By Vanessa Houlder From Financial Times

Plans to stiffen the penalties for offshore tax evasion have been criticised by lawyers and tax advisers, who have warned they could end up criminalising people and companies who have unwittingly broken the rules.

The Treasury has put forward proposals for a new criminal offence for companies that facilitate evasion as well as a “strict liability” offence of offshore tax evasion, meaning an individual can be prosecuted regardless of whether there was an intention to break the law.

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Its move follows a political storm over a tax evasion scandal at HSBC’s Swiss banking operation in February and marks another step in its campaign to prise open secret offshore accounts.

The Fraud Lawyers Association and the Law Society greeted the government’s decision to press ahead with the new criminal offence for tax evaders with “a sense of frustration and disappointment”, saying that “strict liability” was profoundly inconsistent with an offence of dishonesty.

The Chartered Institute of Taxation, a professional body, voiced its “strong opposition” to the principle of a strict liability offence for tax evasion. It noted that the Treasury aimed to target only the most serious offshore tax evaders, but warned of a risk that “once this legislation is in place, it could be used much more widely by a future administration and not confined to cases where there is clear criminal intention”.

The institute also called for strong safeguards for companies caught by the proposed new corporate criminal offence of failure to prevent the facilitation of evasion. It called for the burden of proof to be placed on HM Revenue & Customs to show that a company did not take “reasonable care” to prevent its staff facilitating evasion, rather than the other way round.

“We think that the defences to this offence are absolutely key, because there does not seem to be any requirement for the corporation to have deliberately intended to facilitate tax evasion even though this is a proposed criminal offence,” it said.

Liesl Fichardt, tax partner at law firm Clifford Chance, said company boards needed to ensure that the required procedures were in place in all their lines of business. She said: “The proposed criminal regime shifts the onus to police tax evasion from HMRC and places it squarely on corporates.”

Law firm Slaughter and May issued a briefing to clients that said HMRC’s latest move was “to some extent in line” with the approach of other UK regulators and European tax authorities. It said the German tax authorities had begun to use criminal powers in what would previously have been viewed as standard tax disputes.

The need for the new corporate offence was questioned by lawyers, who pointed to the government’s recent decision to abandon proposals for a new offence of corporate failure to prevent economic crime.

Explaining the decision last month, the government said it had “decided not to carry out further work at this stage”. It said there had been no prosecutions under the Bribery Act and there was “little evidence of corporate economic wrongdoing going unpunished”.

The Treasury also announced proposals to stiffen the civil penalties for offshore evasion and enablers of offshore evasion. The Law Society said it was unconvinced of the need for divergent penalty regimes for offshore and domestic evasion.

The responses were made to a consultation that has just closed into proposals that were launched in July by the Treasury.

IMAGE: A London taxi passes the HM Treasury building in London, U.K., on Monday, Dec. 3, 2012. U.K. Chancellor of the Exchequer George Osborne said it’s taking longer than planned to balance Britain’s public finances, the first hint that he may miss his targets and push austerity on for another year. Photographer: Jason Alden/Bloomberg ©Bloomberg

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