The Criminal Finances Bill has received Royal Assent. This new Act introduces several new criminal offences for corporate bodies that facilitate tax evasion, and changes to the proceeds of crime legislation. Of note is the creation of new offences for companies which fail to prevent their staff from facilitating tax evasion in the UK and abroad.
The offence itself should come into effect in September 2017. By then, companies will be expected to have assessed risks and developed reasonable procedures to prevent any persons associated with them from criminally facilitating the evasion of UK and overseas taxes.
The new corporate criminal offence makes it easier to prosecute corporates or partnerships, however, individuals cannot be prosecuted under the new offence.
Through the new offence, if a corporate has any employees, agents or other third parties who provide services on its behalf, who criminally facilitate others from evading tax, then the corporate can be criminally liable for the acts of its representative. This includes payroll and payroll bureaux.
Companies’ compliance policies need to be adequate to ensure there is sufficient protection in place, the policies need to be stress tested regularly to ensure they are adequate.
If a company can show they have reasonable prevention, in the form of policies and compliance testing, in place this will be regarded as an adequate defence.
The offence applies to the facilitation of tax evasion which takes place in the UK, also foreign tax evasion.
For foreign tax evasion, a UK connection needs to be established. The connection may be established where a company has been incorporated in the UK, or where it has a place of business or associated persons in the UK.
The jurisdictional reach of the new offence is significant and prosecutions could be brought, even where the criminal acts of facilitation and evasion did not take place in the UK.
We have recently launched 20 country specific courses covering payroll and associated legislation as payroll as a discipline is having to cover increasingly wide jurisdictional scope for countries through which companies may operate.
It is important to bear in mind that the new offence does not apply to a company’s associated persons who accidentally or negligently facilitate others to evade tax.
HMRC have made clear that corporates will need to conduct a risk assessment to identify the risk of persons associated with them criminally facilitating the evasion of tax evasion.
HMRC has also said that the risk assessment is the most critical document that it will consider, in the context of assessing whether a corporate has reasonable prevention procedures in place.
HMRC will not assess a corporate’s prevention procedures in isolation from the risk assessment, as HMRC will be looking to understand whether a corporate’s prevention procedures have properly calibrated the risks identified.
It is therefore important that the risk assessment process is carefully documented, so that the corporate can rely on it and provide it to HMRC in the event of an investigation.
HMRC also expects that the risk assessment process should be on-going, so that policies and procedures develop, as the corporate’s business and risks of facilitation change.
For companies operating in the UK, it is critical that the risk assessment covers the risk of facilitation for all overseas branches of the legal entity operating in the UK.
HMRC have made clear that it is not sufficient for such companies only to look at the risk of facilitation of tax evasion in the UK, as the offence of the facilitation of the evasion of overseas taxes can be prosecuted in the UK.
HMRC will issue final guidance on the new offence over the summer, once Parliament resumes after the general election.
