TaxPersonal TaxTax – Criminal liability tangles tax advice

Tax - Criminal liability tangles tax advice

by Nigel Eastaway

In the Chartered Institute of Taxation, we have recently been addressing the question of the tax adviser’s criminal liability for inappropriate tax advice, which has caused me to look at the system with my usual cynicism.

Anyone who has looked at some of the recent cases that have come before the courts may be forgiven for having a few qualms. In the first instance, a trial of tax practitioners for cheating the Public Revenue, conspiracy to defraud, or a similar charge is likely to require – at least on the part of the prosecution – vast quantities of documentation to seek to prove complicity in the alleged offences.

Once it is announced, the trial is likely to last a long time. Most people in any position of independence or authority will have a valid reason for not participating in the jury, which leaves those whose ability to comprehend the niceties of transfer-pricing adjustments, and the place of central management and control of the company may be less than perfect.

The Inland Revenue and Customs & Excise are given enormous powers to obtain information from taxpayers, their advisers and third parties and, in many respects, it is right that this is so, because no tax planning should depend for its efficacy on the fisc being kept in ignorance of the facts. If tax has been lost, are the professional advisers necessarily culpable?

Most of us are perfectly capable of recognising a fraud which, like the elephant, may be difficult to describe but easy to recognise. If the accused has run off with the loot, there is a good case to answer.

If he has merely been trying to help his clients set up a legitimate operation which has been imperfectly operated, is this a case of incompetence which should be referred to the professional body or is it a case of fraud to be dealt with by the criminal courts?

It has been noticeable in recent months that the Revenue has not fought shy of raiding the premises of major firms of accountants and it does make me at least wonder whether this is really necessary.

Surely the Revenue is sufficiently in contact with the senior tax partners of these firms to suggest that, if somebody has apparently been stepping out of line, they ought to be brought to book within the firm, rather than made the subject of a highly public raid and potential criminal prosecution.

Similarly, if the partner in a smaller firm or sole practitioner is thought to have overstepped the mark, should the Revenue not raise a complaint with the professional body such as the Chartered Institute of Taxation or the English ICA, to consider disciplinary action against the alleged miscreant. Such a policy might require the giving of tax advice to be a regulated profession to ensure that everyone in this field is subject to a proper disciplinary regime.

Juries face a paper mountain

One of the problems of the current criminal system in such cases is the incredible amount of documentation that is produced before a jury.

I suspect the photocopier is one of the major obstacles to justice, in that fraud cases seem to be categorised as to their seriousness by the volume of documents put into evidence by the prosecution. I suspect that if the prosecution were limited to two weeks in which to make its case, it could do so in the vast majority of cases where a conviction ought to be secured.

In the meantime, tax advisers need to appreciate the risks they run.

Is the fee for setting up a Jersey company to own the nice new Italian client’s house in the UK really worth up to 14 years in prison for assisting the retention of the proceeds of crime, merely because the client is buying it with profits which had not been subject to tax in Italy – where tax evasion is the national sport?

Money laundering extends to criminal proceeds, which includes crimes committed abroad that would be indictable offences if carried out in the UK, such as tax evasion.

Nigel Eastaway of TaxServe is chairman of the technical committee of the Chartered Institute of Taxation.

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