uk’s corporate offence of failure to prevent the facilitation of tax evasion · 2018-03-01 · 6...

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1 March 2018London, United Kingdom

UK’s Corporate Offence of Failure to Prevent

the Facilitation of Tax Evasion


Speakers

Miles DeanManaging PartnerMilestone International Tax Partners LLP29 Heddon Street, MayfairLondon W1B 4BLUnited Kingdom

T: +44(0) 20 7534 7181E: [email protected]

Rozi EllisAssociateMilestone International Tax Partners LLP29 Heddon Street, MayfairLondon W1B 4BLUnited Kingdom


https://milestonetax.com


Overview of Slides

1. Transparency, Reporting and Tax Policy

1.1. UK Government’s approach to tax evasion, tax avoidance and non-compliance

2. The Offence

2.1. UK Tax Evasion Facilitation Offence

2.2. Foreign Tax Evasion Facilitation Offence

3. The Defences

3.1. UK Government Guidance

3.2. Recommended Approach – Risk Assessment and Prevention Procedure

4. The UK’s Tax Landscape

4.1. DOTAS, APNs and the GAAR

4.2. Common Reporting Standard and Requirement to Correct


1. Why should I care about the new rules?


1. UK Government’s Approach

• Overhaul of UK tax framework in recent years from the Government, EU and OECD

• Necessary to increase income revenue as a consequence of 2008 Global Financial Crisis

How to increase income revenues?

• Targeting illegal tax evasion, aggressive tax avoidance and taxpayer non-compliance

• Increase taxpayer transparency of:

• internationally mobile individuals

• multinational businesses operating in multiple jurisdictions

• Placing the reporting responsibility on taxpayers and businesses to encourage behaviour change

Consequence

• Allows HMRC to apply penalties for non-cooperation and can reduce spending incurred on policing the rules


2. The Offence

The Offence

• The offence is committed where a Relevant Body fails to prevent an Associated Person

criminally facilitating tax evasion, regardless of whether the tax evaded is owed in the UK or

in a foreign jurisdiction

If found guilty, a Relevant Body will:

1. receive a fine (no maximum fine is specified in the legislation) paid out of the Relevant

Body’s assets; and

2. could be subject to an ancillary order (e.g. a confiscation order if profits were made due to

criminal activity).


2. What is Tax Evasion?

Criminal Finances Act 2017 (CFA 17)

A “UK tax evasion offence” at s.45(4) CFA 17 means:

a) an offence of cheating the public revenue; or

b) an offence under the law of any part of the United Kingdom consisting of being knowingly concerned in, or in taking

steps with a view to, the fraudulent evasion of a tax.

‘Cheating the public revenue’

• UK common law offence

• Concerns fraudulent conduct that results in HMRC being deprived of money it is entitled to

• Maximum penalty of life imprisonment (or an unlimited fine)

• Conduct offence meaning there is no need to prove that the defendant caused actual loss.


2. The Offence

What qualifies as a Relevant Body?

• Incorporated companies or

• Partnerships (including LLPs)

Who is an Associated Person?

• Employees

• Agents or

• Other person who performs services for / on behalf of a Relevant Body and who is acting in that capacity


2. The Offence

The offence is applicable to the evasion of any type of tax imposed under UK law, this includes:

• income tax

• capital gains tax

• inheritance tax

• corporation tax

• stamp duty land tax and stamp duty reserve tax

• VAT

• national insurance contributions.

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2.1 The UK Tax Evasion Facilitation Offence

Stage 1

• The taxpayer must commit a criminal tax evasion offence.

Stage 2

• An Associated Person must criminally facilitate the taxpayer evasion.

Stage 3

• The offence is a strict liability offence, meaning the Relevant Body will have committed the new offence unless it can

show it has put in place reasonable preventative procedures.


2.2 The Foreign Tax Evasion Facilitation Offence

A UK nexus is a Relevant Body that is:

• incorporated in the UK;

• carrying on a business in the UK; or

• has an Associated Person located in the UK at the time of the offence.

For dual criminality, the overseas jurisdiction must have:

• an equivalent tax evasion offence at the taxpayer level; and

• an equivalent offence covering Associated Person’s criminal act of facilitating tax evasion.

.

Stages 1 – 3 of the UK Tax Evasion Facilitation Offence must also be satisfied


3. The Defences

To qualify for the defence:

1. the Relevant Body had put in place Prevention Procedures; or

2. it was not reasonable in all circumstances to expect the Entity to have such procedures in place.

Self-Reporting

• A Relevant Body can ‘self-report’ if an offence is discovered

• Self-reporting does not stop a prosecution, but can:

• form part of a Relevant Body’s defence; and

• be taken into account by the investigating body when deciding whether to prosecute.


3.1 Government Guidance on Prevention Procedures

Six principles of a Relevant Body’s Prevention Procedures

1. Risk assessment

2. Proportionality of risk-based prevention procedures

3. Top-level commitment

4. Due diligence

5. Communication (including training)

6. Monitoring and review.


3.2. Risk Assessment

Key Considerations of a Risk Assessment

• If any Associated Person has the motive, opportunity and means to criminally facilitate tax evasionoffences

• Size of the Relevant Body

• Nature and complexity of the Relevant Body’s business and trade

• Any internal risk

• Any customer and/or client risk

• Country risk

• Sectoral risk

• Transaction risk.


3.2 Prevention Procedures

Practical Examples of Prevention Procedures

• Tax evasion-specific training

• Clear internal procedures to report wrongdoing

• Set out in writing and circulate the Relevant Body’s policy to combat tax evasion

• Incorporate the Relevant Body’s zero tolerance for tax evasion policy in the Letter of Engagement and

employment contracts

• Conduct a review of the tax evasion policy based on ongoing monitoring

• Provide internal feedback on any risks an Associated Person has encountered.


4. Tax Risk Management

Tax Risk Management (TRM) Strategy

• Review and identify areas of tax risk specific to the business or client

• Discussing the TRM approach and appetite for risk with senior management

• Predicting and preparing for future changes in legislation

• Liaising with relevant tax authorities

• Managing and understanding reputational risk for the specific industry.


4. Tax Penalty Regime

Errors or inaccuracies in documents and failure to notify chargeability to tax, up to:

• 30% of potential lose revenue for careless action

• 70% of potential lost revenue for deliberate but not concealed action

• 100% of potential lost revenue for deliberate and concealed action.

Offshore Non-Compliance

• Category 1 – up to 100% of potential lost revenue.

• Category 2 – up to 150% of potential lost revenue

• Category 3 – up to 200% of potential lost revenue.

Penalties can be reduced for unprompted disclosure.


4. Tax Penalty Regime

Late Filing Penalties

• Fixed and daily penalties applied for late returns

• Ratchets up to include a proportion of the tax due for filing that has been outstanding for a significant period of

time.

• Up to 5% of lost revenue for careless behaviour

• Up to 70% of the lost revenue for deliberate but not concealed behaviour

• Up to 100% of the lost revenue for deliberate and concealed behaviour

• These penalties can be reduced for unprompted disclosure to HMRC.

Late Payment Penalties

• Calculated as a percentage of the tax that is paid late and charged at differing intervals.


4. Wider Changes to the UK’s Tax Landscape

Key legislative changes that business operating in the UK should be aware of:

• OECD’s Base Erosion and Profit Shifting Project

• Diverted Profits Tax

• DOTAS Regime

• Accelerated Payment Notices

• Enablers of Defeated Tax Avoidance

• The General Anti-Abuse Rule

• Common Reporting Standard

• The UK’s Requirement to Correct

Link to a recent publication on the UK Government’s efforts to tackle tax avoidance, evasion and taxpayer non-

compliance.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/661531/tackling_tax_avoidance_evasion_and_non-compliance.pdf



Disclosure of Tax Avoidance Scheme (DOTAS) Regime

• Enables HMRC to keep up to date with tax avoidance schemes

• Designed to shift taxpayer behaviour away from such schemes

• Significant penalties apply.

Accelerated Payment Notices (APN)

• Part of the GAAR and DOTAS Regime

• Pay the tax now notice where there is an enquiry into the tax avoidance arrangement

• Designed to promote the early settlement in tax avoidance enquiries and change taxpayer behaviour away from

using such schemes

• APN Notice requests upfront payment of tax subject to an enquiry and applies additional penalties for late

payment.



Enablers of Tax Avoidance

• Targets those who enable defeated tax avoidance legislation by designing and marketing schemes that are

entered into by another person

• Penalty equal to the amount of consideration receivable for enabling the arrangements.

General Anti-Abuse Rule (GAAR)

• Designed to assist HMRC recognise ‘abusive’ tax arrangements and find methods to counteract these

arrangements

• HMRC must prove arrangements are abusive

• Penalty of 60% of the value of the counteracted advantage.



Common Reporting Standard (CRS)

• UK is an early 2017 adopter of the CRS

• First automatic exchange of information took place in September 2017, with more jurisdictions expected to take

part in the second round of exchanges in September 2018

• Targets UK resident individuals with overseas interests

• Example of increasing taxpayer transparency through multilateral efforts.

Requirement to Correct Legislation

• Allows individuals with undeclared UK tax liabilities to make a disclosure to HMRC prior to CRS reporting 30th

September 2018

• Designed to encourage individuals to make a disclosure prior to HMRC receiving information through the CRS

automatic exchanges

• Penalty of a minimum of 100% of the tax owed for failure to disclose.


Questions?

Link to Information Memorandum on the UK’s Corporate Offence to Facilitate Tax Evasion

https://www.milestonetax.com/corporate-offence-failure-prevent-facilitation-tax-evasion/


Speakers

Miles DeanManaging PartnerMilestone International Tax Partners LLP29 Heddon Street, MayfairLondon W1B 4BLUnited Kingdom


Rozi EllisAssociateMilestone International Tax Partners LLP29 Heddon Street, MayfairLondon W1B 4BLUnited Kingdom


https://milestonetax.com

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uk’s corporate offence of failure to prevent the facilitation of tax evasion · 2018-03-01 · 6...

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