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A new corporate offense for failing to prevent tax evasion is expected to get its first reading in parliament this week, says Pinsent Masons, the international law firm.
The Criminal Finances Bill will make senior management responsible for introducing preventative measures to prevent the facilitation of tax evasion. The legislation will make corporates liable not just for tax evasion facilitated by their employees but also external agents and service providers.
Pinsent Masons says the new legislation will impose a heavy administrative burden for businesses, requiring them to introduce preventative measures, such as new processes, risk assessments, and internal audits to ensure compliance with the new laws.
Jason Collins, Partner and Head of Tax at Pinsent Masons, says: "This will be a huge challenge for businesses, so companies need to plan ahead. These proposals very deliberately target the most senior executives in a business. Although the offense is committed by the company, which board member wants their CV to include presiding over a company which gained a criminal record?"
According to Pinsent Masons, HMRC is asserting criminal jurisdiction over companies wherever in the world they may be for UK tax evasion. Companies based entirely outside the UK will be at risk of committing the offense in the same way as local companies, the firm said, adding that HMRC is also asserting jurisdiction over non-UK tax evasion where there is a connection to the UK – including those jurisdictions where compliance with tax codes is less rigidly followed than in the UK.
Collins said the tax authority has indicated that the government is most likely to pursue a prosecution where the tax evasion involves a developing country. "Although not all parts of a multinational's business might be affected by the non-UK tax evasion offense, in practice operating two standards might look like the facilitation of non-UK tax evasion is being endorsed so long as you are not caught."
"The Bill will particularly affect bank and trust companies, but it will affect all sectors such as infrastructure and energy business operating in developing countries, especially if they rely heavily on external consultants, high tax sectors such as alcohol and tobacco or business that handle large amounts of cash. It is important that businesses carry out an initial risk assessment, and supplement this with regular ongoing assessments, external audits, and implementing robust policies, to ensure they are doing everything reasonably possible to prevent criminal activity. This will prove a big burden to companies, but will be vital to their defense if investigated."
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