The corporate offence of "failing to prevent the facilitation of tax evasion" came into force on 30 September 2017. Now corporations must ensure that they have developed a plan for implementing "reasonable prevention procedures".
The offence, introduced under the Criminal Finances Act, makes corporations criminally liable in situations whereby:
- There has been criminal evasion of UK or non-UK tax (by either an individual or a legal entity);
- an individual, acting on behalf of a corporation, facilitated the tax evasion; and
- the corporation did not have reasonable prevention procedures in place (or it is unreasonable to expect such procedures to have been put in place).
The offence is strict liability; meaning that the knowledge or intention of the senior management is irrelevant. If convicted, corporations can face unlimited fines, on top of reputational damage and regulatory sanctions which come with a criminal conviction.
The new law applies to all businesses. It criminalises the failure to prevent the facilitation of evasion of both UK and non-UK tax.
The offence is not limited to facilitation by employees. Rather, the offence is deliberately wide so that corporations will be liable for anyone who performs services for them or on their behalf such as agents, contractors and sub-contractors.
Where facilitation is proved, the burden will be on the corporation to show that it had prevention procedures that were reasonable in all the circumstances. Although the law is silent on what such procedures are, HMRC's draft guidance flags the following six action points:
- Risk assessment – assess the nature and extent of your exposure to the risk of individuals associated with you criminally facilitating tax evasion.
- Proportionality – ensure that your procedures are proportionate to the extent of the risk.
- Top level commitment – make it clear within the organisation that top-level management is committed to combatting criminal facilitation of tax evasion.
- Due diligence – apply due diligence procedures to those acting on your behalf.
- Communication (including training) – communicate prevention policies and procedures effectively throughout the organisation.
- Monitoring and review – monitor the prevention procedures and make any necessary improvements.
Action to take now
Whilst the Government accepts that some procedures will take time to roll out, HMRC does expect "rapid implementation" of the prevention procedures. Corporations should therefore ensure that they have developed an implementation plan with a clear time frame as soon as possible.