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Criminal facilitation of tax evasion

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HMRC has published an updated version of its draft guidance on the new corporate offence of failure to prevent criminal facilitation of tax evasion. Legislation for the new offence is now contained in the Criminal Finances Bill, published on 13 October. The latest version of the legislation provides for two distinct offences: one for domestic and the other for foreign tax evasion. The guidance has been expanded considerably since the first version was published for consultation in April, but will remain draft and subject to change during the Bill’s passage through Parliament.

For a corporation to be liable to the new offence, there must have been two criminal offences under the existing law:

  • criminal tax evasion by a taxpayer; and
  • criminal facilitation of this offence by a person acting on behalf of the corporation, which could include taking steps with a view to tax evasion by the taxpayer, or being knowingly concerned in, or aiding, abetting, counselling or procuring the tax evasion.

Where both of these criminal offences have occurred, a corporation is then liable for having failed to prevent a person associated with it from committing the criminal facilitation offence.

No individual criminal liability occurs unless an associated person is deliberately and dishonestly involved in facilitating tax evasion. A corporation will not be liable because a person associated with it ought to have known that their actions were in fact helping a client to commit tax evasion.

For the foreign tax evasion facilitation offence, the legislation requires there to be ‘dual criminality’. The corporate offence cannot be committed where the acts of the associated person would not be criminal if committed in the UK, regardless of what the foreign criminal law may be.

A corporation will have a defence of having put in place reasonable procedures if it has done as much as can reasonably be expected to address the risk that an associated person might ignore policies and seek to circumvent procedures. Reasonable procedures need not be fool-proof and need not have actually stopped the financial crime from occurring. A person will only be ‘associated’ for these purposes where they are carrying out activities ‘for or on behalf of’ the corporation.

The level of control a corporation has over the associated person will be a factor taken into account when considering what procedures are reasonable. The guidance includes the concept of ‘proximity’, ranging from employees to the staff of a sub-contractor, for example.

The government’s guidance is formulated around six guiding principles for the prevention procedures that relevant bodies should put in place to prevent tax evasion from being committed on their behalf:

  • Risk assessment: a relevant body assesses the nature and extent of its exposure to the risk of those who act for or on its behalf.
  • Proportionality: risk-based prevention procedures will depend on the levels of control and supervision that an organisation is able to exercise over a person acting on its behalf and the proximity of that person. The new offences do not require relevant bodies to eradicate all risk, but they do demand more than mere lip service.
  • Top level commitment: top-level management should be committed to prevention and should foster a culture in which activity intended to facilitate tax evasion is never acceptable.
  • Due diligence: procedures should take an appropriate and risk-based approach.
  • Communication (including training): prevention policies and procedures are communicated, embedded and understood throughout the organisation.
  • Monitoring and review: the organisation monitors and reviews prevention procedures and makes improvements where necessary.

See here.