Association of Accounting Technicians response to Tackling offshore evasion: A new criminal offence for offshore evaders 1
Association of Accounting Technicians response to Tackling offshore evasion: A new criminal offence for offshore evaders 1. Introduction 1.1. The Association of Accounting Technicians (AAT) is pleased to have the opportunity to respond to the to the consultation document Tackling offshore tax evasion: A new criminal offence for offshore evaders (condoc), released on 16 July 2015. 1.2. AAT is submitting this response on behalf of our membership and from the wider public benefit of achieving sound and effective administration of taxes. 1.3. AAT has added comment in order to add value or highlight aspects that need to be considered further. 1.4. AAT has focussed on the operational elements of the proposals and has provided opinion on the practicalities in implementing the measures outlined. 2. Executive summary 2.1. This is the second consultation seeking views on a strict liability offence for failing to declare taxable offshore income and gains, which follows the consultation Tackling offshore tax evasion: A new criminal offence to which AAT responded by providing views at a face-to-face consultation meeting followed by a written response in October 2014, as acknowledged in Appendix A (condoc). 2.2. This consultation takes into account responses to its 2014 predecessor and the subsequently published summary of responses. 2.3. In addition the above this condoc also contains draft legislation, which has been published for the purpose of comment. 2.4. As a matter policy AAT always endorses HM Government s commitment to robustly tackle tax evasion and has advocated criminal proceedings as a publicised deterrent. 2.5. In our response 1 to the earlier consultation AAT expressed the view that, the creation of a strict liability offence for taxation failure is a serious step change in tax law. Having read the safeguards in this consultation AAT has not change its minds and still does not support this approach. Nevertheless AAT is mindful that HM Government confirmed in the 2015 Budget (paragraph 1, page 2, condoc) its intention to introduce a new strict liability criminal offence and on that basis AAT is providing views on the questions raised in this condoc. 2.6. The consultation document is structured as follows: 2.6.1. Chapter 2 sets out HMRC s offshore evasion strategy, No Safe Havens. 2.6.2. Chapter 3 sets out the overview of the responses to the 2014 consultation. 2.6.3. Chapter 4 sets out a proposed model of the offence and considers appropriate safeguards. 2.6.4. Chapter 5 sets out the proposed draft legislation. 1 Para 3.2 AAT response to Tackling offshore tax evasion: A new criminal offence 2
2.7. AAT agrees that there should be a statutory defence(s) of reasonable excuse (3.1, below) and reasonable care (3.2, below) but questions the extent of the burden of proof (3.3, below). 2.8. AAT does not agree that overseas income and gains which are deemed to be that of the taxpayer should be taken into account for the purposes of the strict liability offence, for the reasons given in paragraphs 3.12 to 3.18 below. 3. AAT response to the consultation paper on Tackling offshore tax evasion: A new criminal offence for offshore evaders Question 1. Do you agree that there should be a statutory defence of reasonable excuse for those parts of the offence arising from a failure to notify chargeability to tax and failure to file a return; and of reasonable care for that part of the offence arising from an inaccurate return? 3.1. AAT strongly agrees that there should be a statutory defence of reasonable excuse for those parts of the offence arising from a failure to notify chargeability to tax and failure to file a return. 3.2. AAT similarly agrees that there should be a statutory defence of reasonable care for that part of the offence arising from an inaccurate return. 3.3. AAT notes from the draft legislation at Chapter 5 (condoc) that a defendant is required to prove that he had a reasonable excuse under section 106B (2) It is a defence for a person accused of an offence under this section to prove that the person had a reasonable excuse for failing to give the notice and similarly under section 106D (2) that the defendant is required to prove that he took reasonable care. 3.4. AAT would question what standard of proof is required of the defendant, given that in criminal cases it is for the prosecution to prove guilt beyond reasonable doubt. AAT considers that it should be for the defendant to only assert that they have a reasonable excuse and for the prosecution to disprove that assertion. Question 2. Are there any other legislative safeguards that should be included in the offence? 3.5. AAT notes that under the proposed strict liability legislation (Section 106D, condoc) a person would not become liable until after the amendment period. 3.6. AAT considers that where safeguards are available in civil legislation then equivalent safeguards should be included within criminal legislation. 3.7. AAT notes that section 106F (condoc) provides for the inclusion of part of Section 118(2) Taxes Management Act 1970 (for a later deadline for return of documents where HMRC, the tribunal or an officer has agreed to this. AAT notes that provision for reasonable excuse is in section 106B(2) but refer to the comments in paragraph 3.3 (above) concerning the standard of proof. AAT also notes (without complaint) the exclusion from the draft legislation of the imposed liability by the proviso at the end of Section 118(2) for failure to comply without unreasonable delay after the excuse had ceased. Question 3. When HMRC cannot accurately apportion an item of income or a gain between the UK and overseas, or between different overseas jurisdictions, how should that sum be taken into account when deciding whether tax understated exceeds the 3
threshold amount? Do you agree that the use of a certification regime, as outlined above, would be an appropriate way forward? 3.8. AAT is familiar with the current civil tax legislation (4.21, condoc) which enables HMRC to apportion a sum between territories or between the UK and overseas using a reasonable apportionment, against which the taxpayer can challenge on appeal. 3.9. AAT acknowledges that such apportionment under the criminal legislation could have serious consequences. 3.10. AAT agrees with the possible approach to apportionment outlined in 4.23 (condoc) to use a certification regime, like that set out in the Serious Crime Act 2007, Schedule 4 paragraph 2(2), whereby the prosecution serve a certificate setting out the apportionment, which is then deemed correct and accepted unless the defence serve a notice saying it is not accepted and then the prosecution is required to show the apportionment. That would bring the matter to the attention of the Judge for case management purposes and relieve the prosecution of the burden of proving the issue until it was raised. Question 4. Do you agree that overseas income and gains that are deemed to be that of the taxpayer under various anti-avoidance provisions should be taken into account in the normal way? 3.11. AAT does not accept that overseas income and gains that are deemed to be that of the taxpayer under various anti-avoidance provisions should be taken into account for the purposes of the strict liability offence, for the reasons given in paragraphs 3.12 to 3.16 (below). 3.12. Paragraph 30 of the section headed Responses to the 2014 consultation (Appendix B, page 31, condoc) states that many respondents felt that the complexity of taxation and the detailed technical nature of some tax disputes means that that it is inappropriate for such cases to be heard in the magistrates courts. 3.13. In our October 2014 response 2 AAT stated the above and explained the following: AAT considers that tax offences can be very complex and cannot be compared with other strict liability offences, such as a driving offence. The complexity of taxation offences can catch an individual by surprise and perhaps unjustly and a sense of civil liberties would require statutory defences. See the facts of Laithwaite v HMRC TC03879 [Paragraph 4.45 of AAT October 2014 response]. An example of undeclared overseas tax might arise in the case of an old person, resident but non domiciled. The individual might have taken professional advice many years ago that correctly advised that such overseas income was not liable to UK tax provided it was not remitted to the UK. The changes to the remittance basis in Finance Act 2008 might have passed the individual by, and be unaware of current legal requirements. [paragraph 4.46 of AAT October 2014 response] 3.14. Government s reply to this at paragraph 30 of the summary of responses (Appendix B condoc) has been to state that the district judges and lay magistrates (assisted by legal advisers) are well equipped to adjudicate on complex matters and already do so in many areas of criminal and civil law. 2 Paragraph 4.7 of AAT response to Tackling offshore tax evasion: A new criminal offence (PDF) 4
3.15. In response AAT does not agree and is concerned that legal advisers in magistrates courts will not have the requisite knowledge and background of a tax adviser. 3.16. In 4.24 (condoc) it cites the capital Gains rules in sections 86 and 87 TCGA 1992 (attribution of gains with interest in non-resident or dual resident settlements) as an example of anti-avoidance legislation which may be deemed to be income of another person. In paragraph 2.4 (above) AAT advocates criminal proceedings as a publicised deterrent but AAT considers that such legislation is too complex for strict liability consideration. 4. Conclusion 4.1. AAT was pleased to respond to this second consultation on a strict liability offence for failing to declare taxable offshore income and gains, which followed the consultation Tackling offshore tax evasion: A new criminal offence to which AAT responded in 2014. 4.2. AAT agrees, in paragraphs 3.1 and 3.2 (above) that there should be statutory defences of reasonable excuse and reasonable care but questions in paragraph 3.3 (above) the extent of the burden of proof. AAT agrees in paragraph 3.10 (above) the use of a certification regime, like that set out in the Serious Crime Act 2007, Schedule 4 paragraph 2(2) where it is necessary to apportion an amount between territories. 4.3. AAT does not agree that overseas income and gains which are deemed to be that of the taxpayer should be taken into account for the purposes of the strict liability offence, for the reasons given in paragraphs 3.12 to 3.16 (above). 4.4. As stated in paragraph 2.5 (above), AAT accepts that the new strict liability offence legislation is HM Government policy and we have answered the various questions in the Consultation and reviewed the draft legislation to be as helpful as possible. 5. About AAT 5.1. AAT is a professional accountancy body with over 49,500 full and fellow members and 82,400 3 student and affiliate members worldwide. Of the full and fellow members, there are over 4,200 Members in Practice who provide accountancy and taxation services to individuals, not-for-profit organisations and the full range of business types. 5.2. AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law. 3 Figures correct as at 30 Sept 2015 5
6. Further information If you have any questions or would like to discuss any of the points in more detail then please contact AAT at: email: consultation@aat.org.uk and aat@palmerco.co.uk telephone: 020 7397 3088 Aleem Islan Association of Accounting Technicians 140 Aldersgate Street London EC1A 4HY 6