HMRC pushes ahead with criminalising failure to prevent tax evasion

HMRC is to go ahead with a bid to create a new criminal offence for failure to prevent tax evasion, despite warnings of significant challenges in prosecuting overseas companies.

HMRC has published results of its consultation on the new corporate offence, which is squarely directed at financial and professional services firms.

Businesses that commit the offence will be hit with a criminal record, which could hamper their ability to win public contracts.

Reacting to the news, Jason Collins, a partner and head of tax at Pinsent Masons, opined that it will be difficult for HMRC to force overseas firms to voluntary face prosecution before the UK courts.

'You can't extradite a company,' she said. 'HMRC may resort to "prosecution by press release" - i.e. by issuing criminal proceedings which, because they are in the public domain, will mean the foreign company has to decide whether to respond in the public domain.'

Collins commented that this was 'the sort of legislation of which US law-makers would be proud' and was a 'bold attempt by the UK to extend the arm of its law beyond its borders'.

However, the tax expert warned that the new powers needed to be matched with resources to effectively police the offence otherwise it could become a 'damp squib'.

'What does worry us is that HMRC's use of this threat may put off some foreign companies from offering their services in the UK for fear of falling foul of the new rules,' added Collins.

'The US's very aggressive approach to aggressive tax avoidance and tax evasion has put off some financial services firms from exposing themselves to doing business in the US. This offence may lead to the same thing happening in the UK.'

In a move that will be welcomed by some, HMRC has agreed to rework its definition of 'agent' and remove automatic liability for the acts of staff of an intermediary.

Last week the Serious Fraud Office (SFO) achieved its first deferred prosecution agreement (DPA) for a company failing to prevent its agents paying bribes. The DPA mechanism will also be available for companies caught under the new offence.

'The authorities could prosecute the company without having to also prosecute the agent or the person actually evading tax,' explained Collins.

'This leaves companies at risk - a member of staff might seek immunity by whistle-blowing, leaving the employer to face the music.'