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HMRC Consultation Document Tackling offshore tax evasion: Civil sanctions for enablers of offshore evasion Response by the Chartered Institute of Taxation 1 Introduction 1.

1 HMRC Consultation Document Tackling offshore tax evasion: Civil sanctions for enablers of offshore evasion Response by the Chartered Institute of Taxation 1 Introduction 1.1 This consultation is inviting comments on proposals to find appropriate and proportionate ways of levying civil sanctions against those who deliberately enable offshore tax evasion. It is also asking for views on the definition of enabler and the design of the proposed sanctions. 2 Executive summary 2.1 The Chartered Institute of Taxation s (CIOT) agrees that anyone who helps a person deliberately evade tax that is otherwise due deserves punishment, but it is our strongly held view that there is already adequate existing law in this area. We do not support the proposals as they are currently framed. 2.2 Our principle concern is that these proposals will not deal with those who facilitate offshore tax evasion who may be operating outside the jurisdiction of the UK, while at the same time imposing additional burdens on those who do comply with the law. We strongly object to the use of the word unknowingly in the definition of enabler. It is inconceivable that sanctions could ever be imposed on those who were not aware that they were facilitating offshore evasion. 2.3 If the Government and HMRC feel that sanctions need to be strengthened, for example outside the currently regulated sectors, then adequate defences must also be available. At present, we do not believe that there are sufficiently strong safeguards in the regime being proposed. We would be pleased to work with the Government to frame proposals that will effectively and proportionately achieve this. 2.4 As with the proposals to introduce a criminal corporate offence of failing to prevent the facilitation of tax evasion, we believe that if the measures are introduced, there needs to be clear and comprehensive guidance provided to affected organisations

2 and sufficient time given over to ensuring that appropriate governance processes can be introduced. 2.5 Practically, organisations will want to know what they need to do to comply and they will need time to put the right processes into place. HMRC need to explain how they intend to operate and apply the legislation. We would suggest that a good way of doing this would be through jointly organised, delivered and attended training workshops run as a genuine joint venture by the Professional Bodies and HMRC. We would be more than happy to provide support for such workshops. 2.6 As with other Summer Budget proposals for new offences, the consultation is taking place during Stage 2 of the consultation process ( Determining the best option and developing a framework for implementation including detailed policy design ) - see Chapter 9 of the consultation document. The Government has worryingly bypassed Stage 1 of the consultation process ( Setting out objectives and identifying options ). It would have been helpful if the reasons for doing this were spelled out in the consultation document. The Tax Consultation Framework specifically states that, There will be times when it will be necessary to deviate from this Framework. In these circumstances the Government will be as open as possible about the reasons for such deviations 1. In our view, this is not the position in this case. 2.7 We note that Stage 1 of the consultation process has been omitted in other recent consultations; for example on the introduction of Direct Recovery of Debts (DRD) and the strict liability offence for offshore tax evasion. We are concerned that this is starting to become a regular occurrence which will undermine the consultation process; a process which was carefully developed over several years and had up to now been generally working well. 3 Q1. What are your views on the use of the term enabler to describe any third party who provides such services, whether or not they are aware that they are doing so? 3.1 The term enabler is being used in a wide sense by HMRC to describe any person (whether natural or legal) who, whether knowingly or unknowingly, provides services which assist a UK taxpayer to evade UK tax. We are concerned about the intention to include those who unknowingly provide services which assist tax evasion. We would expect that it would be necessary for there to be some degree of knowledge for the regime to be activated. 3.2 We note paragraph 4.1 of the consultation document attempts to offer some reassurance, but we are uneasy that the assistance to be offered is not being considered as part of this consultation process. In our view, safeguards should form a key part of the consultation process. 3.3 We would strongly recommend that the word unknowingly be removed from the definition of enabler. 1 As outlined in the joint HM Treasury and HMRC document Tax Consultation Framework published in March 2011 at para 9. P/tech/subsfinal/MoT/2015 2

3 4 Q2. Does the list above reflect your experience, from dealing with disclosures or via networks, of the ways in which evaders have been assisted by third parties? If not, how has your experience differed? 4.1 The list is very comprehensive and covers any services which practitioners might provide to a client. 5 Q3. What are your views on our approach to using behaviours and services, as outlined in this Chapter, to define an enabler? 5.1 We are firmly of the view that the proposals should only apply where deliberate enabling has taken place and where it was intended that the advice or services given would be used to evade UK tax. In other words, there should be a requirement for HMRC to prove dishonesty on the part of the enabler. This seems to us to be a fundamental requirement. 5.2 Paragraph 3.8 of the consultation document describes the difference between careless and deliberate as knowledge of, and intent to enable, the evasion. Should this proceed then it is crucial that all aspects of that are embedded in any legislation, ie knowledge of what is happening, and (importantly) that it is evasion; and an intention to enable evasion (ie not intention to set up a structure that might be used for evasion without the adviser s knowledge). 6 Q4. Do you find this categorisation of behaviours and services clear and comprehensive? Please explain your answer. 6.1 Please refer to our above comments above about the nature of the conduct which we believe should fall within the regime. 6.2 The examples in the consultation document are simplistic and do not reflect the way in which advice is given in practice, where multiple advisers may be involved at different points in time. For example, it is not uncommon to use a specialist adviser for one-off restructuring and then use another adviser for ongoing work and then for those advisers to change over time, often multiple times. The conduct of each of the advisers in such cases would, we anticipate, be much more difficult to categorise. 7 Q5. Do you agree that these are the relevant civil sanctions that apply to enablers? 7.1 Yes. 8 Q6. Do you agree with our conclusions on the scope of existing sanctions? Please state your reasons. P/tech/subsfinal/MoT/2015 3

4 8.1 We note that it is HMRC s belief that existing powers are not as comprehensive as they could be. We do not agree. It is clear that there are a number of powers available to HMRC which are not, in our experience, used routinely. We firmly believe that where there are existing powers in place, effort should be focussed on applying these before new powers are sought. Only if existing powers are demonstrably inadequate should they be extended. We have seen no evidence beyond broad assertion that existing powers are inadequate. 8.2 In particular, the proposals are intended to create a civil offence of enabling, although there seems to be a significant overlap with the Anti-Money Laundering (AML) regime under Proceeds of Crime Act (POCA) 2002, which is a criminal matter. We would think that the sort of enabling HMRC are rightly concerned about would be a criminal matter, so we are not convinced that treating them as civil offences is the right approach. 8.3 If a bank employee, for example, has knowledge of or suspects (or has reasonable grounds for knowing or suspecting) money laundering, which can include tax evasion, they can already be liable to a criminal offence under the Proceeds of Crime Act (POCA) Additionally, they commit an offence if they are involved in any arrangements which they know or suspect facilitate money laundering by another person If the enabling proposals are intended to provide HMRC with the power to apply a civil sanction, it is unclear where that would fit with the POCA offence of facilitating money laundering. Who would decide whether POCA or civil sanctions would apply in any particular case? 8.5 HMRC note that they do not think that the dishonest tax agent rules in Finance Act 2012 Schedule 38 are wide enough to cover everything they would like the deliberate enabler proposals to cover. We remain unconvinced whether this is right, particularly given that the Schedule 28 regime has not apparently been applied with any vigour. It appears to us that, in any event, it may be simpler to extend the dishonest tax agent regime to non- tax advice rather than introduce a completely new civil power. 8.6 We do not think that the enabling proposals should be extended to include careless behaviour (see paragraph 5.6 of the consultation document). 9 Q7. What are your views on these conditions? Should any be removed or changed, or further conditions added, and if so why? 9.1 The proposals should only apply to an enabler who has deliberately enabled a UK taxpayer to evade tax. The burden of proof should be on HMRC to show that the enabler had acted dishonestly and with deliberate intent. 9.2 Condition 2(iii) requires further consideration. If it is the case that the potential evader has died, then we would suggest that HMRC would at least need a Tribunal to agree that the evidence is of an acceptable standard. 2 POCA 2002 section POCA 2002 section 328 P/tech/subsfinal/MoT/2015 4

5 9.3 The assertion in paragraph 5.6 of the consultation document that we consider it would be straightforward to widen the scope of this proposed sanction to include careless behaviour is concerning. We think it should be possible only to do this through primary legislation (ie not by statutory instrument), and following a Stage One consultation process. 10 Q8. What are your views on the standard penalty amount being 100% of revenue loss to which the enabler contributed? Do you have any alternative suggestions? 10.1 The consultation document does not say so, but we assume the standard amount will be eligible for reduction in the same way as the paragraph 1A penalty is, for example under Finance Act 2007 Schedule 24 paragraph 9(A1) and paragraph 11(1). Unless the proposals are however limited to enablers involved in deliberate evasion of tax we would strongly oppose penalties at this level We would recommend the widest possible discretion to mitigate any penalty to take account of the very wide circumstances under which awareness might arise. 11 Q9. What are your views on the suggested approach where multiple enablers are involved? 11.1 We agree that it should be possible for multiple enablers to be penalised but that there should clearly be an overarching requirement that any penalties charged in each case are proportionate Point 3 in paragraph 5.10 of the consultation document could be dealt with by a pay on account then appeal process. 12 Q10. What are your views on a provision to reduce the amount of the penalty to recognise any assistance the enabler gave us to put things right, and the quality of that assistance? Is a 30% lower limit appropriate, and why? 12.1 We agree that the penalty should be reduced for disclosure. We do not see why a lower limit of 0% might not be appropriate as that would further encourage people to come forward, especially if they had unwittingly got involved in enabling the evasion to take place. As indicated above, we believe that the widest possible discretion to mitigate a penalty ought to be incorporated into the regime. 13 Q11. What is your view on treating all forms of deliberate enabling as equally serious? 13.1 We do not think that it would be right to treat all forms of deliberate enabling as equally serious. This seems an overly simplistic approach because there will be a wide variety of situations that lead to deliberate enabling. Each case ought to be considered by reference to its own particular facts. P/tech/subsfinal/MoT/2015 5

6 14 Q12. If we were to treat various forms of deliberate enabling differently, what would the relevant criteria be? 14.1 See our response to question Q13. To what extent do you think a reduction for disclosure will minimise that conflict of interest? 15.1 It is possible that a reduction for disclosure might help in the situation described in paragraph We also note that a conflict of interest may arise not only between enabler and evader but also where a specialist adviser may have been appointed by the evader to assist them with HMRC s investigation into their tax affairs, where HMRC are also investigating another adviser as an enabler. There is a risk that the specialist adviser might find themselves in the position that they are effectively also investigating the enabler under this proposal. There needs to be appropriate safeguards built into the legislation to protect advisers who are assisting taxpayers accused of tax evasion in their negotiations with HMRC, where enablers are also part of HMRC s investigation. 16 Q14. What other factors should we take into account in order to determine the amount of any reduction? 16.1 No comments. 17 Q15. Do you agree that there should be a lower limit and is 1,000 an appropriate amount? Please give reasons for your answer No comments. 18 Q16. Do you agree that there should be an upper limit to the penalty? 18.1 Yes, but it needs to vary person to person, so a formula based on the tax loss is preferable to a fixed amount. 19 Q17. Which of a) and b) in 5.17 above is your preferred option for setting the limit and why? 19.1 We are unable to comment meaningfully. We think that paragraph 5.17 is unclear and the rationale for the two proposals in a) and b) has not been properly explained. P/tech/subsfinal/MoT/2015 6

7 20 Q18. Do you consider there are other, better options for setting the upper limit, eg as a percentage of turnover? 20.1 We take it that the reference to turnover is referring to the turnover of the enabler s business. We do not think that this would be a reasonable option as it seems too remote from the tax evasion that may have taken place. An adviser could have played only a minor part in a major evasion, but potentially they could be subject to a multimillion pound penalty. If a connection is sought between the evasion and the fee charged by the enabler, then perhaps a cap could be fixed at say 50,000 alongside a share of any fees charged. 21 Q19. Do you agree that these safeguards are sufficient? Are there any others you consider to be appropriate? 21.1 We are not sure that there could never be a reasonable excuse for behaviour that was deliberate, for example the evader may have coerced or threatened the enabler into helping them evade tax. 22 We would welcome you views on other ways in which we might tackle enablers who are based offshore 22.1 We recognise that that there are challenges applying civil sanctions to enablers who are operating offshore. We have no further specific comments to make on this. 23 Q20. Which of the options for naming deliberate enablers do you consider to be best, and why? 23.1 We note that HMRC are increasingly consulting on introducing naming provisions, for example there are similar proposals in the current consultations Strengthening Sanctions for Tax Avoidance where it is proposed that serial avoiders are named and Tackling offshore tax evasion: Strengthening civil deterrents for offshore evaders where it is proposed that offshore evaders who make a prompted disclosure and directing individuals are named We do not know if the legislation already in place on naming deliberate defaulters and those found guilty of National Minimum Wage non-compliance has been effective or not. We recall that when naming was first proposed it was felt that it would be a very powerful tool, but anecdotal evidence suggests that it has not had the impact hoped for. It would be useful if HMRC commissioned some research on this, before it introduced further naming provisions. We think that there is a definite risk that naming too many people, particularly for fairly small amounts, is likely to be ineffective, and even counter-productive If there is provision on naming enablers, there will need to be adequate safeguards to ensure that there is effective redress if it is subsequently found that a person was in fact not a deliberate enabler eg assume that naming a person leads to collapse of their business and it is subsequently found that there was no offence. It would be absolutely wrong if that person were not fully compensated for the damage caused. P/tech/subsfinal/MoT/2015 7

8 24 Q21. Do you consider this additional criterion for naming enablers appropriate? Are there any others that should be taken into account? 24.1 This seems like a sensible safeguard. 25 Q22. What are your views on these proposed arrangements for naming enablers? 25.1 No further comments. 26 Q23. Do you agree that these safeguards, in respect of naming enablers, are sufficient? 26.1 No further comments. 27 Q24. Do you have any views, comments or evidence which may help inform our understanding of likely impacts? 27.1 The assessment of impacts is not particularly detailed considering this is a stage 2 consultation. In our view, a full Impact Assessment needs to be done, to ensure that the rules are cost effective and targeted appropriately. In this context, we note that the compliance costs for professional firms will likely be significant. P/tech/subsfinal/MoT/2015 8

9 28 The Chartered Institute of Taxation 28.1 The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it taxpayers, their advisers and the authorities. The CIOT s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer. The CIOT draws on our members experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work. The CIOT s 17,000 members have the practising title of Chartered Tax Adviser and the designatory letters CTA, to represent the leading tax qualification. The Chartered Institute of Taxation 9 October 2015 P/tech/subsfinal/MoT/2015 9

1 Introduction. 2 Executive summary

1 Introduction. 2 Executive summary HMRC Consultation Document Tackling offshore tax evasion: a new corporate criminal offence of failure to prevent the facilitation of evasion Response by the Chartered Institute of Taxation 1 Introduction