The Criminal Finances Act 2017 (the Act) will enter into force in the UK on September 30, 2017, creating new corporate criminal offences in respect of the facilitation of tax evasion. Adopting the same approach as the offence of failure to prevent bribery under section 7 of the Bribery Act 2010, Part 3 of the Act brings into force new corporate offences of failing to prevent the facilitation of tax evasion.
Relevant Bodies and Associated Persons
The offences apply to companies and other bodies corporate and to partnerships including limited liability partnerships, as well as similar overseas entities, in all cases without regard to their actual place of incorporation or formation (relevant bodies) if carried on by an associated person of a relevant body. Associated person is widely defined. As well as the relevant body’s employees, it also includes:
- an agent of the relevant body (other than an employee) who is acting in the capacity of an agent, or
- any other person who performs services for or on behalf of the relevant body who is acting in the capacity of a person performing such services.
A relevant body therefore risks committing an offence not just through the acts of its employees and agents but through a wide range of supply chain actors such as its vendors, subcontractors and other suppliers as well as its joint venture partners and other commercial associations.
There is no threshold for small or medium sized companies—the Act applies to all no matter how large or small.
Failure to Prevent Tax Evasion
A relevant body will be guilty if an associated person commits a tax evasion offence when acting in a capacity associated with that body, i.e. commits an offence of cheating the public revenue or some other offence of being knowingly concerned in, or taking steps with a view to, fraudulent tax evasion, whether or not the tax is owed in the UK or in a foreign country. The offences impose strict liability for breach—the only available defence is to demonstrate that it had implemented such prevention procedures as may be reasonably expected of it in the circumstances, or that it was not reasonable in the circumstances to expect it to have any prevention procedures in place.
UK Tax Evasion Facilitation Offence
For the UK tax evasion facilitation offence (section 45), it does not matter whether the relevant body is UK-based or established overseas. Nor does it matter whether the associated person who performs the criminal act of facilitation is in the UK or abroad. In such cases, the offence will have been committed in the United Kingdom and can be tried by English courts.
Foreign Tax Evasion Facilitation Offence
The foreign offence (section 46) operates in a broadly similar manner to the domestic version except that the scope is narrower in that there must be a UK nexus. Such a nexus will arise where the relevant body:
- is incorporated under UK law,
- is carrying on a business or part of a business in the UK, or
- where the relevant body’s associated person is located within the UK at the time of the criminal act that facilitates the evasion of the overseas tax.
Offenders face unlimited fines, confiscation or serious crime prevention orders, regulatory reporting and subsequent sanction, and blacklisting from UK government procurement contracts.
Reasonable Prevention Procedures
The Act does not define what is meant by Reasonable Prevention Procedures. However, the guidance published by Her Majesty’s Revenue & Customs mirrors the six Bribery Act principles in the equivalent Ministry of Justice guidance:
- risk assessment,
- proportionality of risk-based prevention procedures,
- top level commitment,
- due diligence,
- communication (including training), and
- monitoring and review.
“The Government recognises that any regime that is risk-based and proportionate cannot also be a zero failure regime. If a relevant body can demonstrate that it has put in place a system of reasonable procedures that identifies and mitigates its tax evasion facilitation risks, then prosecution is unlikely as it will be able to raise a defence.”—HMRC Guidance
There is no grace or sunrise period for putting in place the Reasonable Prevention Procedures. However the guidance suggests that some latitude may be given in the early days since compliance programs and procedures can take time for large multinational organizations in particular to roll out. Although HMRC, in investigating any suspected offence, will take into consideration the prevention procedures that were in place and planned at the time the facilitation of tax evasion was committed, HMRC make it clear that the period is not open-ended and that rapid implementation is expected.