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September 20, 2017

New Law Relating To The Facilitation Of Corporate Tax Evasion

Elle McCook, corporate commercial executive at Greenaway Scott, outlines all that you need to know about the changes to law relating to the facilitation of corporate tax evasion.

 

The Criminal Finances Act 2017 (CFA) received royal assent in April and is set to become law in the UK from the 30th of September 2017. Part three of the Act creates a new corporate offence of failing to prevent the facilitation of UK and foreign tax evasion offences committed by anyone who acts for or on behalf of a relevant body such as a company or partnership (section 40). The legislation is intended to mirror that of section seven of the Bribery Act 2010 whereby a relevant body can be held criminally liable for the actions of an ‘associated person’ if certain preventative procedures were not put in place prior to the commission of the offence. If a relevant body is found to have committed an offence under the CFA, they risk facing an unlimited fine and possible ancillary sanctions such as a serious crime prevention order. They may also risk losing their licence or being prohibited from bidding for public contracts.

 

The legislation is split into two parts making a relevant body guilty of an offence under part three of the CFA if:

 

  •  a person criminally evades tax;
  • that person criminally evades tax whilst acting in the capacity of a person associated with the relevant body; and
  • the relevant body failed to prevent the associated person from committing the facilitation.

 

The CFA has wide jurisdictional reach, covering UK based companies and foreign companies with a UK office, criminalising the conduct of individuals anywhere in the world (section 46 CFA).

 

The offence of foreign tax evasion under the CFA is essentially the same as for the UK offence, except that the tax relates to non-UK tax and the tax evasion amounts to a criminal offence in a foreign jurisdiction as well as in the UK (dual criminality requirement). The dual criminality element of the CFA does not require UK corporate bodies to have any knowledge of foreign tax law. An offence under section 46 would only arise if the tax evasion committed in the foreign jurisdiction amounted to an offence in under UK law.

 

What can you do to protect your business?

 

To avoid any liability under the CFA, companies will need to take steps to ensure that they have adequate prevention procedures in place prior to the offences coming into force.

 

Whilst the CFA imposes strict liability (i.e. no knowledge or intention is required) on any relevant body caught by the provisions of the legislation, the CFA does allow for a statutory ‘reasonable procedures’ defence which is similar to that found in the 2010 Bribery Act. This means that the relevant body must be able to show that it had in place ‘reasonable prevention procedures’…

 

The Chancellor of the Exchequer is expected to publish guidance on the on the reasonable prevention procedures that relevant bodies can take to ensure that they are compliant with the new offences later in the year. In the meantime, HMRC has provided the following draft guidance on what constitutes ‘prevention procedures’:

 

  •  Firms must carry out a risk assessment to identify whether there is any risk of persons associated with them engaging in activity to facilitate tax evasion.
  • Reasonable prevention procedures which are proportionate to the level of risk identified in the risk assessment exercise should be introduced by the firm. Proportionality will be assessed based on the level of control and supervision that a firm is able to exercise over associated persons and the proximity of those persons to the firm.
  • Firms will need to ensure that there is top-tier commitment to the implementation of the prevention procedures for example through engaging senior shareholders in the due diligence/risk assessment process.
  • Firms will need to apply due diligence procedures in relation to all associated persons in order to mitigate any identified risks.#Firms must seek to ensure that their prevention policies are communicated, embedded and understood throughout the firm, through internal and external communication and training.
  • Firms must carry out ongoing monitoring and review of prevention procedures and risk assessment

 

It is worth noting that HMRC does not expect all of the reasonable prevention procedures to be in place as at 30th September 2017. However firms will need to demonstrate a clear commitment to compliance to the legislation which could include an initial communication plan and details of the steps to be taken.

 

As the 30th of September fast approaches, it is important for any firm which may be caught by the provisions of this legislation to act now in identifying any risks and ensuring that an appropriate plan is in place to meet the statutory defence.

 

This article was first published on the 20th Sept on Business Wales and can be found here. 

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