Tackling tax evasion by corporations

19 April 2016

Andrew Hubbard

The Prime Minister announced to the House of Commons on 11 April that the government would introduce a new criminal offence for ‘corporations who fail to stop their staff facilitating tax evasion’. It may have appeared initially that this was a direct response to the so-called Panama revelations, but in fact the first announcement about this was in March 2015. Still, that’s politics for you!

We now have the latest version of the proposals for consultation. There is a balance to be struck here. If an organisation is corrupt and deliberately helping clients to commit tax fraud, no-one would have a problem with them being prosecuted. But life’s not that simple. What happens if a particular employee, perhaps some way down the management structure, is in cahoots with a fraudulent client? Should the company be prosecuted if those running it had no idea what was going on? Here I think opinion would be divided.  

The proposed legislation deals with this by looking at what steps the company took to prevent its employees being involved in facilitating tax evasion. The proposals acknowledge that even in the best run organisation an individual – let’s call him a ‘rogue trader’ – might circumvent all the procedures put in place to stop corrupt behaviour. So the test is whether or not the company has put in place procedures intended to prevent employees (and certain contractors) from aiding and abetting tax evasion. A company which has proper training, regular compliance checks and a zero-tolerance approach to rogue employees will almost certainly be safe from prosecution. A company which has no procedures in place - or worse, turns a blind eye to suspicious activity - could find itself at risk.

My initial reaction to the consultation document is that the balance is about right and, in particular, the guidance accompanying the draft legislation makes clear the sorts of measures which corporations (including partnerships) can put in place to minimise the risk of prosecution. Behind the scenes there’s been a lot of dialogue with interested parties, and I would say this has been a good example of how consultation can help shape the focus of measures.

I’m relieved these measures have been thought through and thoroughly reviewed. I hate to imagine what might have happened if legislation had been rushed through without any prior consultation or review. There’s a saying ‘marry in haste and repent in leisure’. The same applies to emergency tax legislation.

If you would like to discuss any of the points raised, please contact Andrew Hubbard or your usual RSM contact.