Corporate Tax Offences
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.
- 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 has to prove in order to convict:
- 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
- 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.
HMRC have recently released a Freedom of Information (FIO), outlining the number of live corporate criminal offences investigations. Click here for more information.
Please contact Patrick Cannon for an initial discussion or advice.
Frequently Asked Questions
These two offences are complicated to prosecute because they first require there to be two underlying tax offences – the tax evasion itself, plus the offence of being knowingly involved 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 that – except in cases where the evidence is clear or the tax evasion is admitted – these two new offences will be unlikely to lead to prosecutions and may serve more as a “keep off the grass” warning to corporates.
To be safe, companies and partnerships need to have solid 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 are such tax evasion and facilitation 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 has 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.