Failure to prevent the facilitation of tax evasion
On 30 September 2017, two new offences, under the Criminal Finances Act 2017, came into force. The new offences can only be committed by corporate entities and partnerships and are as follows:
• Failure to prevent the facilitation of UK tax evasion; and
• Failure to prevent the facilitation of overseas tax evasion. (the “offences”)
The aim of the offences is to make relevant bodies (e.g. corporate entities and partnerships) more accountable when they have failed to prevent the facilitation of tax evasion by an associated person (e.g. employees).
Prior to the new offences coming into force, to establish the criminal liability of a relevant body, prosecutors would need to show that the senior managers were aware of or involved in the illegal activity. This proved to be a barrier to prosecution of large multinationals where senior managers are often removed from the day-to-day running of the company and are therefore unlikely to be aware of any such illegal activity occurring.
There are three stages to each of the offences, these are:
a natural or legal person commits tax evasion.
an associated person facilitates the tax evasion.
the relevant body fails to prevent the facilitation of tax evasion.
The offences are strict liability offences; this means that if stages one and two above occur, then stage three is deemed to have happened and the relevant body will have committed an offence, unless it can prove it had reasonable prevention procedures in place.
Reasonable Prevention Procedures
The Government has provided guidance to assist relevant bodies in developing and implementing prevention procedures.
The guidance details 6 “Guiding Principles”, to be used to inform the development of procedures:
1. Risk Assessment
Assess the nature and extent of exposure to associated persons facilitating tax evasion.
The procedures to be implemented are to be proportionate to the risk.
3. Top Level Commitment
Top level management should champion a culture where tax facilitation is never accepted.
4. Due Diligence
Conduct risk based due diligence in respect of any person who is or may be an associated person.
Ensure that prevention policies and procedures are communicated throughout the organisation. This includes through the training.
6. Monitoring and review
Monitor and review prevention procedures and make improvements where necessary.
What should businesses be doing?
Since the offences are strict liability offences, businesses will need to be proactive in implementing procedures to prevent the facilitation of tax evasion.
A starting point would include:
• Identifying any high risk areas in your business;
• Providing training on tax evasion prevention, and the scope of the offences and associated risks for people who are or may be associated persons;
• Updating employment contracts/handbooks to include provisions relating to the offences;
• Producing or reviewing due diligence processes to ensure that they are fit for purpose in consideration of the offences.