The regulations providing for the commencement date for the new corporate criminal offences of failure to prevent tax evasion were introduced on 12 July 2017.
These new offences are contained in the Criminal Finances Act 2017, which received Royal Assent in the so-called ‘wash up’ period in parliament ahead of the UK general election. The 30 September date for the new offences taking effect corresponds with the date on which the first automatic exchanges of information under the common reporting standard will take place.
The legislation contains a number of extended powers for the authorities to use but the one of most relevance will be the new offence of ‘corporate facilitation of tax evasion’. As a reminder, tax evasion is (and always has been) a crime. It can include fraudulently making a misstatement concerning your tax affairs to reduce income, increase your eligible costs or deliberately conceal income.
The new offences in the Criminal Finances Act 2017 now extend to not only those who have directly committed the offence of tax evasion, but to those who have allowed such an offence to happen.
There have been a number of triggers for this including the now notorious ‘Panama Papers’, but another notable example has been the BBC Panorama allegations concerning HSBC’s private client team in Switzerland and its use of offshore accounts to conceal funds. Although prosecutions are ongoing in other countries there was no equivalent legislation in the UK to permit prosecution of the UK parent company as being directly or indirectly responsible.
The new offence of corporate facilitation of tax evasion now makes it clear that any company or partnership actively or passively enabling tax evasion to take place will be prosecuted. There are two key parts to this – evasion must have actually taken place and a person (employee, agent or other performing services to the company in question) must have facilitated. The additional test is that the company in question did nothing to prevent it happening.
Failure to prevent tax evasion
There are two new failure to prevent tax evasion offences : Failure to prevent facilitation of UK tax evasion and also failure to prevent facilitation of foreign tax evasion.
A relevant body can be guilty of a facilitation offence when it has
(a) being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax by another person,
(b) aiding, abetting, counselling or procuring the commission of a UK tax evasion offence, or
(c) being involved art and part in the commission of an offence consisting of being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of a tax.
It will be some time before the new legislation is tested in the courts, but the shift from proving that the business directed someone to commit an illegal act to merely being in a position of authority and doing nothing about it, will mean a far wider and possibly easier net from which HMRC can trawl.
If you have not done so already, all businesses should consider putting in place ‘reasonable prevention procedures’ (HMRC Guidance) to identify and mitigate tax evasion facilitation risk. The legislation provides a defence in these circumstances and HMRC have stated that if companies can clearly demonstrate that adequate measures have been put in place, then ‘prosecution is unlikely.’
If you are already familiar with the Bribery Act 2010 (as you should be) then there will be strong parallels with this.