Summary: The Criminal Finances Act has now been passed, introducing a new corporate criminal offence of failure to prevent the facilitation of tax evasion. Corporates now need to assess the risk of persons associated with them criminally facilitating tax evasion and develop procedures to try to mitigate against such risks. This should protect the corporate from criminal liability, in the event an associated person criminally facilitates tax evasion.

The Criminal Finances Act has now been passed, introducing a new corporate criminal offence of failure to prevent the facilitation of tax evasion. The offence itself will come into effect in September 2017, by which time corporates 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.

HMRC have made clear that:

  • Corporates will need to conduct a risk assessment in order to identify the risk of any persons associated with them criminally facilitating tax evasion. If the corporate identifies such risks, it will need to put in place reasonable procedures to try to prevent the facilitation from happening. If the corporate takes this step, it should be able to defend itself from criminal liability in the event that one of its associated persons criminally facilitates tax evasion.
  • The risk assessment is the most critical document which HMRC 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 expects that the risk assessment process will be on-going, so that policies and procedures develop, as the corporate’s business and risks of facilitation change.
  • For corporates 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 corporates 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. HMRC have confirmed that the UK Government guidance will largely be the same as the draft guidance produced in October 2016. However, there will be more examples of the types of behaviour in the financial services sector which HMRC consider would breach the offence.