I am giving evidence to the House of Commons Committee considering the Criminal Finance Bill this morning at 11am, at their request.
The evidence I submitted in advance of the hearing was as follows:
To: The Criminal Finances Public Bill Committee
10 November 2016
Sent by email
You have asked for my opinion on Part 3 of the Criminal Finances Bill.
This part of the Bill seeks to tackle the promotion of tax evasion by the employees of companies and partnerships. The proposed sanction is a fine on the company responsible for permitting its employee, agent or representative to promote tax evasion.
Whilst the primary focus of the legislation is on UK tax evasion overseas tax evasion linked to a UK activity is also covered.
The nature of tax evasion is widely defined and is not linked solely to corporation tax. Other taxes are covered, as is National Insurance.
The drafting of the relevant sections of proposed law is similar in style to the UK Bribery Act 2010.
The Bill creates what is, in effect, a strict liability offence: evidence of intention is not required for conviction under the terms of this Bill; all that is required is evidence that tax evasion has taken place. Many in the tax profession dislike such provisions. I do not share their concerns: attempts to tackle tax evasion have for too long been undermined by the difficulty of proving intent when evidence of evasion having taken place is readily available.
As a consequence of this being a strict liability offence an alternative defence to prosecution is provided: this is that the company has taken all reasonable steps to prevent employees partaking in tax evasion. We do not yet know what evidence this will require from the companies otherwise alleged to have permitted tax evasion as the required steps will be established by regulations.
In principle it does appear that this Bill provides a major new tool to HMRC to tackle tax evasion. In practice I doubt that this is the case for a number of reasons.
First, because of the restrictions placed on bringing a prosecution, which may well require Serious Fraud Office involvement, the number of cases will be very low. This has been the case with the Bribery Act.
Second, because having internal systems meant to tackle tax evasion should prevent a prosecution the chance of a successful prosecution is even lower. Existing money laundering training in most banks and other financial services providers should be enough to prevent prosecution, I suspect, unless very high level collusion could be shown and the focus of the proposed Bill does not encourage consideration of such motives being tested.
Third, for the two previously noted reasons it is likely that the low risk of prosecution will not result in significant behavioural change, which is the greatest benefit of most anti-tax abuse legislation.
Fourth, this legislation is in any event being put in place after much of the abuse it will tackle is likely to be declining for other reasons. Very few financial services companies will now be going near the creation of offshore arrangements likely to result in tax evasion. This is a major change resulting from:
- The history of recent leaks on this issue that have caused considerable embarrassment to the institutions involved;
- New automatic information exchange arrangements that seem to be reducing demand for evasion products as the risk of being caught grows;
- Some potential improvements in procedures by both companies and tax authorities.
Fifth, most tax evasion (and the vast majority of the tax gap) arises in the domestic economy and is undertaken by individuals and small companies and this legislation as drafted goes nowhere near tackling this issue. There is not space here to suggest how to address that; suffice to say this Bill attempts to hit a small part (maybe 10% or less) of the tax evasion target with its implicit focus on offshore enablement by employees of larger financial service providers when 90% of the problem is undertaken by domestic trading companies and businesses for the personal gain of those directing such entities.
Sixth, the measure does not address the issue of tax avoidance which remains of great concern to the public, not least because those with wealth do not tend to evade so much as avoid because they can afford to buy arrangements that bring their tax abuse within the realms of the law. It may be appropriate to extend the Bill to the promotion of arrangements that abuse the UK General Anti-Abuse Rule or similar arrangements in other countries to address this defect.
I shall be pleased to discuss these issues with the Committee.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
‘It may be appropriate to extend the Bill to the promotion of arrangements that abuse the UK General Anti-Abuse Rule or similar arrangements in other countries to address this defect’
Good to hear somebody is at last brave enough to tackle one of the weaknesses of our system, which is our legislators’ unwillingness to act against those abusing other countries’ legislation.
Bravo to you Richard.
I think it fair to say that Alex Cobham of the Tax Justice Netowrk and I provided some real input into the hearing this morning and left no sacred cows upstanding
‘our legislators’ unwillingness to act against those abusing other countries’ legislation’
This sounds remarkably like a call for extra-judicial reach. Under what sort of authority would we be able to legislate on others’ legal affairs ? This I’m afraid smacks of imperialism, and I’m surprised you haven’t refuted this suggestion.
Richard, I think you are often a beacon of hope on some of these crazy, crazy nights we are living through with the Tory election, BREXIT and now Trump, but there has to be a grounding in what would be acceptable calls for reform, and something unrealistic.
Intwrnational tax abuse clearly requires a willingness to work across boarders. It is that or we choose to fail.
Which would you prefer ?
Lovely exposé of BS.
Well done to both of you – you are certainly doing your bit.
Now – what can I do?
What do you want to do?
I fantasize about riding to the rescue of the Left and making it a force to be reckoned with again.
But there you go. I’m held back by my own mediocrity.
Maybe I’m doing enough as a social housing developer – building cosy high quality affordable homes for those on the ever growing housing lists in ever more difficult financial constraints?
The problem is finding a positive outlet for my rage. I’d hate to become a left -leaning version of someone like Bannon or a UKIP voter.
Respectfully, there is a huge difference between ‘working across boarders’, and legislating on somebody’s behaviour in another country, whilst they are subject to that other country’s laws ?
If it’s the former, I would Shout it out loud as yourself, but it would Shock me if it was the latter you were advocating ?
In the words of Riccardo Baldissone, with whom you are no doubt familiar, Sovereignty forever !
But the whole logic of international tax agreements does in fact compromise sovereignty
So by that logic, you would be happy to receive a summons to a US court for not declaring your worldwide income, even though you were not a US resident, and had never set foot in the US ?
If you wish to be crass I can’t be bothered to answer
Please go and be stupid elsewhere
Or perhaps a better example. As a US resident, but living in London, you are prosecuted by a UK court for not paying tax in the US on your worldwide income ?
Your debt can be chased that way
I’m sorry you feel that I lack intelligence or sensitivity, but you are not talking about chasing a foreign country’s debt. You are suggesting a country having the ability to tax a resident of another country for transgressing the rules of that other country.
Perhaps you have forgotten the original quote:
‘our legislators’ unwillingness to act against those abusing other countries’ legislation’
If you could restrict yourself to commenting on the issue at hand rather than insults, it would be much appreciated.
I am saying we should have the power to ensure another country’s tax rules are enforced
This is now internationally accepted practice although only in the almost decade or so
There is nothing controversial in what I said
You made up your false claim as to what I said