1. What are the new offences?
The new offences make "relevant bodies", namely corporates and partnerships, strictly criminally liable for failing to prevent criminal facilitation of tax evasion by any of their "associated persons", namely any person performing services for or on behalf of the body. Such persons include, for example, employees, agents, sub-contractors etc. The relevant body's failure may relate to the criminal facilitation of either UK tax evasion (the "UK offence") or overseas tax evasion (the "foreign offence").
As mentioned, both offences are strict liability. That is to say, the senior management of the relevant body need not have participated in, known about or even suspected either the facilitation or the evasion for the relevant body to be held criminally liable. All that is needed to trigger liability is for an associated person to criminally facilitate tax evasion by a tax payer. This is, then, a significant imposition of responsibility upon relevant bodies.
The only defence to the offences is that the relevant body had in place "reasonable" procedures designed to prevent its associated persons from criminally facilitating tax evasion.
2. Who can commit the offences?
The offences can only be committed by corporates (limited companies, LLPs etc.) and partnerships. The offences cannot be committed by individuals.
In respect of the "UK offence" i.e. where the evasion relates to UK taxes, the relevant body can be based in the UK or overseas. In respect of the "foreign offence" i.e. where the evasion relates to overseas taxes, the relevant body can be based in the UK, or even overseas, so long as the body is sufficiently connected to the UK i.e. carries on business or part of a business from the UK, or if some or all of the facilitation takes place in the UK.
Both offences require an "associated person" of the relevant body to criminally facilitate tax evasion. The term "associated person" has a very broad definition and includes the relevant body’s employees, subsidiaries, agents, sub-contractors, representatives or anyone else acting for or on behalf of the body. The associated person must be acting in their capacity as an associated person rather than in their personal capacity. They must also have intentionally aided or abetted a tax payer to deliberately evade UK or overseas taxes.
3. Where can the offences take place?
As explained above, one of the most notable innovations in the new legislation is the creation of offences for failing to prevent the facilitation of tax evasion both within and outside the UK.
In relation to the foreign offence, there must be "dual criminality" in respect of both facilitation and evasion. That is to say, both the facilitation and the tax evasion must be criminal in the overseas jurisdiction and the UK for the offence to be triggered.
4. What are the consequences if a company is found liable?
If successfully prosecuted, a relevant body could face an unlimited fine as well as significant commercial and reputational damage. Deferred Prosecution Agreements (DPAs) are in principle available on the proviso that the corporate or partnership provides full co-operation and, in the normal course, prompt self-reporting to the investigating authority.
5. How do we avoid liability?
As explained above, a relevant body can claim a defence to the offences if it can demonstrate that it had in place reasonable prevention procedures, or alternatively that it was not reasonable to expect it to have such procedures in place, in all the circumstances.
Helpfully, the HMRC has published draft guidance (PDF) on what "reasonable" prevention procedures might look like for your business. This guidance is expected to be finalised for the introduction of the new offences on 30 September 2017. With this in mind, all businesses should review the guidance and consider taking the following steps in relation to each of the 6 principles set out in the guidance:
Conduct a full risk assessment of the business to identify where, if any, the risks of committing the offences lie. Who constitutes an associated person? Do they have an opportunity and incentive to facilitate tax evasion? On behalf of whom? It may be that the business concludes that the risks are negligible. In any event, the risk assessment should be recorded in writing. Its findings will inform the requirement for, and content of, the prevention procedures.
Proportionality of risk-based prevention procedures
Devise and implement prevention policies and procedures which are proportionate to the identified risks. These are likely to include reference to the offences in existing compliance and ethics policies, the inclusion of terms in employment contracts, procedures for reporting and whistle-blowing and procedures for monitoring and enforcing compliance.
Top level commitment
The top level management should foster a culture within the organisation of ‘zero-tolerance’ towards the criminal facilitation of tax evasion. They should also be involved in the assessment of risk as well as in the creation and implementation of preventative procedures.
Apply appropriate due diligence procedures in respect of any person who will be performing services on behalf of the organisation, which are proportionate to any identified risks.
Communication (including training)
Ensure that all prevention policies and procedures are communicated and understood throughout the organisation and where necessary, provide training for staff and associated persons which is proportionate to the risks faced by the organisation. This is particularly important where a business has overseas offices.
Monitoring and review
Monitor and review prevention policies and procedures on a regular (at least annual) basis and make adjustments and improvements in response to any changes over time in the nature of the risks faced by the organisation.