The UK tax office released a consultation paper on Sunday containing a draft version of the proposed new law which could come before parliament for approval in July.
The new law states that a relevant body, defined as body corporate or partnership, is guilty of an offence if it fails to prevent an associated person criminally facilitating the evasion of a tax when that person is acting on its behalf.
The criminal liability will apply to all companies and partnerships regardless of whether they are incorporated or formed in the UK.
The government also intends that the law will also apply when a UK based corporation fails to prevent those who act on its behalf from criminally facilitating a tax loss overseas, where the jurisdiction suffering the tax loss has laws in place equivalent to those in the UK.
Wider application
However, according to Andrew Smith and Danielle Reece-Greenhalgh of financial crime law firm Corker Binning, this offence relating to foreign tax evasion facilitation only requires one of the following:
- That the relevant body is incorporated/formed in the UK;
- That the relevant body is carrying on a business or undertaking (or part thereof) from an establishment in the UK;
- That any act or omission forming part of the foreign tax evasion facilitation offence takes place within the UK.
This third requirement, the lawyers said, did not appear in a draft of the proposed new law which was published in December 2015.
Limited UK connection
“Its inclusion…means, for example, that a Brazilian company, with a business located solely in Brazil, would be criminally liable in the UK if it fails to prevent one of its agents performing an act in the UK that constitutes an offence of facilitating the evasion of Brazilian tax (e.g. a telephone call in London which facilitates the evasion of Brazilian tax).”
The Corker Binning lawyers point out that while the government may be intent on criminalising the failure of firms prevent the facilitation of foreign tax evasion, prosecuting foreign companies for doing so is highly unlikely to happen.
“Prosecuting foreign companies for their failure to prevent foreign tax evasion, especially when they are not even carrying out any business in the UK, is almost inconceivable in practice,” Smith and Reece-Greenhalgh said.
“It is simply not in the public interest to create criminal offences which stand no realistic prospect of being prosecuted in practice,” they said.
