Measures which came into force on 30 September 2017 introduce new criminal offences for the failure to prevent the facilitation of tax evasion by corporates and partnerships.
The Criminal Finances Act 2017 is not just for banks and large financial services firms, it applies to all relevant bodies, regardless of their size or industry.
The government hopes the Act is another step towards making the UK ‘a more hostile place for those seeking to move, hide or use the proceeds of crime or corruption’.
So, what does this new legislation mean? There are three criteria that must be met to trigger the UK tax offence, consisting of:
- a criminal offence of tax evasion at the taxpayer level;
- the criminal facilitation of the tax evasion by an ‘associated person’ of the relevant body (an employee, agent or other person who performs services for or on behalf of the relevant body) while acting in that capacity; and
- the relevant body failing to prevent that associated person from committing the criminal facilitation.
There is also a foreign tax offence which follows similar, but slightly narrower, criteria.
The consequences of a corporate or partnership committing either offence include unlimited financial penalties and confiscation orders. However, for some businesses the reputational damage could be far worse, particularly with the media’s current appetite for headlines on corporate wrongdoing.
Is there a defence? There will be no offence where the relevant body has ‘reasonable prevention procedures’ in place to prevent facilitation, or where it is unreasonable to expect such procedures.
HMRC appreciates that it takes time to implement mitigation procedures. As such, what constitutes an adequate defence now is likely to increase as time passes and the rules bed in. Businesses should therefore concentrate on addressing higher risk areas first.
While the prevention procedures must be tailored to the risks the business faces, the guidance provides six guiding principles:
- risk assessment;
- proportionality of risk based prevention procedures;
- top level commitment;
- due diligence (DD);
- communication (including training); and
- monitoring and review.
As the level of DD required should take account of the level of control the organisation has over the ‘associated person’, will we see contracts start to change to give more control over relationships with suppliers.
The full impact of these rules on the supply chain will become clearer as more businesses implement prevention procedures. However, one thing is clear, businesses need to address the risks to stay on the right side of the law.
For more information please comment below or get in touch with Nick Blundell.