In the wake of the publication of the Panama Papers, the government has confirmed its intention to accelerate the introduction of a strict liability criminal offence for corporations that fail to prevent the criminal facilitation of tax evasion.
The offence applies to all UK corporates and partnerships and, in certain cases, to overseas corporations. It is particularly targeted at financial institutions, professional services firms and other financial sector entities.
Corporations will be criminally liable where: a taxpayer commits a tax evasion offence – whether UK or overseas tax; or a person associated with the corporation, such as an employee or a subsidiary, commits a UK or foreign “tax evasion facilitation offence”. Facilitation includes intentionally aiding, abetting, counselling or procuring the commission of the tax evasion offence, or being knowingly concerned in, or taking steps with a view to, facilitating the fraudulent evasion of tax; and the corporation did not have in place “reasonable procedures” to prevent the facilitation of tax evasion, unless the corporation can show it was reasonable to not have any procedures in place.
Where these conditions are satisfied, the business will be criminally liable and subject to a fine. In the context of money laundering and bribery, corporate fines are unlimited, with guidelines suggesting fines of up to 400 per cent of the “harm” caused by the offence, but it remains to be seen whether similar guidelines will be produced in the context of this tax offence.
The draft guidance outlines the issues corporates should address to satisfy the “reasonable procedures” defence. Unhelpfully, however, the guidance is silent on the circumstances in which it would be reasonable for a corporation to have not put in place any prevention procedures. While we expect this carve-out is aimed at small- to medium-sized organisations that face a low risk of tax evasion being committed, clarification would be welcomed.
| KEY FIGURES |
15% Of the 219 financial advisers polled say their clients have been put off legitimate tax planning in the past year, citing negative publicity around tax avoidance. 84% The majority of advisers say clients are still willing to make use of tax-planning measures. 20-40% Of the advisers surveyed, 3 per cent suggested 20-40 per cent of their clients had been dissuaded from using standard tax-planning methods. Source: Old Mutual Wealth |
The steps that a business will be required to take to satisfy itself – and any potential prosecutor – that its procedures are sufficiently robust will depend on the circumstances and risk profile of the organisation. Those organisations that face a greater risk of its services being used by an associated person to facilitate tax evasion will need to implement more comprehensive procedures than low-risk organisations.
All businesses should conduct an appropriate risk assessment of whether its services, or services connected to it, are at risk of being used by employees or other associated persons to facilitate tax evasion. The size of the organisation, the nature and scale of the services offered, the reliance on third-party service providers and the jurisdictions in which they operate will all be relevant risk-assessment factors.
