What is the corporate offence of failure to prevent the criminal facilitation of tax evasion?
Under the Criminal Finances Act 2017, an incorporated body (eg a company) or partnership commits an offence if it fails to prevent the criminal facilitation of tax evasion by an associated person acting for it or on its behalf. Evasion in relation to both UK and overseas taxes is covered by the new rules. Government guidance identifies the financial services, legal and accounting sectors as those that are likely to be most affected by the new offence, which applies from 30 September 2017.
Three stages are required for the offence to be committed:
- Stage one: the criminal tax evasion by a taxpayer (either an individual or a legal entity).
- Stage two: the criminal facilitation of the tax evasion by an "associated person" (eg an employee or agent) of the relevant body, who is acting in that capacity.
- Stage three: the failure by the body to prevent the associated person from committing the criminal facilitation act.
The body will have a defence if it can show that, when the tax evasion offence was committed, it had in place such prevention procedures as could be reasonably expected in all the circumstances.
HM Revenue and Customs (HMRC) has published guidance, Tackling tax evasion: Government guidance for the corporate offences of failure to prevent the criminal facilitation of tax evasion, that will help organisations take a risk-based, proportionate approach to putting in place a system of reasonable procedures to prevent associated persons from criminally facilitating tax evasion. The guidance sets out six guiding principles that should inform organisations' prevention procedures and explains HMRC's expectations as to the action that organisations should take. The principles are:
- risk assessment;
- proportionality of risk-based prevention procedures;
- top level commitment;
- due diligence;
- communication (including training); and
- monitoring and review.
The guidance also suggests reasonable prevention procedures for lower risk SMEs to consider putting in place.