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Article:

Corporate Criminal Offence

06 August 2020

Can manufacturers be criminally liable if they fail to prevent others from facilitating tax evasion?

The new Corporate Criminal Offence of Failure to Prevent the Facilitation of Tax Evasion (CCO) legislation came into force on 30 September 2017 as part of the Criminal Finances Act 2017 and applies to all companies. This means that manufacturer’s need to be able to demonstrate that they are taking reasonable steps to respond to the legislation as soon as possible.

Further insight how the BDO Tax Risk team can support you, are found below:

Register below for our webinar on 3 November 2020 on Corporate Criminal Offences: practical advice and HMRC insights, to find out how businesses are responding to the legislation; asking HMRC about their own expectations and the steps they are taking to ensure compliance.

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Background

The new offences were introduced as the law previously required senior officers of a company to commit parts of the offence before criminal liability could be attributed to the company. In large organizations, where decision making is often decentralized, this was then difficult to prove or identify.

The aim of the legislation is to make it easier to prosecute companies if their associated persons (employees, agents or other third parties acting for and on behalf of the business):

  1. Knowingly aid, abet, counsel or procure tax evasion (say by a customer or supplier or their staff); and
  2. The company has not put reasonable prevention procedures in place to stop the facilitation of the evasion offence.

A successful prosecution could lead to an unlimited fine, public record of the conviction, reputational damage and adverse publicity. The legislation broadly applies to:

  1. UK tax evasion regardless of whether the company is UK based or not and regardless of where the offence takes place, and
  2. Overseas tax evasion to the extent the company is a UK tax resident, has a UK permanent establishment, or associated persons are located in the UK when they knowingly facilitate tax evasion.

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Risks in the manufacturing industry

Given the many facets of a manufacturing business both in the UK and Internationally, this new offence and legislation cannot be ignored. Typical examples that manufacturers should be aware of would include the payment to contractors where it is both known or unknown as to whether they are registered for VAT, Income or Corporation Tax or not. In other words, it is wide-ranging and can take place when you least expect it.

However, a more specific example would be where a UK manufacturer contracts with a distributor to sell its products. The distributor facilitates a VAT invoicing fraud enabling the distributor’s customer to evade VAT in the UK, unknown to the manufacturer.

As UK tax has been evaded and the distributor facilitated it whilst providing services to the manufacturer, the manufacturer is liable for failing to prevent this offence, unless it can demonstrate it had reasonable procedures in place to prevent this from occurring in the first place.

In order to have a reasonable procedures defence, the manufacturer should carry out a risk assessment, apply policies and procedures to mitigate the risks identified in any review as well as carrying out further due diligence on its distributor.

It is clear that HMRC have a minimum expectation of all entities as well as manufacturers that they carry out a risk assessment as part of any review of this legislation. HMRC has been clear in stating that companies should prioritize this given the legislation came into force on 30 September. When undertaking any risk assessment, it is expected that this covers all aspects of a manufacturer’s business, for example: procurement, HR and sales and not just finance or legal.

If you would like to discuss how to undertake a risk assessment or would like to know more about the new CCO legislation, then please contact Chris Bond at [email protected] or on 07792 018593.

CCO Guide

Meet your ‘Communication and Training’ requirements under CCO legislation with our cost-effective training and education module.

CCO eLearning

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How can BDO Tax Risk team support you?

All businesses continue to develop their response both to COVID-19 and also an evolving working environment post COVID-19. The challenges, and opportunities, of a remote workforce and the accelerating pace of digital change mean that different approaches to compliance, governance and regulation must be considered. 

It is important to ensure your reasonable prevention procedures are designed to prevent associated persons from commuting the facilitation offences in the new reality. 

This Toolkit provides your organisation with the tools, templates and knowhow to develop a response to the Corporate Criminal Offence legislation.

It is a step by step guide to ensuring that the controls you implement are aligned to HMRC’s Six Guiding Principles and meet the legislations requirements, including carrying out your own CCO Risk Assessment. The documentation includes various policies, internal and external messaging and example contractual terms.

Ensuring your staff and other associated persons understand their responsibilities is a critical control in minimising the risk of enforcement action. We have developed a bespoke elearning course to meet HMRC’s requirements.

The elearning module can be easily uploaded to your existing Learning Management System for staff distribution, or we can provide a platform through which you can distribute the training. This method of learning and embedding is well suited to remote working.

  • Risk assessments and ongoing monitoring

Where there are staff reductions, employees working from home, or management focused on critical functions only, unique opportunities arise for committing tax fraud. Risk assessments should be regularly reviewed, particularly within the context of COVID-19.

For businesses who have already performed a risk assessment, we can support with carrying out a review, which normally involves reviewing your existing policies and procedures as well as refreshing your current risk assessment to reflect any changes in the business.

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