Aziz Rahman of Rahman Ravelli
Aziz Rahman, of award-winning law firm Rahman Ravelli, looks at the opportunities and challenges that come with exporting...
Selling goods and services to foreign countries gives a company or individual a chance to reach and conquer new markets, boost their reputation and financial standing and take the first steps to what could be even greater success.
Exporting brings with it a number of challenges: the need to develop new relationships, broker deals in fresh territories and become accustomed to working and financial practices that you may not have encountered before. If these challenges are met successfully, the rewards can be great. However, there is one particular area where caution is required.
That area is taxation. Tax evasion has been a major issue in recent years. From the Panama Papers and the Paradise Papers through to some of the world’s biggest companies having their tax paying practices probed, the question of who pays what (and where they pay it) has taken on extra prominence.
It goes without saying that every forward-thinking, export-minded company is not looking to hide vast amounts of money in dubious offshore accounts. Neither are the majority of them looking to create a complex set of bureaucratic arrangements to give the illusion that they are based in a certain country to reduce their tax commitments. But tax is an issue that exporting companies have to consider.
Companies looking to export may argue that it is unfair that they are expected to be an expert on both tax law and business administration. It’s a fair point. But HM Revenue and Customs are looking closely at import-export and the potential it offers for tax evasion and fraud. And having worked on many huge, complex tax fraud cases at Rahman Ravelli, we can say that many well-intentioned companies do become unwittingly entangled in tax evasion through export and import deals.
As an example, Missing Trader Fraud – also known as Missing Trader Intra-Community Fraud or MTIC Fraud – has been a way that people have abused VAT regulations on cross-border trading within the EU. The ways it can be committed are varied and often complex and this is not the place to outline all of them.
But the important point to note is that many companies that have exported goods in good faith have then found themselves out of pocket because they have unwittingly become involved in a complex chain of deals set up with the sole intention of committing VAT fraud.
It is a sad situation. But a few precautions can prevent it happening.
If a deal seems overly complex or unnecessary, alarm bells should start ringing. This may sound obvious but sometimes the most bizarre trading proposal can be made to sound plausible, especially if the potential rewards are large. UK courts regularly hear tax fraud cases involving business arrangements which, on impartial inspection, could only have ever been illegal.
Anyone looking to export needs to consider whether the deal is genuine. Is there evidence to show that the trading partners are a bona fide organisation? Who are the actual investors putting up the money to import your goods? And who are the ultimate beneficiaries of the deal?
A failure to carry out due diligence checks on the people or companies you are set to do export deals with is now a greater risk than ever before. If you do not feel up to the challenge of scrutinising all aspects of a proposed export deal, there are legal specialists who can do this, train staff in the skills necessary and put procedures in place to minimise risk.
Basic practices such as a fully-documented, up-to-date accounting system, a comprehensive whistleblowing procedure and ongoing briefing of staff can all help reduce the chances of export tax problems. And if the authorities do come knocking, you then have the proof that you did all you could to ensure all your dealings were legal; wherever they were carried out.
There will be many who argue that they have never had to take such actions before and probably do not need to now. But the authorities are scrutinising business like never before. And they have the tools to impose severe penalties.
As recently as September 2017, the Criminal Finances Act introduced two new criminal offences: one applying to the evasion of UK taxes and one applying to the evasion of foreign taxes. Both offences hold corporations and partnerships criminally liable when they fail to prevent their employees, agents or other representatives from criminally facilitating tax evasion.
A company can face unlimited fines if found guilty. The only real defence available is that the company had reasonable prevention procedures in place to prevent the offence being committed here or abroad. Any company exporting, therefore, has to have such procedures.