HMRC Guidance on Failing to Prevent the Facilitation of Tax Evasion

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On 1  September the UK Government published the finalised Guidance on tackling tax evasion and the corporate offences of failure to prevent the criminal facilitation of tax evasion, included in Part III of the Criminal Finances Act (the Act). The Act, which will come into force on 30 September 2017, introduces two new criminal offences whereby a corporate can be found guilty of failing to prevent the facilitation of tax evasion, in the UK or overseas (articles 45 and 46). This means that, if a person associated with the company (an employee, agent or distributor) facilitates another to evade tax, in the UK or abroad, the company will be presumed guilty of a ‘failure to prevent’ offence, regardless of whether it knew about the criminality. The only defence to prosecution will be if the corporate can demonstrate that it had in place “reasonable prevention procedures” in place.

These new offences are comparable to the offence of “failure of commercial organisations to prevent bribery” under Part VII of the Bribery Act 2010.

Main points of the Guidance for organisations to focus on:

  • The emphasis of risk assessment is explicitly stated and it must be “documented and kept under review”. Companies should risk-assess all areas of business, including back office and support functions, not just the customer facing roles (there is a specific example on payroll services).
  • The definition of “associated person” as “a person acting in the capacity of a person associated with a relevant body” makes clear that a person must act (and criminally facilitate a tax evasion offence) as an associated person for the organisation to be liable for failing to prevent their facilitation offence.
  • Having part of a business in the UK would constitute a UK nexus for the foreign offence; this includes a body incorporated under UK law, carrying on a business in the UK or whose associated persons are in the UK.
  • Organisations should ensure that risk assessments are up to date and that prevention policies and procedures are communicated, embedded and understood throughout the organisation, and that proportionate and specific training is provided to members of staff.

It is critical for financial firms to finalise their plans to comply with the provision of the Act before the end of the month. The key step is to undertake a risk assessment and determine which procedures and practices must be implemented or adjusted. This is essential to claim a statutory defence, should it be necessary.