Article: New corporate criminal offence

20 April 2017

The new corporate criminal offence of ‘failure to prevent the facilitation of tax evasion’ is part of the continued global focus on the prevention of tax evasion and other financial crimes. It is one of a raft of measures being introduced in the UK by the Criminal Finances Bill and is expected to take effect from September 2017. It is possible, but unlikely, that the 2017 General Election may delay implementation.

How it will work

The legislation creates two new corporate offences of failure to prevent the facilitation of tax evasion – a domestic offence and an overseas offence.

The Government’s aim is to overcome the difficulties in attributing criminal liability to companies for the criminal acts of ‘associated persons’ in facilitating tax evasion by other parties, eg customers or suppliers. ‘Associated persons’ can include employees, contractors, agents or any other person that provides services for or on behalf of the corporate.

Under the draft legislation the corporate will have a strict criminal liability for failing to prevent the facilitation of tax evasion, without the need for prosecution of the underlying facilitation or evasion offences.

The offence can occur in respect of evasion of any tax (in the UK or an overseas jurisdiction), and will be relevant to all businesses (namely, corporate bodies and partnerships) whatever their size or industry sector. A successful prosecution under these rules could lead to the business facing:

  • An unlimited fine
  • Public record of the conviction
  • Significant reputational damage and adverse publicity.

Prosecution

To bring a successful prosecution against a corporate under the new rules, the tax authorities must prove that:

  1. Criminal tax evasion has taken place
  2. An associated person of the corporate knowingly aided, abetted, counselled or procured the tax evasion
  3. The corporation failed to put in place reasonable procedures to prevent an associated person from committing the tax evasion facilitation offence as defined in Stage 2.

Some examples of these offences are included in our brochure on Corporate Criminal Offences.

Protecting your business

There are two potential defences against prosecution:

  1. That the corporate had put in place ‘reasonable’ prevention procedures to stop associated persons facilitating tax evasion, or
  2. It was not reasonable (in all the circumstances) to expect the corporate to have any prevention procedures in place.

The prevention procedures put in place will need to be proportionate to the level of risk facing any business that an associated party may facilitate tax evasion. At a minimum, HMRC expect businesses to carry out a risk assessment in order to ascertain the level of risk and what procedures (if any) are reasonable.

Having determined what the risks are, it is then vital to design, implement and document procedures to mitigate those risks. HMRC accept that such a ‘risk based’ approach will never provide a ‘no fail’ environment.

Your next steps

This latest legislation ratchets up the pressure on corporates to manage their tax risks effectively. You can read more on how to develop and demonstrate reasonable prevention procedures at Corporate Criminal Offences.

For help and advice on any tax risk issue please contact James Egert, Ed Dwan or Martin Callaghan.

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