Reducing your risk of corporate tax evasion
In 2017 HMRC introduced a new corporate offence of failure to prevent the criminal facilitation of tax evasion. The penalties of this offence can be severe, so what do you need to do to ensure that your business remains compliant?
Aim of the legislation
The Government believes that relevant bodies should be criminally liable where they fail to prevent those who act for, or on their behalf from criminally facilitating tax evasion.
The new corporate offence, therefore, aims to overcome the difficulties in attributing criminal liability to relevant bodies for the criminal acts of employees, agents or those that provide services for or on their behalf. However, it does not radically alter what is criminal, it simply focuses on who is held to account for acts contrary to the current criminal law. It does this by concentrating on the failure to prevent the crimes of those who act for or on behalf of a corporation, rather than trying to attribute criminal acts to that corporation.
The Government recognises that any regime that is risk-based and proportionate cannot also be a zero failure regime. If a relevant body can demonstrate that it has put in place a system of reasonable procedures that identifies and mitigates its tax evasion facilitation risks, then prosecution is unlikely as it will be able to raise a defence.
How does a company become liable?
Three stages apply to both the domestic and foreign tax evasion facilitation offences. There are additional requirements for the foreign offence set out below (including the ‘dual criminality’ requirement):
Stage one: the criminal tax evasion by a taxpayer (either an individual or a legal entity) under existing law
Stage two: the criminal facilitation of the tax evasion by an “associated person” of the relevant body acting in that capacity
Stage three: the relevant body failed to prevent its representative from committing the criminal facilitation act
The company’s only defence against prosecution is that it had “reasonable procedures” in place to prevent tax evasion.
What constitutes reasonable procedures will be proportionate to your level of risk, and this depends on the nature, scale and complexity of your business activities, your business size and resources and the jurisdictions in which you operate. Ensure you understand what is required by reading the Guidance provided by HMRC.
In addition, you may want to consider doing the following:
Tax evasion risk assessment – Undertake a tax evasion focused risk assessment of the products and services you offer, and any of your internal systems that might be used to facilitate tax evasion. Review this regularly.
Prevention policies – Consider what policies and procedures you can put in place to prevent tax evasion. This might be introducing robust financial authorisation procedures, a whistleblowing policy or providing mandatory training for all staff.
New contract clause – You may also look to include an anti-facilitation of tax evasion clause in contracts.
Penalties for this offence
The penalties for this offence will include:
- unlimited financial penalties
- ancillary orders such as confiscation orders or serious crime prevention orders
The mere fact of a criminal conviction will also have consequences for a relevant body: it may require disclosure to professional regulators both in the UK and overseas and prevent the body from being awarded public contracts. Ensure that a tax evasion risk assessment has been documented and any additional procedures have been implemented to mitigate them.
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