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Published 19 September 2017
A new trap will be introduced at the end of September for businesses. In practice, all but the smallest simplest business will need to introduce procedures to stop its employees and agents from helping others evade tax. If they don't, HMRC could take drastic action and we expect them to target early on a high-profile case.
The UK Government’s desire to extend further its reach in policing financial crime in the UK and beyond shows no sign of abating as it presses ahead with a new corporate criminal offence of failing to prevent the facilitation of tax evasion. The aim is to make it easier for corporates to be held criminally liable for the actions of their employees and other associated persons around the world. The effect is a fundamental shift toward a strict liability, US-style approach, where the burden is on corporates to demonstrate that appropriate prevention procedures were in place in order to avoid a criminal charge of “failing to prevent” a wrong committed by someone else.
The new corporate offence of failing to prevent the facilitation of tax evasion, is applicable to all corporates (and partnerships), not only those involved in the financial and professional services industries.
In a nutshell, a corporate or partnership fails to prevent the facilitation of tax evasion if an associated person acting for or on their behalf facilitates a tax evasion offence by another person or entity, i.e. a taxpayer. While a corporate offence of failing to prevent bribery under s.7 UK Bribery Act 2010 requires a single underlying offence, namely bribery, the corporate offence of failing to prevent facilitation of tax evasion requires two: tax evasion by the taxpayer and facilitation of that tax evasion by the associated person. These new rules will still apply even if there is no prosecution of the underlying tax evader (perhaps because the CPS feels it is not worth pursuing them).
The new offence is widely drawn in terms of territorial scope. The corporate offence applies to evasion of UK tax and foreign tax; to companies incorporated in the UK and overseas.
The Domestic Offence
The Overseas Offence
Provided there is a UK tax evasion offence, i.e. actual or attempted non-payment of UK taxes due - a company incorporated anywhere in the world can potentially be liable.
The new corporate offence of failing to prevent facilitation of tax evasion extends to the evasion of foreign taxes. It is often difficult to know what would amount to a foreign tax evasion offence as tax regimes around the world differ. There is no need for there to be a corresponding UK tax evasion offence, meaning a foreign tax evasion offence that bears little or no resemblance to a UK tax evasion offence could lead to a UK charge of “failing to prevent” the facilitation of foreign tax evasion. This can make spotting and preventing facilitation of foreign tax evasion much more difficult.
…criminal facilitation by natural or legal person associated with the corporation
The scope of the offence is significantly broadened by the definition of associated person. An associated person is any person or entity performing services “for or on behalf” of a company. The Government is clear that it takes a broad view of this and will take into account any relevant circumstances that may make a person ‘associated’, irrespective of the precise legal form of the relationship. While the definition might typically encompass employees, subsidiaries, agents and contractors, it is not always easy to determine what is required in terms of performance of services and how close the connection needs to be for a person or entity to be acting “for or on behalf” of a company. A person will not be “associated” if they are acting independently of the company or on “a frolic”, but demonstrating this in practice will be difficult – particularly where the underlying taxpayer is or was a client of the company in question. This will create uncertainty for businesses in determining how far to extend their compliance programmes. Another factor that may make it harder for companies to spot and prevent facilitation of tax evasion by any persons with whom they may be “associated” is that there is no requirement for the associated person to facilitate tax evasion for the benefit of the company.
Corporation failed to take reasonable steps to prevent the facilitation of Tax evasion.
In light of the uncertainties and risks, what can companies and other businesses best do to protect themselves?
HMRC have made it clear that they do not consider reliance on existing anti-money laundering processes to constitute reasonable procedures, and that tax evasion facilitation risk must be considered separately.
They expect business to implement compliance with the principles rapidly, initially focusing on the major risks. A clear timeframe and implementation plan are required from the outset.
The Government has made clear its commitment to tackling UK and foreign tax evasion at a corporate level provided it is considered to be in the public interest, even where there may be only tangential links to the UK or where foreign rather than UK tax evasion is involved.
Although the most obvious industries at risk of facilitating tax evasion would appear to be the financial and professional services industries and offshore jurisdictions, the prosecutorial remit could extend to less obvious targets.
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