HMRC amends draft measures on offshore tax evasion
HM Revenue & Customs (HMRC) has accepted industry pleas to restrict the use of its new strict liability criminal offence of offshore tax evasion, which will be created by the Finance Act 2016.
The proposed offence is controversial in that it removes the need for HMRC to prove intent to evade taxes. In its original form, the measure could have been used to prosecute offshore tax evaders where GBP5,000 remained unpaid. However, in a consultation response document published yesterday, HMRC agreed to raise the statutory minimum threshold for prosecution of the offence to GBP25,000 of tax evaded. Furthermore, the offence will not apply retrospectively, but will only apply to income earned in the tax year in which it is introduced, and later years.
The Chartered Institute of Taxation (CIOT) welcomed the restriction, which it said 'should ensure that in most circumstances ordinary taxpayers making unwitting mistakes are not caught up in this new offence'. However CIOT is still opposed in principle to the strict liability idea. 'It should be necessary to show that a taxpayer had criminal intent (mens rea) before they can be convicted of a serious criminal offence such as tax evasion', said Jon Preshaw, Chairman of CIOT's Management of Taxes Sub-Committee. The professional body argues that HMRC already has sufficient civil penalties to deal with offshore evasion.
David Sleight of law firm Kingsley Napley also opposed the offence. 'It cannot be reasonable or proportionate for an individual to face criminal proceedings and a potential custodial sentence when there is no evidence that they intended to evade tax', he said. 'It is disappointing that HMRC has not taken previous strong opposition to this measure on board. No examples have been given of the kind of behaviour which would be caught by the proposals that are not already covered by offences under current tax evasion provisions.'
Draft legislation was also published for the new corporate criminal offence of 'failure to prevent the facilitation of tax evasion'. The only significant change to the original version is that it now criminalises companies' failure to prevent the facilitation of tax evasion by their 'representatives' rather than their 'agents', so that an organisation cannot be convicted for the actions of third party intermediaries beyond its control. Surprisingly, though, the offence will apply both to UK and non-UK companies, though HMRC is unlikely to be able to enforce the latter.
A further full consultation on this offence and accompanying guidance will be held in early 2016, ready for introduction before the OECD international automatic exchange of information begins operating in 2017.
Draft clauses for an asset-based penalty for offshore evaders will be published early next year. The government will be holding further 'informal' consultation on the draft clauses, to ensure that the penalty is an effective deterrent.
- Each of the four HMRC documents includes draft legislation on which HMRC has requested feedback from stakeholders. STEP will submit its comments in due course – if you would like to submit your feedback please email email@example.com. Comments need to be submitted in writing to HMRC by 3 February 2016.
- HMRC: Tackling offshore tax evasion: A new criminal offence for offshore evaders (PDF document)
- HMRC: Strengthening civil deterrents for offshore evaders (PDF document)
- HMRC: Tackling offshore tax evasion: Civil sanctions for enablers of offshore evasion (PDF document)
- HMRC: A new corporate criminal offence of failure to prevent the facilitation of evasion (PDF document)
- Pinsent Masons
- Kingsley Napley
- STEP news story (19 March 2015): Increased sanctions for 'enabling' tax evasion
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