Tackling tax evasion was a hot topic during the 2015 UK
election. Buoyed by its success at the polls and the strength of
public opinion, the UK government recently announced four
consultations as part of its publication: Tackling Evasion and Avoidance.
a new criminal offence for offshore
civil deterrents for offshore
civil sanctions for
enablers ofoffshore evasion
a new corporate criminal
offence for failure to prevent the facilitation of
The last two piqued our interest and are particularly relevant
to anyone who works in or is associated with the finance
The key words here are: "enabler" and "failure to
prevent". Whilst the purpose seems clear, i.e. criminalising
offshore tax evasion, HMRC in its wisdom, is sending more than a
warning shot across the bows of our finance industry.
If you work in finance you will need to ask yourself if:
you could be an enabler
your organisation could be liable for
failure to prevent the facilitation of evasion.
The tests are set out in the consultation documents here.
Anyone unfamiliar with the workings of the offshore world could
be forgiven for thinking that HMRC has recently stumbled on a spate
of scandalous and nefarious activities. The examples cited by HMRC
are simplistic and frankly a little insulting. However they are
worth reading if only to see how far these offences could
Essentially, HMRC looks to criminalise (1) those who assist or
enable, and (2) those who fail to prevent it happening. The former
generally requires intention and knowledge; the latter can be
committed by omission, i.e. a failure to maintain proper systems
and checks within the organisation.
So far so good.
The papers take the liberty of illustrating five examples of
offshore evasion cases where enablers are
involved. Self-interest, and that of our trusted local legal
friends and colleagues, led us to be drawn to example 4:
Paula (it runs across both papers). In a nutshell, the
scenario is that a Guernsey lawyer in a Guernsey partnership has
assisted Paula, an Australian resident in the UK since 1970, in
total secrecy, to set up a network of companies meaning that Paula
has never contributed to UK taxes. HMRC's conclusion being that
the lawyer in Guernsey actively and
deliberately assisted Paula to evade tax and,
consequently, the Guernsey partnership would be criminally liable
and subject to civil penalty.
We just don't get it. We don't get what in total
secrecy means: is it (a) not disclosing to HMRC or any other
interested party that he or she has been instructed by Paula to set
up a network of companies, and in doing so running the risk of
breaching their own professional codes of conduct, or (b) is the
HMRC implying dramatic middle of the night cloak and dagger
activity of knowingly assisting with tax evasion (which in such an
event, Guernsey has its own robust money laundering sanctions)? Is
the expectation now that Guernsey lawyers must advise their clients
on UK tax matters and explore to the nth degree the potential UK
tax implications of acting on the clients instruction or risk
facing criminal and/or civil sanctions? In our view, that always
has been and firmly remains the job of their UK financial affairs
The mention of Channel Islands also draws our attention to
example 2: John. HMRC will have us believe that there are
individuals like Michael (John's business contact)
who would take the money in a suitcase to the Channel Islands
and deposit it in John's bank account, and, more
importantly, that there are banks on our Islands that accept
Our view is that these proposals are populist and headline
grabbers, crafted to fuel the anti-tax haven (commonly confused
with offshore) feeling. There is no real context to these
discussions and no recognition that AML regulations in many of the
major offshore jurisdictions are already well established and
applied with greater rigour than a number of well-known onshore
Does HMRC truly believe that chasing such cases is going to
raise the big ticket fines to help fill the coffers of the UK
government? We are well aware of the strong political agenda at
play here. Our concern is that any project (however ill-conceived)
driven by HMRC in the current climate would draw sufficient support
to move it along to the next stage. We await the next instalment
If you would like to comment on any of the consultation papers,
please note that the DEADLINE is 8 October
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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