Two new corporate offences relating to tax evasion were introduced on 30 September 2017. The offences cover tax evasion in both the UK and overseas and apply to companies, partnerships and LLPs.
The new offences essentially mirror the existing ones relating to acts of bribery. So a company is liable for the tax evading actions of its ‘associated persons’, which includes employees and agents.
The only defence available to a company that may be guilty of a tax evasion offence is to demonstrate that it had reasonable prevention procedures in place. This is very similar to the adequate procedures defence to the bribery offences. You can read about the requirements under the Bribery Act here.
If found guilty of a tax evasion offence, a company could face an unlimited fine, a confiscation order or a serious crime prevention order. It could also be banned from entering into public procurement contracts.
To be liable for one of the new offences, a three stage process must be satisfied.
- Stage one: there is criminal tax evasion by a legal entity or an individual;
- Stage two: there is criminal facilitation of the tax evasion by a person associated with the company; and
- Stage three: the company failed to prevent the associated person from acting in that way by not having reasonable prevention procedures in place.
Stage one: tax evasion
There are two different types of tax evasion:
- a UK tax evasion offence of cheating the public revenue or being knowingly concerned in the fraudulent evasion of any UK tax; and
- a foreign tax evasion offence relating to conduct which is an offence under the law of a foreign country, which relates to a breach of duty regarding a tax imposed under that foreign law and which would be regarded as a UK tax evasion offence if the offence were committed in the UK.
Stage two: facilitation of tax evasion
A company will be guilty of an offence if a person associated with it facilitates the tax evasion offence by either:
- being knowingly concerned in, or in taking steps with a view to, the fraudulent evasion of tax; or
- aiding, abetting, counselling or procuring the tax evasion.
The foreign tax evasion facilitation offence will apply where the company is incorporated in the UK, it is carrying on at least part of its business in the UK or the conduct constituting the offence took place in the UK.
Stage three: having reasonable prevention procedures in place
If stages one and two are satisfied then a tax evasion offence has been committed and this has been facilitated by a person associated with the company.
A company will have a defence to this offence if it can show it had in place reasonable procedures designed to prevent persons associated with the company from committing tax evasion facilitation offences.
The company would be expected to carry out a risk assessment to establish which procedures are proportionate to the risk of tax evasion or whether the procedures are required at all.
HMRC guidance has been released which closely mirrors that issued in relation to the comparable bribery offences. The guidance lists the same six guiding principles as for the bribery offences but these are not prescriptive and failure to satisfy all of the suggested methods of prevention does not necessarily indicate that reasonable prevention procedures are not in place.
Despite the similarities with the bribery offences however, companies should avoid the temptation to simply implement the same procedures that they may already have in place to prevent bribery. Tax evasion risks are much wider and different factors will need to be considered. A more bespoke approach to tax evasion should be taken to ensure that precise risks are addressed directly.
It is worth remembering that the guidance does not require a company to prevent every instance of tax evasion from being committed, but merely requires it to adopt an approach that is proportionate to the areas of identified risk. Every company is different, so there is no one-size fits all approach that should be applied.
What should you do?
The new rules do not change what amounts to tax evasion which has always been, and continues to be, a crime. Instead, they extend the scope of persons that can be prosecuted when tax evasion occurs. The two new offences make it easier for companies to be prosecuted where tax evasion has taken place. A lack of knowledge or intention within the organisation is not a defence.
Companies should conduct a wide-ranging risk assessment to identify any tax evasion risks within their business. Existing policies and procedures should be reviewed and additional procedures implemented to prevent any person associated with the company from facilitating tax evasion, both in the UK and overseas. Ensuring that all staff and third parties know their obligations under the new offences will count towards having reasonable prevention procedures in place.