On 30 September 2017, the new corporate criminal offences of failure to prevent the facilitation of both UK and foreign tax evasion (the “New Offences”) under Part 3 of the Criminal Finances Act 2017 (the “Act”) will come into force. Further to our Law-Now published on 21 July 2017 (click here), HM Revenue & Customs (“HMRC”) has now published its final guidance (the “Final Guidance”) on developing “reasonable procedures” that may give a corporate a defence to the New Offences.
Below is a summary of the key changes to HMRC’s draft guidance published in October 2016 (the “Draft Guidance”):
Scope of the Act
Oddly, in respect of the facilitation of UK tax evasion offence, the Final Guidance states that Scottish devolved taxes (e.g. Land and Buildings Transaction Tax) fall outside the scope of the Act. However, the provisions of the Act do not support this interpretation. CMS will be seeking clarification on this point from HMRC.
Acts of Facilitation
The Final Guidance makes clear that in respect of the facilitation of foreign tax evasion offence, where the act of facilitation occurs outside the jurisdiction suffering the tax loss, that jurisdiction must recognise that act of facilitation as a criminal offence under its domestic law, before it will be possible for the offence to apply under the Act. This is because the offence triggered by foreign tax evasion requires “dual criminality” – i.e. that the offending act in question would have been an offence if it occurred in the UK and is an offence under the law of the country where the tax evasion (and its criminal facilitation) actually occurred.
Risk Assessments & Prevention
The Final Guidance makes clear that for a corporate to be able to avail itself of the defence that it had reasonable procedures in place to prevent such facilitation by those acting on its behalf, it will at the very least need to show that it conducted an effective risk assessment that identified the risks (if any) to be mitigated by additional controls. That assessment should be documented and kept under review. When determining whether prevention procedures are “reasonable” and “proportionate”, the Final Guidance notes that the size of the organisation will be an important, but not the only, determining factor. The nature and complexity of the business should also be considered. The Final Guidance is also at pains to highlight that those in the business of giving financial or investment advice are likely to be in a high risk category for the purpose of the New Offences.
The Final Guidance updates the scope of the suggested reasonable procedures training in respect of lower risk small and medium sized enterprises. It shortens the list of suggested content in respect of tax evasion and general fraud training, by dropping the need to include references to penalties for committing an offence and the social and economic effects of failing to prevent tax evasion. However, in our experience, indicating to attendees the risk of criminal penalties for failing to comply with the corporate compliance controls often assists in focusing individuals’ attention on the need to be vigilant.