Don’t run before you can walk when it comes to tackling offshore tax evasion

accapr —  21 July 2015 — Leave a comment

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By Jason Piper, tax and business law manager, ACCA

Shortly before disappearing under the avalanche of consultations, discussion papers and reviews that have been spawned by Summer Budget 2015, I managed to grab copies of the four offshore evasion condocs and have a read through. They make up an interesting complementary suite of proposals with some common threads but also some interesting differences.

The proposals all come from the same team, who clearly (shock horror) talk to each other about what they’re trying to achieve and how best to do so. They also talk to people outside the Treasury building, and I know from being involved in some of those discussions that they combine a healthy dose of pragmatism with a genuine passion to stamp out abuse of offshore arrangements. They recognise that actually most offshore work is legitimate, and most advisers want nothing to do with criminal activity. Let’s face it, another way of saying “offshore” is “all the rest of the world”, and there’s quite a lot of that which isn’t tax evasion.

The paper on civil sanctions for enablers of offshore evasion explicitly notes a desire to work closely with the professional bodies to help their members avoid the risk of entanglement with the new sanctions. That’s a move that we welcome too, and we look forward to helping generate and publicise the educational materials to help prevent advisers being duped by others.

Of course, there are advisers who deliberately set out to help their clients evade tax. Up until now, there’s been a gap in HMRC’s powers to deal with such advisers, and it’s that gap which many of the current batch of proposals seek to plug. But, on comparing the ‘civil sanctions for enablers’ proposals to the ‘criminal sanctions for facilitators’ proposals there was one key point which stood out the more I realised it wasn’t there.

Civil sanctions are proposed for advisers where a penalty has been levied on their clients. Fair enough; there’s a proven offence, and everyone involved should be dealt with. But the “criminal sanctions” seems to skirt around the whole issue of when it gets triggered. It might be that when it talks about evasion that’s shorthand for “evasion which we know has happened because there’s been a criminal prosecution for it”. (The rest of the “criminal” document is couched in similar legal shorthand – for example, it uses the term mens rea where the “civil” document tends to talk in terms of “state of mind”; nothing wrong with either approach, depending upon your audience.)

But then again, there are areas in the “criminal” consultation where it refers to “circumventing international tax transparency agreements” as being an evil worthy of remedy, and which potentially could spark the criminal prosecution of advisers involved in it. We’d agree that it needs dealing with – but there’s a catch here.

The proposed new criminal offence is, well, criminal. It’s a significant step to take, accusing anyone of criminal activity. And when the French authorities recently investigated a similar mechanism they found it failed on a constitutional fundamental – you can’t criminalise people for assisting in behaviour which is not, itself criminal. Or in other words, there must have been a successful criminal prosecution of the underlying offence before you can go after the facilitators. And that is what may be the stumbling block for HMRC in the UK. They desperately need more, experienced, resources if they’re going to successfully prosecute the tax evaders themselves – because without those prosecutions, the criminal offence of facilitation will be a pointless piece of legal posturing, a deterrent that will never be used.

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