cannot simply say they don't know," he said. "Many businesses already naturally operate this kind of standard, but the legislation will put the obligation on a more statutory footing."

However, he added that it was important for the government not to "rush" the legislation, which needed to be "clear and easy to operate" if it was to be effective and proportionate.

"If it isn't, good businesses will spend a fortune complying just to give the authorities the tool to catch a few bad businesses," he said.

Under the plans as currently drafted, companies and partnerships would commit a criminal offence if their employees, suppliers, contractors or other people associated with them criminally facilitated the evasion, rather than the avoidance, of tax. Collins said that facilitating tax evasion could include, for example, processing invoices in the name of an offshore company knowing that the income is not going to be declared; setting up a trust with a bogus settlor in order to evade anti-avoidance rules; or deliberately suppressing Common Reporting Standard or other tax reporting for a customer.

For the offence to apply, the employee or individual would have to intend to help with tax evasion so it would not catch businesses whose representatives act unwittingly. There will be a defence for businesses which can show they have reasonable procedures in place to try to prevent the facilitation of evasion. The government is expected to issue a consultation document this month on the guidance as to what procedures companies need to put in place. 

"Banks and financial businesses dealing with cash, assets and investments will be particularly affected by these new rules, but all companies and partnerships will need to put training, policies and procedures in place to avoid liability," Jason Collins said.

The offence would apply to UK and non-UK entities within a corporate group in respect of UK tax evasion, regardless of where the conduct that gives rise to the offence takes place; as well as to UK entities and branches in respect of the facilitation of non-UK tax evasion.

Jason Collins said that this meant that the plans as drafted would make UK businesses "responsible for monitoring and stopping foreign tax evasion as well as UK tax evasion".

"It would have been better if the UK had worked with our other major partner countries to ensure that they adopted similar standards at the same time," he said. "The Bribery Act followed in the steps of the US's global anti-bribery legislation - but here, we seem to be striking it out alone."

In a statement, the UK government said that the new offence formed part of its efforts to "clamp down on corruption in all walks of life". Next month, the prime minister will host a global anti-corruption summit in London which will deal with issues including corporate secrecy, government transparency and the enforcement of international anti-corruption laws, as well as agreeing a package of actions to tackle corruption "across the board", according to the statement.

The government has also announced a new 'task force' to tackle financial compliance issues raised by the so-called Panama Papers, which will be jointly led by HM Revenue and Customs (HMRC) and the National Crime Agency (NCA). The task force's work will be supported by up to £10 million in new government funding, and it will report to the chancellor and the home secretary on its progress later this year.

HMRC has reported that it is already investigating 700 current leads they have with a link to Panama, after the International Consortium of Investigative Journalists (ICIJ) obtained millions of documents reportedly detailing the use of offshore tax structures in Panama from local law firm Mossack Fonseca. A number of prominent public figures have now been caught up in allegations of tax avoidance stemming from the leak.

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