HM Revenue & Customs - Tax Evasion Enforcement

There has been much publicity regarding tax avoidance of late in the UK. In the age of austerity, tax avoidance by companies is scruitnised by the press and is a hot topic with the public.

However, while tax avoidance is currently grabbing the headlines, tax evasion enforcement is also ramping up. On 30 April the Crown Prosecution Service (“CPS”) announced that five individuals were to be prosecuted in relation to the alleged abuse and dishonest marketing of a film financing scheme. This year, both the Prime Minister and the Director of Public Prosecutions have made clear that initiatives are being put in place to deal with tax evasion.

Increased Intelligence

In April, David Cameron wrote to Herman Van Rompuy, President of the European Council, setting out his desire to take radical action regarding tax evasion and fraud at the forthcoming G8 Summit. The Prime Minister hopes that the European Council will support him in four key areas1:

  • Developing a new global standard for tax transparency based on multilateral automatic information exchange to deal with tax evasion through the use of offshore trusts.
  • Ensuring full transparency regarding the beneficial ownership of companies.
  • Addressing concerns that current global tax rules do not reflect the modern and globalised economy in which we live and trade and allow companies to shift profits “artificially” to “ultra low” tax jurisdictions.
  • Improving the ability of developing countries to collect tax domestically, including a fair share from multinational companies.

The first two of these areas will have the greatest impact on domestic tax evasion cases:

  • Greater information exchange between jurisdictions will enable HM Revenue & Customs (“HMRC”) to identify individuals and companies with offshore trusts or accounts.
  • Opaque corporate structures have been a hot topic in the press. Concerns have been raised regarding nominee owned and operated companies, which can be incorporated in a variety of jurisdictions. Such a company usually holds a bank account in a different jurisdiction to its incorporation and can allow an anonymous ultimate beneficial owner to evade tax, launder money or channel bribes.
Increased Prosecutions

As part of the 2010 Spending Review settlement, HMRC was allocated additional resources (£900 million over 4 years) to tackle the problems of tax evasion and avoidance.

In tax evasion cases, HMRC investigates and the CPS prosecutes. In January of 2013, Keir Starmer QC, the Director of Public Prosecutions made it clear that the CPS and HMRC intended to ramp up criminal enforcement in tax evasion cases. Mr Starmer referred to ”organised criminal attacks on the tax and excise systems” and gave the following statistics for these more complex tax evasion cases:

  • 2010-11 – 200 cases prosecuted.
  • 2011-12 – 550 cases prosecuted (an increase of 175%).

The rise in cases has also not impacted on the impressive record of HMRC and the CPS in securing convictions in these cases; Mr Starmer noted that in the financial year of 2012-13, the conviction rate in these complex cases was 86%.

Individuals found guilty of cheating the public revenue face stiff penalties; the Court of Appeal has made it clear that even those without previous convictions can expect significant custodial sentences. Additionally, individuals face the draconian confiscation regime and disqualification from acting as a company director.

On the civil fraud side, HMRC launched its Contractual Disclosure Facility (“CDF”) in February 2012. In return for a taxpayer admitting to tax fraud, providing full disclosure about the fraud and payment of all taxes, duties, interest and penalties due, HMRC will agree not to launch a criminal investigation.

How we can help

There has never been a greater likelihood of a company or a high-net-worth individual receiving a challenge from HMRC in relation to a tax planning arrangement.

Obtaining proper guidance on how to respond to challenges, investigations or raids on offices and homes by HMRC Inspectors seeking evidence to support charges has never been more important.

Dechert has a broad experience in assisting both companies and high-net-worth individuals in both tax avoidance and tax evasion cases. Dechert has also conducted seminars on these issues to provide guidance on both the CDF and criminal investigations.

Footnotes

1The letter from the Prime Minister also references the recent EU Accounting Directive, the subject of a previous OnPoint by Dechert.

 

Topics:  Criminal Prosecution, Customs, EU, Tax Avoidance, Tax Evasion, Tax Fraud

Published In: Criminal Law Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »