UK Corporate Criminal Offence of Failing to Prevent the Facilitation of Tax Evasion

There is continued global and local impetus towards tax transparency, reporting and cracking down on tax evasion. The Criminal Finances Act 2017 takes this movement a step further by establishing two categories of criminal offence from 30 September 2017:

• The failure to prevent the facilitation of the evasion of UK tax
• The failure to prevent the facilitation of the evasion of foreign tax

The offence is committed by incorporated bodies (companies and partnerships) when they fail to prevent persons associated to them from committing tax evasion. Persons associated with the business must be examined on a case by case basis but will include employees, agents, contractors or subsidiaries of the business.  For example, portfolio managers, capital raising and distribution teams, delegates, independent financial intermediaries and possibly lawyers and accountants are persons associated to a fund manager.  The fund manager themselves will be associated to the fund, as will its directors, custodian, administrator, prime broker, and marketeers.

It is not necessary that the business is aware of the tax evasion. If the business cannot prove that it took proportional steps to prevent the evasion in the first place, it will still be liable.

Tax evasion is the dishonest and deliberate act of not paying taxes and not the lesser act of tax avoidance which is the arrangement of one’s affairs to minimise tax liability within the law or unintentional non-compliance.

A defence exists where businesses can prove that they have reasonable prevention procedures in place to prevent the facilitation of tax evasion or that is not reasonable or proportionate to put such a procedure in place.

HMRC Guidance on the matter is very helpful and provides six guiding principles:

1. Risk assessment

The consequences of failure can be wide ranging from unlimited financial penalties, confiscation orders, regulatory sanctions due to control failures, as well as a risk to reputation

2. Proportionality

Risk-based prevention procedures will depend on the levels of control and supervision that a business is able to exercise over a person acting on its behalf and the proximity of that person.

3. Top Level Commitment

Senior management should be committed to prevention and should foster a culture in facilitation of tax evasion is never acceptable

4. Due Diligence

Due diligence procedures should take an appropriate and risk-based approach

5. Communication (including training)

Prevention policies and procedures should be communicated throughout the business

6. Monitoring and Review

The business monitors and reviews prevention procedures and makes improvements where necessary

The consequences of failure can be wide ranging from unlimited financial penalties, confiscation orders, regulatory sanctions due to control failures, as well as a risk to reputation

What do you need to do to meet the 30 September deadline:

• Undertake a risk assessment to identify, document and categorise risk of tax evasion

• Secure top level commitment to the process of prevention

• Start to develop an implementation and communications plan

How Duff & Phelps Can Help

Experts at Duff & Phelps have developed a risk matrix to aid businesses in the financial services sector to undertake a risk assessment of their business. This includes identifying their associated persons and evaluating their risk factors. Our team can also support you to design robust policies and implement proportionate preventative procedures.

Read more about how we can assist you and your business, here.