As the enforcement date for the new corporate offense of failure to prevent the facilitation of tax evasion is fast approaching, firms are having to take steps to demonstrate that they have implemented ‘reasonable procedures’.
From September 2017, organisations will be strictly liable if any of their associated persons (including employees) criminally facilitate the evasion of tax either in the UK or overseas. The only defense mechanism for companies, partnerships or foreign firms will be to demonstrate that they have reasonable procedures in place to prevent the facilitation of tax evasion. The deliberately wide scope of the offense will require organisations to have oversight of the risks associated with their customers, employees, third parties and their downstream activities.
Amongst other provisions, the Act will introduce two new corporate criminal offenses in respect of the facilitation of tax evasion (collectively referred to as the “Corporate Criminal Offenses”), namely:
There will be circumstances where the Corporate Criminal Offences (CCO) will have extra-territorial application (i.e. where there is a demonstrable nexus with the UK and dual criminality).
HMRC will have oversight and published guidance to help relevant entities understand the types of processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion. In short, the only real defense is to demonstrate that appropriate governance and controls exist and are maintained in the business.
Once the law is in force, if a relevant body is successfully prosecuted for either of the CCOs, an unlimited fine may be imposed by the courts in addition to other sanctions, such as confiscation orders. The liable body risks losing their licences and may be prohibited from bidding for public contracts. Aside from the legal consequences, there would also be reputational implications.
Businesses should complete a risk assessment to understand their key CCO risks whether VAT, Employment tax, CT or other taxes and ascertain the potential associated persons in the business who could facilitate tax evasion.
The aim for a business should be to have clearly documented controls and processes around each risk, which are monitored and reviewed on a regular basis. Each business will be different, but demonstrating appropriate consideration and controls will be a key mitigating factor in the event of any failure.
The definition of reasonable procedures is modelled on the UK Bribery Act:
PwC UK’s team combines experts in tax, financial crime and the wider legal context, offering you the option of working under legal privilege if needed. By bringing together these different skill sets, we can help you to embed a proportionate and sustainable approach to compliance within your business and support you every step of the way to reasonable procedures.
Gary M. Pogharian
Partner, PwC US
Partner, Law Firm Services Tax Leader, PwC US
Tax Partner, PwC UK, PwC US
Tax Managing Director, PwC US
Indirect Tax Director, PwC United Kingdom
Director, PwC UK Tax Leader for US Law Firms, PwC United Kingdom
Tel: +44 7803858518
Tax Director, PwC US
Tax Senior Manager, PwC UK, PwC US