SPEED READ

1. The UK Government has announced the proposed introduction of a new corporate offence of failing to prevent the facilitation of tax evasion;
2. The new offence is likely to build on draft legislation produced in response to a consultation  undertaken by HM Revenue and Customs (“HMRC”) in 2015;
3. The new offence is likely to resemble the UK Bribery Act 2010 (“Bribery Act”) by
   1. (i) holding corporations liable for acts of their “associated persons” and
   2. (ii) having extensive extra-territorial application.
   3. There will also be a defence of having “reasonable procedures” in place to prevent the facilitation of tax evasion (as opposed to “adequate” procedures under the Bribery Act);
4. The offence is to be introduced in legislation this year;
5. Companies and partnerships incorporated in or conducting business in the UK will need to implement relevant policies and procedures as appropriate.

BACKGROUND

David Cameron announced on 11 April that the UK Government “will legislate this year to hold companies who fail to stop their employees facilitating tax evasion criminally liable.”

The announcement follows intense pressure on the Prime Minister to take steps to combat tax evasion following the leak of the “Panama Papers” from Mossack Fonseca which has also seen Mr Cameron take the unprecedented step of publishing details of his own tax returns after details emerged in the Panama Papers that he previously owned shares in an offshore investment fund set up by his father.‎

The announcement constitutes an acceleration of the proposals consulted on by HMRC over the second half of 2015 in its consultation paper “Tackling offshore tax evasion: a new corporate criminal offence of failure to prevent the facilitation of tax evasion” which the Government confirmed in the March 2016 Budget that it would proceed with.

The response document to the consultation (“Response Paper”) was published in December 2015 and included draft legislation and plans for further consultation.

A copy of the Response Paper can be found here.

Whilst the full details of the new offence are yet to be finalised, it seems likely that it will be similar to section 7 of the Bribery Act 2010.

This created a corporate offence of failing to prevent bribery, subject to an absolute defence where the company could show that it had in place, at the relevant time, “adequate procedures” that were designed to prevent bribery.

As with the Bribery Act (which provides for the possibility of unlimited fines), it is expected that the new offence will attract substantial financial penalties upon conviction.

The prospect of significant reputational harm for an institution is also obvious, as well as the prospect of separate action by the regulator of any regulated entity which is found to be in breach.

To view this DLA PIPER article in full, please click here.