Government finalises guidance on new corporate 'failure to prevent' tax evasion offences
13 September 2017
Organisations should start to consider now whether they have reasonable procedures in place to prevent someone acting for them (or on their behalf) from facilitating tax evasion in the UK or in a foreign country.
Final government guidance has been published regarding the types of processes and procedures that need to be put in place to prevent associated persons from criminally facilitating tax evasion.
The new offences will be committed where a relevant body fails to prevent an associated person criminally facilitating the evasion of a tax, and this will be the case whether the tax evaded is owed in the UK or in a foreign country.
Previously, attributing criminal liability to a relevant body required prosecutors to show that the senior members of the relevant body were involved in and aware of the illegal activity, typically those at the board of directors level.
The new offence, however, 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 focussing 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.
Bespoke prevention procedures
The government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion is not prescriptive or a one-size-fits-all document. It is not a checklist of things that all relevant bodies must do to reduce their risk of liability under the corporate criminal offences, and should not be used as such.
The guidance should be considered and applied in a risk-based and proportionate way. This includes taking into account the size, nature and complexity of a relevant body when deciding whether a certain example of good or poor practice is appropriate to its business. The guidance therefore needs to be used to inform the creation of bespoke prevention procedures designed to address a relevant body’s particular circumstances and the risks arising from them.
This guidance explains the policy behind the new offences and is intended to help relevant bodies understand the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion. It will inform the conduct of a risk assessment and the creation of procedures proportionate to that risk.
Sections 45 and 46 of the Criminal Finances Act 2017 create offences of corporate failure to prevent facilitation of UK tax evasion offences and corporate failure to prevent facilitation of foreign tax evasion offences. These offences can only be committed by a “relevant body”, defined in section 44 of the Act as a body corporate or partnership (wherever incorporated or formed). These offences cannot be committed by individuals.
The offences are committed when a person acting in the capacity of a person associated with the relevant body commits a tax evasion offence. Section 44 of the Act defines when a person acts in the capacity of a person associated with a relevant body. This includes an employee of the relevant body who is acting in the capacity of an employee, an agent of the relevant body who is acting in the capacity of an agent, or any other person who performs services for or on behalf of the relevant body who is acting in the capacity of a person performing such services.
The offences are each subject to a defence of having in place ‘reasonable prevention procedures’ to prevent persons who act in the capacity of a person associated with the relevant body from committing tax evasion offences (there will also be a defence where it is not reasonable to expect the relevant body to have any prevention procedures in place).
Section 47(1) of the Act requires the Chancellor of the Exchequer to prepare and publish guidance about the procedures that relevant bodies can put in place to prevent persons associated with them from criminally facilitating tax evasion.
The Facilitation of Tax Evasion Offences (Guidance About Prevention) Regulations 2017 brings into operation the government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion. The regulations and the guidance come into force on 30 September 2017.
Geographical extent – United Kingdom
The government will keep the guidance under review, working with the devolved administrations, to ensure that the guidance remains up to date and reflects relevant developments. The guidance invites businesses to contact HMRC should they feel that the guidance would benefit from additions or amendments.