A recent case leaves taxpayers who have entered into binding settlements with the Inland Revenue vulnerable to criminal prosecutions.
Facts
In Regina -v- W & Another an Inland Revenue investigation into a suspected serious fraud by two companies resulted in a substantial contractual settlement to pay corporation tax, interest and penalties. The Inland Revenue decided not to prosecute for tax offences based on the alleged fraud. However, in rather unusual circumstances the Crown Prosecution Service was also investigating the companies and their directors for tax fraud and conspiracy.
The taxpayers asked for a ruling that a pecuniary settlement negotiated by the Revenue prevented a prosecution by the CPS in respect of false accounting to tax. The Court of Appeal has held against the taxpayers, despite the Inland Revenue intervening in the action in an attempt to prevent the CPS prosecution. The case will now go to full trial later this year.
The taxpayers argued that if the Inland Revenue accepted a monetary settlement in relation to alleged fraudulent conduct, a subsequent criminal prosecution would "become a source of gross injustice and oppression".
The Court of Appeal agreed with the CPS that the Inland Revenue's power and duty to collect taxes was separate and distinct from the criminal prosecutions. It includes the power to reach a settlement and impose penalties, but the exercise of those powers has nothing to do with the criminal process. The settlement reached between the companies and the Inland Revenue was relevant to mitigation but irrelevant to the CPS prosecution which was well advanced when the settlement was reached. The Court of Appeal held that, on principle and on decided authorities, the Inland Revenue's common law power to prosecute tax offences was ancillary to, supportive of and limited by their duty to collect taxes. By contrast, the CPS's free-standing statutory duty to take over and conduct criminal proceedings was unconfined and reflected wider public interests, concerns and objectives than just the interests of the Inland Revenue. Most controversially, the Court of Appeal held that it saw no difficulty in the CPS prosecuting in circumstances where the Revenue had decided not to.
The Hansard Statement
The Hansard Statement has been used in serious fraud investigations by the Inland Revenue since 1944. It involves a challenge by the Inland Revenue to a taxpayer that his tax returns or accounts are or may be incorrect. The Hansard Statement is given in the form of a leaflet and while it does not give immunity from prosecution (even where the taxpayer fully co-operates with the Revenue by disclosing irregularities) it does state that the Revenue will be influenced on the question of prosecution by the taxpayer's response to the Hansard challenge.
In practice, it has been understood that the "protection" of Hansard virtually guaranteed immunity from prosecution for a taxpayer who made full disclosure of tax irregularities.
The decision in R-v-W brings this understanding and practice into serious question.
The Attorney General's Statement
Following the decision in R -v- W, a statement was made by the Attorney General on 8 April 1998. The statement acknowledged the free-standing role of the CPS to conduct criminal proceedings and broadly defended the decision in R -v- W. He stated that "primary responsibility for investigation and prosecution in relation to alleged tax evasion rests with the Inland Revenue; proceedings brought by the CPS will ordinarily encompass charges relating to tax evasion only in circumstances where that is incidental to allegations of non-fiscal criminal conduct". He also drew attention to the independence of the inquiries by both the CPS and Inland Revenue in R -v W and added that the decision did not affect the current practice of offering Hansard to taxpayers investigated by the Revenue.
The position of taxpayers after R -v- W
It was implied in R -v- W that "non-fiscal criminal conduct" could encompass a charge of false accounting motivated by alleged tax evasion. In this context, as arguably every charge of tax evasion could include an element of false accounting, the CPS could potentially prosecute a wide number of taxpayers currently negotiating settlements with the Inland Revenue.
As the Attorney General's statement merely reinforces the decision given by the Court of Appeal in R -v- W, taxpayers may now be vulnerable to a criminal prosecution even where they co-operate fully with the Inland Revenue and reach a settlement with them. However, failure to co-operate will merely antagonise the Inland Revenue and may provoke them to prosecute. At the very least considerable uncertainty has been introduced into the process of Inland Revenue investigations.
Comment
Taxpayers investigated by the Inland Revenue now face an unenviable choice. Do they co-operate fully with the Inland Revenue and face potential criminal prosecution on submission of their disclosures or do they await the outcome of R -v- W and face prosecution for non co-operation? It is to be hope that this highly unsatisfactory position can be resolved quickly. In the meantime, any taxpayer faced with an Inland Revenue investigation should take advice on how best to proceed.
For further information please contact Mark Simpson, e-mail: Click Contact Link , 2 Park Lane, Leeds LS3 1ES, UK, Tel: + 44 113 284 7000
This article was first published in the Autumn 1998 Hammond Suddards Tax Newsletter Update
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
Facts
In Regina -v- W & Another an Inland Revenue investigation into a suspected serious fraud by two companies resulted in a substantial contractual settlement to pay corporation tax, interest and penalties. The Inland Revenue decided not to prosecute for tax offences based on the alleged fraud. However, in rather unusual circumstances the Crown Prosecution Service was also investigating the companies and their directors for tax fraud and conspiracy.
The taxpayers asked for a ruling that a pecuniary settlement negotiated by the Revenue prevented a prosecution by the CPS in respect of false accounting to tax. The Court of Appeal has held against the taxpayers, despite the Inland Revenue intervening in the action in an attempt to prevent the CPS prosecution. The case will now go to full trial later this year.
The taxpayers argued that if the Inland Revenue accepted a monetary settlement in relation to alleged fraudulent conduct, a subsequent criminal prosecution would "become a source of gross injustice and oppression".
The Court of Appeal agreed with the CPS that the Inland Revenue's power and duty to collect taxes was separate and distinct from the criminal prosecutions. It includes the power to reach a settlement and impose penalties, but the exercise of those powers has nothing to do with the criminal process. The settlement reached between the companies and the Inland Revenue was relevant to mitigation but irrelevant to the CPS prosecution which was well advanced when the settlement was reached. The Court of Appeal held that, on principle and on decided authorities, the Inland Revenue's common law power to prosecute tax offences was ancillary to, supportive of and limited by their duty to collect taxes. By contrast, the CPS's free-standing statutory duty to take over and conduct criminal proceedings was unconfined and reflected wider public interests, concerns and objectives than just the interests of the Inland Revenue. Most controversially, the Court of Appeal held that it saw no difficulty in the CPS prosecuting in circumstances where the Revenue had decided not to.
The Hansard Statement
The Hansard Statement has been used in serious fraud investigations by the Inland Revenue since 1944. It involves a challenge by the Inland Revenue to a taxpayer that his tax returns or accounts are or may be incorrect. The Hansard Statement is given in the form of a leaflet and while it does not give immunity from prosecution (even where the taxpayer fully co-operates with the Revenue by disclosing irregularities) it does state that the Revenue will be influenced on the question of prosecution by the taxpayer's response to the Hansard challenge.
In practice, it has been understood that the "protection" of Hansard virtually guaranteed immunity from prosecution for a taxpayer who made full disclosure of tax irregularities.
The decision in R-v-W brings this understanding and practice into serious question.
The Attorney General's Statement
Following the decision in R -v- W, a statement was made by the Attorney General on 8 April 1998. The statement acknowledged the free-standing role of the CPS to conduct criminal proceedings and broadly defended the decision in R -v- W. He stated that "primary responsibility for investigation and prosecution in relation to alleged tax evasion rests with the Inland Revenue; proceedings brought by the CPS will ordinarily encompass charges relating to tax evasion only in circumstances where that is incidental to allegations of non-fiscal criminal conduct". He also drew attention to the independence of the inquiries by both the CPS and Inland Revenue in R -v W and added that the decision did not affect the current practice of offering Hansard to taxpayers investigated by the Revenue.
The position of taxpayers after R -v- W
It was implied in R -v- W that "non-fiscal criminal conduct" could encompass a charge of false accounting motivated by alleged tax evasion. In this context, as arguably every charge of tax evasion could include an element of false accounting, the CPS could potentially prosecute a wide number of taxpayers currently negotiating settlements with the Inland Revenue.
As the Attorney General's statement merely reinforces the decision given by the Court of Appeal in R -v- W, taxpayers may now be vulnerable to a criminal prosecution even where they co-operate fully with the Inland Revenue and reach a settlement with them. However, failure to co-operate will merely antagonise the Inland Revenue and may provoke them to prosecute. At the very least considerable uncertainty has been introduced into the process of Inland Revenue investigations.
Comment
Taxpayers investigated by the Inland Revenue now face an unenviable choice. Do they co-operate fully with the Inland Revenue and face potential criminal prosecution on submission of their disclosures or do they await the outcome of R -v- W and face prosecution for non co-operation? It is to be hope that this highly unsatisfactory position can be resolved quickly. In the meantime, any taxpayer faced with an Inland Revenue investigation should take advice on how best to proceed.
For further information please contact Mark Simpson, e-mail: Click Contact Link , 2 Park Lane, Leeds LS3 1ES, UK, Tel: + 44 113 284 7000
This article was first published in the Autumn 1998 Hammond Suddards Tax Newsletter Update
The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.
