August 24th, 2017 / Insight posted in Articles

New corporate offence of failure to prevent the criminal facilitation of tax evasion

Businesses and organisations of all sizes need to be aware of a new criminal offence which could bring unlimited penalties. The new offence relates to the failure to prevent the facilitation of tax evasion – this was included in The Criminal Finances Bill, and is applicable from 30 September 2017.

The offence can be committed whenever a taxpayer carries out criminal tax evasion and another party facilitates that tax evasion. If the party facilitating the tax evasion does so while acting for, or on behalf of, a “relevant body” (any body corporate or partnership), the “relevant body” could be guilty of failing to prevent the facilitation of the tax evasion.

The relevant body would only have a defence if, when the offence was committed, it had reasonable prevention procedures in place, or it would have been unreasonable to expect such procedures to be in place.

The legislation is very widely drawn:

  • A person acting “for or on behalf” of a relevant body might include an employee, agent, sub-contractor, and others.
  • The rules cover both “UK tax evasion facilitation” (which can be committed by any relevant body, regardless of place of incorporation or residence, where the tax evasion being facilitated is an offence under UK law), and “foreign tax evasion facilitation” (which can be committed where the relevant body is sufficiently connected to the UK,  and where the tax evasion being facilitated is an offence under non-UK law and would have been an offence under UK law if  committed in the UK).

Draft HMRC guidance as to what might constitute “reasonable prevention procedures” can be found here.

What is reasonable will depend on various factors, such as the size and nature of the organisation, and the markets it operates within. But, in general, the following will be expected:

  • An assessment of the risk of facilitation of tax evasion being carried out, and specific procedures to deal with this.
  • Commitment from top-level management to the prevention of facilitation of tax evasion.
  • Due diligence of those acting for, or on behalf of, the organisation.
  • Communication of the policy and procedures throughout the organisation.
  • Monitoring and enforcing compliance with the procedures.

All businesses should now review their operations and make sure they have, and can demonstrate,  appropriate procedures in place in light of these new rules.

These rules have a similar structure to the Bribery Act and there is likely to be some overlap in the procedures that can be put in place in response to the two pieces of legislation. Business will, however, need to consider the specific risks of facilitation of tax evasion, and new procedures may be required.

If you would like help to comply with these new rules, please get in touch with your normal contact partner.