Timetable for facilitation of tax evasion legislation a worry for some corporates

You will probably be aware that new rules have been introduced by the Criminal Finances Act 2017, allowing corporate entities to be criminally prosecuted if a person commits a UK or foreign tax evasion facilitation offence when acting for the company. It is a defence for the company if they can prove that they had put in place reasonable procedures to prevent their associates (including employees) from facilitating such tax evasion.

These new rules apply to all corporate entities (including companies, partnerships, LLPs and corporate charities) with a UK nexus, regardless of size or industry.

Broadly, an entity may be criminally liable under these rules where:

1. There is a UK or foreign tax evasion offence; and
2. That offence is facilitated by an associated person of the entity, such as employees, agents, contractors, subsidiaries and referrees; and
3. The entity failed to prevent the associated person from committing the facilitation offence.

How can businesses protect themselves from the risk of facilitating tax evasion?

A key defence an entity can have is to ensure that they have reasonable procedures in place to prevent the facilitation of tax evasion. The legislation is coming into effect from 30 September 2017, so there is not much time for businesses to prepare and have reasonable procedures in place.

What constitutes “reasonable” for these purposes will depend on the business’ risk profile, industry and size.

What is the penalty for non-compliance?

Businesses convicted under these new rules will face a potentially unlimited fine. There could also be implications for regulated entities such as losing licences or having additional restrictions placed upon them, making doing business much more difficult, or impossible, as well as potentially being prevented from bidding for public contracts in the future.

Businesses also need to consider the reputational risk of non-compliance.

How will HMRC investigate?

HMRC is being given significant enhanced powers to investigate organisations suspected of breaching rules. It can commence an investigation into a business and its procedures based on suspicion alone.

What should businesses do next?

The following four key steps are crucial for any business within the rules, particularly those who are likely to be high risk or high profile.

1. Undertake an impact assessment, in order to identify stakeholders, associated persons, and review the business activities to determine level of risk.
2. Develop a risk framework, considering existing controls and potential improvements, mapping identified risks onto the control framework, and identifying who in the business will take overall responsibility for compliance to the rules.
3. Communicate this framework to key employees; top management needs to buy into the framework. Training should also be provided to employees.
4. Monitor and review procedures on an ongoing basis to ensure continued compliance.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.