A new U.K. law came into force on September 30, 2017, making it easier for U.K. authorities to prosecute companies that fail to prevent tax evasion.
Previously, companies could be held accountable if prosecutors showed that senior directors were involved in and aware of illegal activity, such as advising clients of illegal tax avoidance schemes. But such cases were hard to pursue, particularly when they involved multinational corporations, where there is often little incentive to report malfeasance and where decisions are often made at a relatively low level.
Under the new law, the Criminal Finances Act 2017, companies will be criminally liable if they fail to prevent tax evasion by either a member of their staff (even lower-level staff) or an external agent.
The law does not broaden the definition of tax evasion; rather, it widens the net for catching companies that abet it. For a corporate offense, someone must have deliberately and dishonestly facilitated tax evasion at a company. Individuals avoiding tax will be charged with tax evasion. Companies will be charged only with failing to prevent it, not with tax evasion itself.
The law is vague about the consequences of being held criminally culpable. There is no limit on financial penalties, for example. In addition, the confiscation of illegal gains and ineligibility for receiving public contracts may apply.
For details, read the full blog article here.
Director of Radius’ tax advisory practice, Tom Lickess is an expert in international tax law, with extensive knowledge of U.K. and Australian corporate tax rules. Prior to joining Radius, Tom worked at Deloitte in London and Sydney. Based in Bristol, England, he is a Fellow of the Institute of Chartered Accountants and a member of the Australian Mediation Association.