Bar Council response to the consultation paper on Tackling offshore tax evasion: A new criminal offence 1. This is the response of the General Council of the Bar of England and Wales (the Bar Council) to the Tackling offshore tax evasion: A new criminal offence 1 consultation paper. 2. The Bar Council represents over 15,000 barristers in England and Wales. It promotes the Bar s high quality specialist advocacy and advisory services; fair access to justice for all; the highest standards of ethics, equality and diversity across the profession; and the development of business opportunities for barristers at home and abroad. 3. A strong and independent Bar exists to serve the public and is crucial to the administration of justice. As specialist, independent advocates, barristers enable people to uphold their legal rights and duties, often acting on behalf of the most vulnerable members of society. The Bar makes a vital contribution to the efficient operation of criminal and civil courts. It provides a pool of talented men and women from increasingly diverse backgrounds from which a significant proportion of the judiciary is drawn, on whose independence the Rule of Law and our democratic way of life depend. The Bar Council is the Approved Regulator for the Bar of England and Wales. It discharges its regulatory functions through the independent Bar Standards Board Overview 4. While the consultation does not question the principle of a new strict liability offence, instead choosing to focus on its scope, we feel that it is important to state at the outset that we have real concerns in relation to whether the case for a new strict liability offence in this area has been made out. 5. It is worth bearing in mind that (as presently conceived) the offence would only apply to a small proportion of those who failed to declare and pay taxes due. In the linked consultation, Tackling Offshore Tax Evasion: Strengthening Civil Deterrents, it is noted at 1.10 that in a sample of disclosures in which penalties were charged, 98% involved 1 HMRC Tackling offshore tax evasion: A new criminal offence 1
deliberate attempts to avoid the payment of tax. It is far from clear to us that anything in either consultation paper supports the case that a strict liability offence is required to cater for the remaining 2% of cases. 6. It is worth remembering that strict liability offences are very much the exception, rather than the rule, in the criminal justice system. Further, offences of strict liability generally attach to areas of life in which the individual has deliberately placed themselves in a position requiring them to take on specific duties or responsibilities for example as a landlord, or a manager of a hazardous waste disposal site, or the owner of a firearm, or a driver of a vehicle, or a practitioner in a regulated field, or an importer of a particular type of regulated goods. The duties or responsibilities, breaches of which amount to strict liability offences, are therefore usually integral to a role that has been deliberately sought out and adopted by the individual. 7. The class of potential defendants to charges of offshore tax evasion, on the other hand, is far wider than those who have gone out of their way to seek the responsibility of dealing with overseas assets or income. Beneficiaries under a will who receive an interest in overseas assets do not seek out that role. And even non-professional executors often family members who have agreed to adopt a specific role will not necessarily be aware at the time of accepting such a role that there may be offshore tax implications. 8. It follows that, if a strict liability offence of failing to declare taxable income and gains arising offshore were to be created, it would require considerable safeguards for it to be legally acceptable. 9. The consultation questions Without prejudice to the foregoing observations, our answers to the specific questions asked in the consultation document (insofar as we feel able to express a view on these) are set out below. 10. Do you agree that the applicability of the offence should be limited to income tax and capital gains tax? Yes. It is wrong in principle for a strict liability offence of failing to disclose information to be imposed on those such as executors who may not have knowledge of, or access to, that information. It will also deter law abiding individuals, who would otherwise seek to make full disclosure, from taking on the duties of an executor. Enhanced civil duties of disclosure are sufficient. 2
11. Do you agree that the offence should be restricted to taxable income and gains which arise offshore? Yes. Clarity in any provision imposing a criminal sanction, especially one of strict liability, is essential. 12. In your opinion, which option (to apply the offence only to investment income or gains, or to apply the offence to all offshore income and gains) would best deliver the policy intention? 13. Do you think that the offence should apply to income and gains which are reported under the Common Reporting Standard? No. The principal stated rationale of the new offence is to ensure disclosure of offshore taxable income and gains. In circumstances where the income and gains will already fall to be reported under the CRS, the criminalisation of taxpayers who will in any event be liable to civil penalties is not justified. 14. Should all income and gains in CRS jurisdictions be exempted from the offence, or should the offence apply to any income and gains which are not automatically reported to HMRC? All the income and gains in the CRS jurisdiction should be exempt from the new offence for the reasons given in paragraphs 3.28 and 3.29 of the consultation document. 15. Are there any further issues or impacts which should be taken into account when introducing the offence into Scottish and Northern Irish law? 16. Do you agree that a de minimis threshold is appropriate? Yes. A threshold will take account of whether the tax loss constitutes significant harm, the otherwise disproportionate sanction of criminal proceedings, the likely sentence and the cost and resources of the investigation. 17. Should the de minimis be set by reference to the potential lost revenue arising from the failure/inaccuracy, or some other measure? If so, should the potential lost revenue be calculated in the same way as it is for the purposes of determining civil penalties? 3
There should be a value of potential lost revenue below which no prosecution should be brought. In addition any decision to prosecute should be subject to an assessment of culpability as set out in 4.10 below. For reasons of consistency and clarity the potential lost revenue should be calculated in the same way as it is for the purpose of determining civil penalties. 18. Should the threshold be incorporated in statute or guidance? The threshold should be incorporated in statute. Any decision to prosecute is also subject to the Full Code Test in the Code for Crown Prosecutors. In particular paragraphs 4.16(e) and 4.17(d) should be repeated in any HMRC guidance and expanded to incorporate an assessment as to whether the failure to disclose was careless, deliberate and not concealed or deliberate and concealed. These are factors already incorporated in the civil penalty system for errors included in Schedule 24 to the Finance Act 2007 and, given the significance of commencing a criminal prosecution, they should be taken in account in the decision to prosecute. 19. Are there any further options (for setting the threshold)? 20. Which approach to setting the threshold do you favour? It seems unlikely that a de minimis figure set at or around the median potential lost revenue identified on p18 of the consultation paper would result in a net gain to the state as a result of any criminal prosecution. A threshold linked to the financial threshold for entry into the Managing Serious Defaulters programme (currently 5,000 of PLR) might be the most appropriate, and would have the benefit of enshrining a level of consistency in the approach of the authorities in relation to non-payment of taxes due. 21. The Government's view is that the threshold should apply for each tax year, rather than in respect of a cumulative amount of potential lost revenue, as a new offence would be committed for each tax period e.g. each time an incorrect return is filed. Do you agree? 22. Do you agree with the principle that the available criminal sanction for offshore noncompliance should not be seen as more lenient than the available civil sanction? 4
Yes, the maximum sentence available to the court on conviction should not be less than that available for a civil penalty. However there should be no prescribed minimum sentence. 23. Should an unlimited financial penalty be available to the courts? Pursuant to Section 85(1) and (5) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and Regulation 2(1) and Schedule 1 to the draft Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Disapplication of Section 85(1), Fines Expressed as Proportions and Consequential Amendments) Regulations 2014 the government has proposed that there should be no unlimited fine following summary conviction of the either way offence of knowingly or recklessly making untrue statements etc contrary to Section 167(1) of the Customs and Exercise Management Act 1979. Rather, a maximum fine of 20,000 is proposed (and for a raft of similar offences - some of strict liability - contrary to the Value Added Tax Act 1994 and the Finance Act 1994, 1996, 1997, 2000 and 2001). The proposed penalty for the equivalent strict liability summary offence contrary to Section 167(3) is a level 4 fine, namely 10,000 (Regulation 2(d) of the draft Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Amendment of Standard Scale of Fines for Summary Offences) Regulations 2014). It is submitted that the penalty for the new strict liability offence should be in line with that for comparable non- or false-reporting offences. 24. Is the harm which could be caused by a failure to declare offshore income and gains sufficient that a custodial sentence could be justified in the most serious cases? It seems unlikely that any harm that could only be caught by a strict liability offence would be sufficiently serious to justify a custodial sentence. There are of course a number of offences covering direct tax non-compliance - some of which carry custodial sentences - already in existence, as noted in 2.9 of the consultation paper. 25. If a custodial element is appropriate, should the maximum sentence be six months? 26. Should it be a defence for (i) a person to demonstrate that they had taken reasonable care in conducting their tax affairs, or (ii) a person to demonstrate that they had sought and followed appropriate professional advice? What would be the impact on the likelihood of successful prosecutions if statutory defences are included? As noted above, it is vital for the legitimacy of any strict liability offence proposed that a potential defence is available. Such defence should be both robust and flexible. 5
27. It is suggested that the new offence should be subject to a statutory defence of due diligence or similar, which incorporates the exercise of reasonable care in the decision whether to disclose offshore gains and income. Unless otherwise provided for, Section 101 of the Magistrates Court Act 1980 may apply and the legal (as opposed to persuasive) burden of proving the defence will be on a defendant to the civil standard. This seems appropriate given that the matters to be relied upon in such a defence will ordinarily be within the knowledge of the defendant and not HMRC. The reverse burden of proof should be re-assessed if the new offence is to carry a custodial sentence to ensure that the provision is compliant with Article 6(2) ECHR (R v Johnstone [2003] 1 WLR 1736). 28. Reliance on professional advice, as with any due diligence offence, will be a factor for the court to consider. It should not be a separate defence. Simple definitions of (i) professional adviser and (ii) appropriate advice will be difficult to draft and it is not appropriate to prescribe the scope of the evidence on which a defendant is entitled to rely. It is submitted that the provision creating the new offence should make clear where the burden and standard of proof lies in respect of any statutory defence. 29. Should any other statutory defences be introduced? No. 30. Are further safeguards appropriate? What should these be? None, save as referred to above. 31. Do you have any views, comments or evidence which may help inform our understanding of likely impacts? No. 32. Do you have any views, comments or evidence which may help inform our understanding of likely equalities impacts? No. Bar Council October 2014 6
For further information please contact Jess Campbell The General Council of the Bar of England and Wales 289-293 High Holborn, London WC1V 7HZ Direct line: 0207 611 1316 Email: JCampbell@BarCouncil.org.uk 7