HMRC has published a consultation: 'Tackling tax evasion: legislation and guidance for a corporate offence of failure to prevent the criminal facilitation of tax evasion'.

This extends last year's consultation and HMRC’s December 2015 responses in order to consider draft legislation and guidance for a new corporate criminal offence of failure to prevent the criminal facilitation of tax evasion.

  • Existing law makes it very difficult for criminal liability to be attributed to corporations in respect of criminal acts taken by individuals on the corporations’ behalf. 
  • Normally prosecutors have to be able to show that the Board of Directors were involved in and aware of illegal activities which is often not possible when decisions are made at a lower level, especially in large multi-national organisations.

By introducing a specific offence the government is aiming to overcome these difficulties.

The proposed offence will have three stages:

  1. Criminal tax evasion by a taxpayer under the existing criminal law
  2. Criminal facilitation of this offence by a person acting on behalf of the corporation, whether by taking steps with a view to, being knowingly concerned in, aiding, abetting, counselling or procuring the tax evasion by the taxpayer.
  3. The corporation’s failure to take reasonable steps to prevent those who acted on its behalf from committing the criminal act in stage 2.

How this might work:

  • A company would be liable for the actions of an individual acting on its behalf, whether the individual is an employee or a contractor, and it would not matter if the corporation itself did not gain any benefit from the employee’s actions.
  • The offence would apply to UK companies failing to prevent those acting on its behalf from criminally facilitation a tax loss in the UK or an overseas jurisdiction which has equivalent laws of tax evasion in place.
  • The offence would also apply to non-UK companies who fail to prevent those who act on its behalf from criminally facilitating a UK tax loss.
  • This offence can only be committed by companies and partnerships, not by non-natural persons.

The consultation document includes guidance for corporates as to what would constitute reasonable procedures to take to prevent the facilitation of tax evasion. 

  • This covers risk assessments, due diligence, training for employees, and a commitment from top-level management to create a culture where tax evasion is never acceptable. 

The consultation was published on 17 April 2016 and closes on 10 July 2016.

Links and further reading

Tackling offshore evasion: four consultations: our guide to HMRC's consultations in July 2015

Penalties: offshore income and CGT: our guide to the Finance Bill 2016 proposals

This consulation: Tackling tax evasion: legislation and guidance for a corporate offence of failure to prevent the criminal facilitation of tax evasion.

Four original consultations in July 2015: Tackling Offshore Evasion.