Since this news item was published in March 2019, HMRC have issued an update on the number of live Corporate Criminal Offences investigations as at 10 February, 2020.
This reveals that HMRC say they have 30 “potential” cases underway and that as at 31 December, 2019, they had 9 “live” investigations, with a further 21 “opportunities” under review that include small businesses through to some of the UK’s largest organisations.
This announcement is perhaps surprising because after three years one could have expected there to be more than 9 “live” investigations. Moreover, the other 21 cases they say are underway are described as “opportunities” which may strike some people as an odd way to describe instances of potential tax evasion when the word “cases” might have been more appropriate. The word “opportunity” and its adjective “opportunistic” implies a department under resourcing pressure, acting with little regard to principles and having to cherry-pick between cases of criminal conduct, meaning that some identified cases of criminal tax behaviour will not be selected for punishment.
— End of update —
Since 30 September, 2017 companies and partnerships that do not have reasonable procedures in place to prevent employees, agents or subsidiaries from facilitating tax evasion may be prosecuted.
There are two types of criminal offence:
- Failure to prevent facilitation of UK tax evasion
- The failure to prevent facilitation of non-UK tax evasion.
These criminal offences were created by sections 45 and 46 of the Criminal Finances Act 2017.
There are three elements to both the UK and the non-UK offences which the prosecution have to prove:
- A taxpayer commits tax evasion, i.e. cheating the public revenue or fraudulent evasion of tax or the foreign equivalent;
- An employee, agent or subsidiary of the company or partnership is acting on behalf of the company or partnership when the tax evasion is committed and facilitates the tax evasion;
- The company or partnership fails to prevent the employee, agent or subsidiary from facilitating the tax evasion.
For the non-UK offence, two additional conditions must be met:
- the tax evasion and the facilitation of that evasion must be criminal offences in both the UK and the non-UK territory; and
- the company or partnership is incorporated or formed in the UK or carries on business in the UK or the facilitation of the tax evasion occurs in the UK.
It is a defence for the company or partnership to prove that when the tax evasion occurred, it had reasonable procedures in place to prevent the facilitation or that it was not reasonable in all the circumstances to expect them to have any prevention procedures in place.
It can be noted that these two offences will be complicated to prosecute because they first require there to be two underlying tax offences, namely the tax evasion itself plus also the offence of being knowingly concerned in or taking steps with a view to the fraudulent evasion of tax by another person, i.e. the facilitation offence. These two underlying offences can each be very difficult to prove on their own. It may be therefore that these two new offences will be unlikely to lead to prosecutions and may serve more as a “keep off the grass” warning to corporates.
However, to be safe, companies and partnership need to have tax evasion facilitation prevention procedures in place. HMRC guidance suggests six guiding principles:
- Risk assessment – has there been a business-wide risk assessment to identify associated parties who might facilitate tax evasion and where such tax evasion and facilitation are likely to take place?
- Proportionality – are the prevention procedures in place proportionate to the risks and are further procedures appropriate for specific areas of business?
- Top-level commitment – senior management should be committed to preventing persons associated with the business from facilitating tax evasion and foster the necessary culture.
- Due diligence – the business should apply due diligence procedures in order to mitigate the risks of associates facilitating tax evasion.
- Communication, including training – the business’s prevention policies and procedures should be communicated, embedded and understood throughout the organisation.
- Monitoring and review – the business monitors and reviews its prevention procedures and improves them when necessary.
HMRC have published guidance on self-reporting tax evasion facilitation offences. By self-reporting, the company or partnership can use that as part of its “reasonable procedures” defence. If the business is prosecuted, prosecutors will take such a report into account and it may assist in mitigating penalties.
If a successful prosecution for either offence is made out, the company or partnership faces an unlimited fine and ancillary orders such as confiscation or serious crime prevention orders.
If your organisation is at risk of exposure to these offences or would like advice on whether its prevention procedures are reasonable in the circumstances, please contact Patrick Cannon for an initial discussion or advice.