Crime update

Now the 2013/14 tax year has ended, HMRC is making declarations as to its success. The two main points of emphasis relate to eliminating tax-dodging schemes and tackling evasion via offshore bank accounts. The crackdown has resulted in HMRC successfully raking in an additional £23.9bn in tax revenue this past year for the Treasury.

This is a direct result of increased investigative activity, the body asserts, and represents an augmentation of £3.2bn on the previous year.
From April 2010 to March 2014, HMRC has prosecuted 2,650 individuals for tax crimes, including high-profile barristers, lawyers and accountants. For 2013/2014 alone there were 915 prosecutions, 716 of which resulted in convictions.

Following a G20 meeting, on 24 February
2014, HMRC launched a campaign targeting offshore bank account holders who fail to
disclose income and/or are evading UK tax,
based on a commitment of 44 jurisdictions
to share information for this precise purpose
(No Safe Havens 2014).

Penalties for this undeclared income
include the tax owed itself, with a fine of up to
200 per cent of that sum, and the possibility of a criminal prosecution and imprisonment.

To add weight to this campaign, on 14 April 2014, HMRC announced that the government was consulting on a new strict liability criminal offence for tax evasion. Under the plans announced by the chancellor, HMRC would no longer need to prove that individuals who have undeclared income offshore intended to evade tax.

Under the current regime, HMRC has to demonstrate that, when someone has failed to declare offshore income, the individual intended
to evade tax. The proposal would mean HMRC
has merely to demonstrate that the income in question was taxable and undeclared, making it easier to secure successful convictions of offshore tax evaders.

Avoidance crackdown

Three recent tribunal judgments have nullified
tax avoidance schemes. On 28 April 2014, HMRC published that a scheme designed to make taxable interest payments disappear was blocked for the second time by a tax tribunal (Greene King Plc v HMRC [2014] UKUT 0178 (TCC)). The scheme was marketed by Ernst & Young in 2003 to brewery Greene King plc and other large groups, and involved loans between group companies.

The aim was for one company in a group to get tax relief on interest paid to another without that other company paying tax on the income it received. HMRC is now set to receive £36m from users of the scheme after the Upper Tribunal ruled that it “did not work”. Greene King risks having to pay about twice the tax it tried to avoid, after the tribunal left the issue open.

Two weeks later, the Icebreaker scheme, worth £66m, was equally rejected by the tribunal (decision no TC 03545, 07/05/2014). The scheme involved the acquisition and exploitation of intellectual property rights over artistic material, with the wealthy members (including Gary Barlow and others from
Take That) claiming to be active partners by trading these rights in the creative industries.

HMRC states that they “claimed tax relief on greater losses than they invested in the partnerships. The return on the partners’ ‘investment’ was the tax relief, which was considerably larger than their cash contribution”.

Contemporaneously, another avoidance
scheme was defeated by HMRC, which involved a purported £500,000 gift to a charity, “which was used as a way of channelling the money tax free to the participant’s Jersey trust, with virtually no benefit to charity”.

The First-tier Tribunal rejected the claim for £200,000 of tax relief, which protected £21m, and 60 participants are now expected to pay the taxes due (three individuals had already paid £24m in tax before the hearing). 

Investment schemes claiming tax relief must be registered with HMRC, which will decide if the projects are legitimate or not. If there is a question as to the authenticity of the scheme, the authorities will try to shut it down via the tax tribunals, with a very high success rate (80 per cent).

Financial crime

The Sentencing Council’s definitive fraud, bribery and money laundering offences guideline
was published on 23 May 2014 after a public consultation, and will come into force on
1 October 2014.

The penalties for cheating the revenue have been drastically increased, where the previous guidelines (2009) had only addressed offences involving up to £500,000, with a range of four to seven years, the revised guidelines allow for sums of £50m or more, with the range for the most serious offending sitting at between ten and 17 years in prison, and life imprisonment for the worst offending.

The regime is nuanced, and considers the
role the offender played in the misconduct (culpability), with greater focus than in the previous guidelines on the harm suffered by
the victim (actual or intended).

Civil misconduct

HMRC has a litigation and settlement strategy and
a criminal investigation strategy, and a number of revenue-related offences appear on the statute books. Most offences will be dealt with using civil procedures, and culpability is assessed by the nature of the offending: accident, careless (negligent), deliberate but not concealed, and deliberate and concealed. It is this final, most serious, type of behaviour that could run the risk
of being referred for criminal investigation.

HMRC’s criminal investigation policy asserts that where tax fraud is suspected, in many instances the offender should first be offered the opportunity to resolve the issue via code of practice 9 civil procedure. The ‘recipient’ will be given the chance
to make a complete and accurate disclosure of all the irregularities in their tax affairs.

Where COP9 fails, or where certain aggravating features exist (abuse of trust, organised criminal gang involvement, deliberate concealment, suspected deception or corruption, false or forged documents, etc) then a criminal investigation
will commence.

Internet profile

The Court of Justice of the European Union (CJEU) ruled on 13 May 2014 on the so-called ‘right to be forgotten’ in a case about Spanish citizen Costeja González (represented by Spain’s data protection body) and internet monolith Google (Google Spain SL, Google Inc v Agencia Española de Protección de Datos, Mario Costeja González (C-131/12)).

González sought the removal by Google of search links to an outdated (but lawfully published newspaper announcement in 1998 about his bankruptcy, long since resolved.

Spain’s national court requested a preliminary ruling from the CJEU on, among other issues, whether or not data subjects have a right to
object to the processing of the data/or the right to erasure of certain material.

The court deemed that the right of the individual trumped “not only the economic interest of the operator of the search engine but also the interest of the general public”.

However, the removal request relates only to
the search engine, and the underlying primary publisher will be unaffected; there is no obligation to delete, rather an obligation to balance opposing rights and interests.

This balance will be achieved by considering, inter alia, the nature of the information, its sensitivity, the interest of the public, and the
role of the relevant individual (data subject).

Supporters would suggest that this is about presenting a balanced view of information. News organisations themselves have an exemption under section 32 of the Data Protection Act 1998, thus more accurate or specific search terms would still turn up the relevant articles/blogs/reports.

However, harm can be suffered by an individual not just from an obscure or outdated publication, but from the prevalent and often decontextualised accessibility of the information presented via search engines.

For example, an internet search of a defendant in a criminal trial who is subsequently acquitted will often present a list of websites and articles linking them to this criminal case, without reference to the fact that they were acquitted.

Detractors, on the other hand, fear that it will result in information gaps and revisionist history, and that it could be exploited, for example, by companies wanting to remove critical comments or professionals subject to negligence claims.

Achieving the correct balance between the
right to privacy and the right to free speech will
no doubt require careful thought and, given this ruling only applies to those searching in Europe,
an information gap may develop between privacy-protecting Europe and free-speech enthusiast America. SJ

Rebecca Meads is a barrister at Peters & Peters

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