Efficiency

Tax evasion advice: Is criminalising companies the right move?

Fred Heritage | 13 April 2016 | 8 years ago

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Calls for transparency surrounding tax evasion have increased since the “Panama Papers” were leaked
In order to prevent and deter people from evading tax, the government has announced a plan that will see financial service firms prosecuted for the actions of an employee who enablestax evading clients. More clarification is needed on how the plan will work in practice.

This week in parliament, David Cameron announced that the government would bring forward plans to introduce a criminal offence for companies that fail to stop staff facilitating tax evasion.

The prime minister has decided to go full-steam ahead with a plan that was originally unveiled by the coalition government in March 2015, despite considerable opposition from certain banks, accountants and law firms, which claim that such a measure would put Britain’s financial sector at a disadvantage.

Cameron wants to turn up the heat on companies with inadequate supervisory mechanisms? as a way to identify rogue employees, as well as hone in on the small minority of UK firms that purposefully encourage tax evasion.

Although not exactly a new initiative, the haste at which the measure has reappeared following the revelations surrounding the leaked “Panama Papers” earlier this month suggests an element of political expediency on behalf of the government.

It looks increasingly as though the majority of MPs, particularly Cabinet members, will from now on be required to publish their tax returns, following the lead of Cameron, chancellor George Osborne and Scotland’s first minister Nicola Sturgeon this week. Taking such steps to answer the country’s call for greater tax transparency means Cameron is well placed to push through parliament an otherwise unpopular idea.

Is introducing a criminal offence for companies that provide financial services the best way to deter individuals from trying to evade tax? Cameron’s announcement this week offered very little by way of detail, but a July 2015 parliamentary consultation paper on the proposal raised several key questions that need to be answered in order for it to become a more workable policy.

Firstly, clarity is needed over which individuals a company can be prosecuted for. Will it just be a firm’s misbehaving employee it suffers for or the tax evading customer too? What procedure should a company put in place to try and prevent its representatives aiding tax evaders? And lastly, how will the geographical and judicial reach of an offence be defined?

At this stage, it’s difficult to see how the initiative will work in practice. If a company employee provides legally sound financial advice to a client, who then ignores said advice to evade tax, is it reasonable to place any or all of the blame on the employee? Or the company itself? Businesses need further clarification, and the government should provide it.

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Efficiency

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