According to the European Commission, Member States lose between 2% to 2.5% of their combined GDP annually to tax crimes. Tax avoidance and tax evasion have also dominated news recently especially following the Panama Papers/Mossack Fonseca Leak and the Paradise Papers. Whereas these leaks, particularly the Paradise Papers, encompassed arrangements that may have involved tax evasion, a lot of the arrangements involved legal tax avoidance, albeit highly aggressive. In response many governments are using the Automatic Exchange of Information and the Common Reporting Standard as a lever to encourage voluntary disclosure of non-reported offshore income among other tools to fight tax evasion.
In the United Kingdom, the Criminal Finance Act 2017 received Royal Assent on 27 April 2017 and came into effect on 30 September 30, 2017. Among other objectives, it created a new corporate offence of failure to prevent the facilitation of tax evasion by an associated person, whether in the United Kingdom or in a foreign jurisdiction. It paves way for holding corporate entities liable where those “associated” with it have engaged in the criminal facilitation of tax evasion.
The new corporate offence of failure to prevent the criminal facilitation of tax evasion was birthed out of the difficulties faced in the UK in holding corporate entities criminally responsible because of the “identification doctrine” that required prosecutors to prove that a “directing mind” within the organization. Therefore, this paper first explores the concept of the “identification doctrine”, criticisms levelled against it and why it was considered an impediment to making corporate entities liable for economic crimes that resulted the move towards a “strict liability” offence. It then focuses on the scope of the new corporate offence and examines the persons covered, the two elements i.e. the failure to prevent the facilitation of a United Kingdom tax evasion offence and the failure to prevent the facilitation of foreign tax evasion offences, the stages involved and the challenges posed by the requirement for dual criminality and the extra-territorial application of the later offence.
Lawyers can and often play a role in the facilitation of tax evasion. In light of the findings of the European Parliament’s Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA), the Bari Declaration of May 13, 2017 and work undertaken by the OECD (for example the Ten Global Principles launched at the OECD´s Fifth Forum on Tax and Crime, the Common Reporting Standard (CRS) and the Mandatory Disclosure Rules for Addressing CRS Avoidance Agreements and Offshore Structures) this paper also looks at the spillover effects of the new UK corporate offence on tax advisers and lawyers in their capacity as “associated persons” vis-à-vis the defense of legal professional privilege. It concludes that the Criminal Finances Act 2017 is consistent with the doctrine of legal professional privilege. It is also consistent with the proposals from the OECD´s Fifth Forum on Tax and Crime that requires professional enablers to play their part in tackling tax crime by ensuring that they have taken reasonable steps to prevent their associated persons from criminally facilitating tax evasion, domestically and internationally.
As recommended, it criminalizes the act of aiding, abetting, facilitating or enabling the commission of a tax offence by others and also makes legal persons and legal arrangements liable for prosecution for committing or facilitating the commission of a tax crime. The Criminal Finances Act 2017 may also cover professional enablers and service providers who are actively marketing schemes designed to circumvent the CRS reporting requirements if it leads to the failure to prevent the criminal facilitation of tax evasion. It is therefore aligned with the OECD Mandatory Disclosure Rules for Addressing CRS Avoidance Agreements and Offshore Structures.
- UK Criminal Finances Act 2017: The Interplay between the New Corporate Offence for the Failure to Prevent the Criminal Facilitation of Tax Evasion and Legal Professional Privilege, SSRN