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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

The Criminal Finances Act
 Briefing 
Author
Waqar Shah and Richard Cannon
Date
21 September 2017

The Criminal Finances Act: what new corporate tax evasion offences mean for corporates and football clubs

From 30 September 2017, two new corporate tax evasion offences come into effect. The Criminal Finances Act 2017 creates the corporate crime of failing to prevent the facilitation of tax evasion. There are two offences created, one relating to UK tax evasion, the other to foreign tax evasion.

The new law means that corporates are criminally liable if they fail to prevent the commission of tax evasion facilitation offences by a person associated with them. A tax evasion facilitation offence is broadly speaking where the associated person assists another with a tax evasion offence either in the UK or abroad. Given the increasingly complex structures that advisers are putting in place for athletes, those involved in the sports sector - such as football clubs and sponsors - should be alive to the fact that they may inadvertently be breaking the law by making payments to corporate vehicles that have been set up to evade tax.

What is an "associated person"?

"Associated person" is defined in three ways:

  1. An employee;
  2. An agent; or
  3. Any other person who performs services for or on behalf of the corporate.

Note that the person must have been acting in one of these three capacities when committing the tax evasion offence or offences which the corporate is accused of failing to prevent. Put simply, in a sporting context this could very easily include an athlete's agent, club and commercial partners.

What are the offences?

For the UK offence, the UK corporate will have failed to prevent an associated person from being knowingly concerned in, or taking steps with a view to, the fraudulent evasion of tax by another person, or from aiding, abetting, counselling or procuring the commission of a UK tax evasion offence by another person.

For the foreign offence, this means the UK corporate failed to prevent conduct which relates to the commission by another person of a tax evasion offence under the law of the foreign country and the conduct would constitute a tax evasion facilitation offence under the UK law.

For the foreign tax facilitation offence, conduct constituting part of that offence must take place in the United Kingdom. In addition, the conduct alleged, as well as constituting a tax evasion offence under the law of the foreign country, would also have to be regarded by a UK court as being knowingly concerned in a tax evasion offence in the UK.

These are strict liability offences. This means that there is a presumption of guilt for the defendant corporate unless it can prove that it had in place reasonable procedures to prevent the criminal conduct of the associated person or that it was not reasonable to expect them to have any prevention procedures in place at all.

The corporate cannot simply claim ignorance of the actions of its employee or agent.

Football clubs need to be particularly vigilant

HMRC's interest in the football business is well documented. Clubs are often engaged in high value, high profile transactions with several agents and intermediaries involved. Those deals often have a foreign element to them and these new obligations also apply to non-UK tax. This is likely to add an additional hurdle to football transfers.

How does a football club mitigate its risk?

It is essential that a risk assessment is carried out prior to the implementation of any policy and procedure.

There is no “one size fits all” option. Whilst some corporates might conclude that it is not reasonable for them to have a policy, it is difficult to see this being a sustainable position for a football club given the high-risk factors at play.

HMRC has provided guidance to assist corporates in their development, implementation and execution in what they term “prevention procedures”.

It highlights six principles:

  1. Risk assessment;
  2. Proportionality of risk based procedures;
  3. Top level commitment;
  4. Due diligence;
  5. Communication (including training); and
  6. Monitoring and review.

HMRC states these principles are not meant to be prescriptive but corporates must apply them according to the circumstances of their industry sector and their business.

The process should be well documented as the corporate will want to rely upon it in the event of any investigation and/or prosecution under the Act.

It should be measured and proportionate – there will be no prizes for volume. Corporates will need to decide the extent of its policy and processes on a common sense basis. This is not a situation where a policy can be drafted and left to gather dust unless and until HMRC comes knocking. Performance against it needs to be monitored with the corporate also being open to amending the policy as the business evolves and develops. 

In practice, football clubs will want to make sure the roles of intermediaries and agents are carefully and properly defined, and that those persons then conduct themselves according to the definition.

The structure of players' remuneration packages is bound to come under scrutiny; the world’s best players have found themselves at the sharp end of criminal tax inquiries in other jurisdictions.

Under UK law moving forward, if a player’s tax affairs are under criminal investigation, the question of whether the club has failed to prevent the facilitation of tax evasion may well arise. The related adverse publicity generated is unlikely to be something that can be ignored.

Contracts will need to be carefully drawn up. Each party must be clearly defined by name and role. Clubs will have to be particularly careful to make sure that payments made in accordance with the terms are made directly to the party defined in the contract.

It may make sense for the club to limit, as far as possible, the number of individuals who fit into the "associated person" category when dealing with a high-risk transaction.

What if there are issues arising prior to 30 September 2017?

The law is not retrospective. In other words, the corporate can only be liable for failing to prevent the facilitation of tax evasion which occurred after the implementation date. However, the Act could catch activity which is part of a continuing course of conduct which commenced prior to the end of September but continues thereafter, such as a contract renewal.

Conviction carries with it an unlimited fine. These offences have been added to the schedule covering Deferred Prosecution Agreements, which has so far generated settlements of hundreds of millions for the Serious Fraud Office (SFO). The SFO is one of the prosecuting authorities authorised to prosecute these offences.

Given the high-value and high-profile nature of the football business, law enforcement is likely to proactively target football clubs. This, coupled with various internal changes which HMRC, has created an atmosphere in which corporates need to take preventative action to protect themselves.