Tax evasion hit the headlines with a vengeance in Spring with the Mossack Fonseca scandal. But those in business and finance need to see beyond the headlines if they are to avoid tax evasion problems of their own.
While the Panama Papers provided great stories of the famous and powerful doing whatever they could offshore to evade the tax man, the main issue for business and financial people followed shortly afterwards. In April, HMRC published its consultation on proposals to make companies criminally liable for failing to prevent their staff facilitating tax evasion.
At present, finding a corporation criminally liable for an illegal activity requires the prosecution to show that its senior figures were involved in and aware of the wrongdoing. If the proposed new offence became law, businesses would have to prove that they took “reasonable steps’’ and all possible precautions to prevent staff involvement in tax evasion.
Consultation on the proposal ended on July 10. Critics have said the proposal is an attempt to gain some easy convictions, with little being done to tackle the larger, more systemic tax evaders. But whether or not that is the case, there is clearly a need for those in business to take precautions to avoid any involvement in tax evasion.
Some business figures have complained that the proposal would require a company director to be both an expert on both tax law and business administration. It’s a valid point. But HMRC has taken its step because of a need to tackle the scope of tax evasion – and that leaves those in business and finance in the firing line.
HMRC and other agencies are examining closer than ever before any activities that have the potential to be tax evasion strategies. Having worked on many huge, complex tax fraud cases at Rahman Ravelli, we can say that such investigations require a strong, proactive approach in order to build the best possible defence.
But, ideally, a few precautions may prevent the need for such a reaction.
For example, if an investment scheme that you or your staff are being asked to create or invest in for tax purposes (or other financial advantages) does not make sense, alarm bells should start ringing. This may sound obvious advice, but even the most ridiculous offshore scheme can be made to sound plausible – or can at least sound attractive – if it is offering financial benefits.
The courts have heard a number of cases in recent years where people have been prosecuted for tax evasion because of their involvement in schemes which, on close inspection, could only have ever been illegal.
Anyone looking at the risks need to ask themselves whether the scheme is genuine, whether there is real investment in it and whether the scheme is actually doing what it has been set up to do. Is there evidence to back up the claims of those promoting it? Or is it merely an exercise in complex paperwork designed to help people evade tax on their wealth by moving it out of the country?
There will be, no doubt, many who believe that as they have never had to ask these questions there is no need to do so now. That would be a huge mistake. The climate has changed regarding the prosecution of tax evasion - to the point where even schemes that have existed for years have now been judged to be illegal.
Countries are now signing more agreements to cooperate and share information to tackle tax evasion. The Crown Prosecution Service wants to see more tax evasion prosecutions year on year in an attempt to tackle a crime that costs the UK an estimated £14 billion a year. The European Union has introduced a variety of anti-money laundering rules in an attempt to increase business transparency and reduce the scope for tax evasion.
A failure to carry out due diligence checks on the financial schemes that you or your staff are involved in – or are considering being involved in - is now a greater risk than ever before. Whether you are creating the scheme for a client, asking a client or others to invest in one or taking the decision to put money into it yourself, any failure to make checks about its legality could prove costly.
If you do not feel up to the challenge of scrutinising the legality of a scheme, there are specialist tax evasion specialists who can advise on this, train staff in the skills necessary and put procedures in place to minimise risk.
Basic practices such as a fully-documented, up-to-date accounting system, a comprehensive whistleblowing procedure and ongoing briefing of staff can all help reduce the chances of the tax investigators coming knocking. It also means that even if they do come knocking, you have the proof that all your dealings have been legal wherever they have been carried out.
Serious Fraud, Regulatory and Complex Crime Lawyers