This offence, first announced in the 2015 Summer Budget was outlined yesterday in the government's draft Finance Bill 2016, and, says law firm Pinsent Masons, is “most squarely” aimed at financial services and professional services firms, but all sectors will be in scope.
But, the law firm says, this new law will be difficult to impose against overseas firms.
Jason Collins, partner and head of tax at Pinsent Masons, said, “You can’t extradite a company.
“HMRC may resort to 'prosecution by press release' – i.e., by issuing criminal proceedings which, because they are in the public domain, will mean the foreign company has to decide whether to respond in the public domain.
“This is the sort of legislation of which US law-makers would be proud. It is a bold attempt by the UK to extend the arm of its law beyond its borders. It needs to be matched with resources to police the offence otherwise it will become a damp squib.”
Collins also raises questions about whether this new, tougher stance, will put overseas financial services firms off doing business in the UK
“The US’ very aggressive approach to aggressive tax avoidance and tax evasion has put off some financial services firms from exposing themselves to doing business in the US. This offence may lead to the same thing happening in the UK.”
The government also published further details on new powers that will allow the Revenue to levy penalties on companies that persistently engage in aggressive tax planning.
A large business can be placed under what HMRC describes as “special measures” if it judges it to have an ongoing history of tax planning. HMRC’s “special measures” could then be used to impose harsher penalties if any unpaid tax is due to a “speculative interpretation” of UK law.
According to analysis by Pinsent Masons, under the new laws, HMRC is free to decide what this “speculative interpretation” is.
“The new terms effectively leave HMRC as judge, jury and executioner on these businesses’ approach to tax,” Heather Self, partner at Pinsent Masons said.
“That is a very subjective judgement and is likely to result in some very contentious penalties when it is used.”
Large businesses will also be required to publish their tax strategies, which, the government said, will ensure greater transparency.
But, said EY, more and more businesses are voluntarily publishing and explaining tax policies, and tax transparency is becoming entrenched in business agendas.
“Introducing mandatory measures could be a backwards step,” said Tim Steel, EY’s UK & I tax markets leader.
“Business’s relationship with HMRC is key to attracting investment to the UK. The government will need to get this right in order to continue to support its ‘Open For Business’ strategy.”