The new figures released by HMRC indicate that they are taking a harder line on businesses that fail to prevent the facilitation of tax evasion. The Criminal Finances Act 2017 (“CFA”) introduced a set of Corporate Criminal Offences (“CCO”) where a company fails to prevent their employees, agents or other persons from facilitating tax evasion.
What does the Criminal Finances Act say?
The CCO legislation, introduced in Part 3 of the CFA is not retrospective in nature and introduced two offences:
- Failure to prevent facilitation of UK tax evasion offences (Section 45); and
- Failure to prevent facilitation of foreign tax evasion offences (Section 46).
As per Part 3 of the CFA, where an employee commits an offence of tax evasion, there is strict liability for their employer. Therefore, if found guilty the employer may face an unlimited fine, their only defence being if they can prove they had reasonable prevention procedures in place.
HMRC have said that:
With potentially unlimited fines for organisations found guilty of the offences, organisations must take their responsibilities seriously and put in place reasonable procedures to stop the facilitation of tax evasion. This is not about simply increasing the number of corporate prosecutions but changing industry practice to do more to prevent tax crime happening in the first place.
What is a ‘reasonable’ measure to stop tax evasion?
There is a complete defence to the offences above if an organisation:
- has in place reasonable prevention procedures as it was reasonable in all circumstances to expect it to have, or
- it was not reasonable, to expect it to have any preventative procedures in place.
HMRC have released draft guidance on what they deem to be reasonable procedures, it seems that a reasonable prevention measures for the CCO will follow the same 6 guiding principles of the Bribery Act 2010:
- Risk assessment – the relevant body must assess the nature and extent of its exposure to people within the body criminally facilitating tax evasion offences.
- Proportionality of risk based preventative procedures – this is assessed on the nature, scale and complexity of the relevant body’s activities. HMRC recognise that the reasonableness of organisation is able to exercise over a particular person acting on its behalf and the proximity of the person to the relevant body.
- Top level commitment – top level management of a relevant body should foster a culture in which activity intended to facilitate tax evasion is never acceptable.
- Due diligence – the relevant body must apply due diligence procedures taking appropriate and risk based approach in order to mitigate identified risks.
- Communication (including training) – the organisation must seek to ensure that its prevention policy and procedures are communicated, embedded and understood throughout their organisation.
- Monitoring and reviewing – the organisation must monitor and review their procedures and update/improve where necessary.
What are HMRC are doing to enforce this?
HMRC are actively investigating these matters which is evidenced by the 30 on-going CCO cases underway where organisations have failed to prevent the facilitation of tax evasion. This is notably the first time that HMRC have released these figures, following a number of Freedom of Information requests. Whilst there have not been any convictions under the CCO legislation, the number of investigations is evidence that HMRC are actively enforcing the legislation.
Specialist City of London Corporate Criminal Offences Investigations Lawyers
HMRC strongly advise that you seek to appoint independent professional advice. Our specialist team of Tax Solicitors and Barristers are experts on all matters covered by the Criminal Finances Act. We can assist you by:
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