Tuesday, August 19, 2014
Is the UK elimination of criminal intent for criminal prosecution of tax non-compliance sound ? Is tax non-compliance equal with 'Cruelty to Animals' and 'Illegal Guns'?
Excerpted from the linked documents issued today by HMRC.
Offshore evasion is illegal and harmful. It is unfair that those who can afford to use expensive offshore banks and complex financial structures can evade their responsibility to pay the taxes which fund vital public services. £1.5 billion has been recovered from offshore tax evaders over the past two years thanks to the Government’s tough and effective approach, but the job is not done yet. (See No safe havens 2014)
Since the end of June, financial institutions in the Isle of Man, Guernsey, Jersey, and all the UK’s Overseas Territories with financial centres have been collecting information on UK residents’ offshore accounts to share with HMRC. Shortly after, financial institutions in a further 33 jurisdictions will do the same under the new Common Reporting Standard.
Strict liability offences
2.5 A strict liability offence is a criminal offence where it is not necessary for the court to ascertain the state of mind of the defendant before convicting.
2.6 There are hundreds of offences which do not require the demonstration of the mens rea. Where a strict liability offence – or an offence which has some characteristics of a strict liability offence – is found, Parliament has determined that the state of mind (the mens rea) of the defendant has no bearing on whether they should be liable to a criminal sanction.
2.7 That is, the act in itself warrants the imposition of a criminal sanction, regardless of why the individual broke the rules.
2.8 Examples of strict liability offences can be found in Box 1. Strict liability offences appear in a variety of circumstances, but often support a requirement to supply information, or underpin a clear-cut legal prohibition. The available sentences vary with the perceived seriousness of the offence, and can include financial and custodial sentences.
2.9 There are very few strict liability offences in tax law, and none in the field of direct tax. Prosecutions for direct tax non-compliance are usually brought under:
the common law offence of cheating the public revenue (or conspiring to cheat the public revenue);
the Fraud Act 2006, which introduced criminal offences of fraud by representation and fraud by failing to disclose;
section 106A of the Taxes Management Act 1970 (TMA), which introduced an offence of fraudulent evasion of income tax;
anti-money laundering legislation.
2.10 In each case, in order to obtain a criminal sanction for tax non-compliance, the state of mind of the defendant must be considered.
2.11 Yet tax non-compliance causes real harm. A failure to correctly account for and pay taxes deprives the Exchequer of funds which support vital public services. Regardless of the state of mind of the taxpayer, this failure harms the compliant majority, and undermines the public’s confidence in the tax system’s ability to deliver fair and even-handed outcomes.
2.12 Naturally, the case of a taxpayer who sets out to cheat the Exchequer through some fraudulent scheme must be met with the toughest response. That is the role of the offences set out in paragraph 2.9 above, which are tried on indictment and carry long custodial sentences.
2.13 However, having offered generous opportunities for people to put their offshore tax affairs on the right footing – see Box 2 – it is right to re-examine whether it should be necessary for prosecuting authorities to demonstrate that a person acted fraudulently in order for the court to convict.
Box 1: Other strict liability offences
There are several existing offences which can be construed to imply strict liability, including some carrying custodial sentences. These include, for example:
Driving offences, such as driving while disqualified, which carries a maximum sentence of six months’ imprisonment under English law (and 12 months in Scotland);
Firearms offences, such as the possession of a firearm or ammunition otherwise than in accordance with a current firearm certificate, which carries a sentence on summary conviction of up to six months’ imprisonment, and a sentence on indictment of up to five years (or seven years where the offence is aggravated);
Tax and customs offences, including the section 167 CEMA1 offence of failing to provide information when requested, which carries a maximum criminal penalty of level 4 on the standard scale;
Cruelty to animals, including the offences of causing unnecessary suffering while transporting an animal or holding it at a market;
Statistical reporting offences, such as the offence of failing to supply a supplementary declaration in accordance with the Intrastat system when required to do so, which carries a maximum penalty of level 4 on the standard scale.
HMRC would be interested to hear from tax and legal professionals, and those involved in offshore investments, including taxpayers who may be affected by the new offence.