Diamonds are (not) forever: NCA keeps up pressure on unexplained wealth
In the aftermath of the Panama Papers scandal, MPs from the Public Accounts Committee provided a damning indictment of HMRC’s performance in tackling tax evasion. With losses from tax fraud at a staggering £16 billion and a tax gap of £32 million, HMRC faced fierce criticism for letting “big multinationals off the hook” and leaving “an impression that the rich can get away with tax fraud.”
In response, HMRC announced a renewed focus on investigations into serious and complex tax crime with a promise to prosecute 100 wealthy individuals and corporates by 2020. Given that HMRC has long held ambitions to clamp down on the enablers and facilitators of tax evasion and to hold corporates to account, one could be forgiven for wondering whether this pledge had more bark than bite.
However, there is no doubt that landmark legislation contained in the Criminal Finances Act 2017 has potential to provide the tonic that HMRC so desperately needs. The corporate offence of Failure to Prevent the Facilitation of Tax Evasion will come into force on 30 September 2017 allowing for the first time a company or partnership to be prosecuted for failing to prevent its employees and other “associated persons” (such as subcontractors or agents) from facilitating tax evasion in the UK and abroad.
The legislation is extremely far reaching. For the UK offence to be committed the organisation’s facilitation can take place anywhere in the world, regardless of whether the organisation or the associated person is incorporated or based in the UK - as soon as a UK tax payer is facilitated to evade UK tax by a person associated to the company or firm, that organisation is liable. The foreign offence even allows an organisation who fails to prevent a foreign jurisdiction to be prosecuted in the UK provided the case has sufficient nexus to the UK and that the foreign offending would constitute a UK tax evasion offence.
An organisation can avail itself of a defence if it has adopted reasonable prevention procedures. Such procedures are set out in the HMRC Guidelines for the new offence (published on 7 September), which expressly states that it is not a one-size-fits-all approach. Bespoke prevention procedures will need to be put in place to address risks that are particular to an organisation’s work, size and sector. An organisation will be expected to undertake the necessary risk assessment, obtain buy-in from senior management and then to have provided training and monitoring across the business. Those that do not are vulnerable to a criminal prosecution.
HMRC will undoubtedly be eager to implement its new powers. Whilst multinationals will clearly be in its sights, initial prosecutions are likely to target smaller entities who have not applied the guidance at all. HMRC has a history of going after such “low-hanging fruit” and will be keen to get a few easy wins under its belt before tackling the big boys.
The truth is that HMRC will never have the resources to investigate and prosecute every single organisation who may not have applied the guidelines correctly. But perhaps that is not the point. The new legislation follows the trend in recent years of putting the onus back onto companies and firms to ensure compliance with a view to prevention rather than cure. Whilst HMRC is keen to show that it is an agency which can take on the corporates, the reality is that it will need corporates’ help if it is ever going to reduce tax fraud and close the tax gap.
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