New corporate offence: failing to prevent the facilitation of tax evasion

Mind the gap - spotting the insolvency risks with particular features of a corporate transaction

A new corporate offence of failing to prevent the facilitation of tax evasion came into force on 30 September 2017 under the Criminal Finances Act 2017 (the “CFA 2017”). Employers will commit an offence under the CFA 2017 if they fail to prevent an associated person (employee, agent or any other person who performs services for or on behalf of the employer) from facilitating tax evasion. There is a statutory defence if the employer can demonstrate it had reasonable prevention procedures in place.

There are three key elements to the offence. Firstly, a taxpayer must criminally evade tax owed in the UK or a foreign jurisdiction. Secondly, an associated person of the employer must facilitate that evasion. Finally, the employer must fail to prevent such facilitation. Critically, there is no need for the employer or its senior management to participate in or even know about the facilitation or evasion to be liable.

The Government has produced some guidance setting out what employers should do to seek to satisfy the statutory defence.

Employers need to be able to demonstrate that they have taken reasonable steps, and have put in place adequate systems, controls, policies and procedures including the following:

  • Carry out a risk assessment;
  • Prepare a prevention policy to address the risks identified
  • Ensure that senior management are engaged with the issues and cascade the message to staff that tax evasion facilitation is not permitted
  • Ensure the policy is communicated to all staff and necessary training for staff and associated persons is provided
  • Include a term in staff contracts requiring them not to engage in facilitating tax evasion, and to report any concerns immediately
  • Back this up with appropriate disciplinary and enforcement arrangements
  • Monitor compliance and review procedures as necessary
  • Have a clear whistleblowing procedure for suspected facilitation.

The level of the preventative procedures which should be put in place will depend on the level of risk of the activity concerned. For example, organisations concerned with tax planning and advice would need to be especially diligent.

The corporate offence under the CFA 2017 is punishable by a fine.

Comment

As this legislation is now in force, employers should be taking steps promptly to review whether there are any risks that its employees or other associated persons may facilitate tax evasion. At a minimum, employers should be looking to insert terms into employment and consultant contracts requiring them to not engage in the facilitation of tax evasion. Ideally, employers should also have a formal policy on preventing the facilitation of tax evasion.

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Kerry Garcia

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