UK Criminal Finances Bill - Failure to prevent the facilitation of tax evasion and what you need to do now

Overview

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’.

Download UK Criminal Finances Bill - Failure to prevent the facilitation of tax evasion and what you need to do now

What is the offense?

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.

What will be the impact of the Criminal Finances Act?

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:

Failure of a relevant corporate body to prevent the facilitation of UK tax evasion by an associated person; and
Failure of a relevant corporate body to prevent the facilitation of non-UK tax evasion by an associated person.

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.

What will be the potential consequences in the event of a breach of the law?

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.

What steps should I be taking?

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.

What are reasonable procedures?

The definition of reasonable procedures is modelled on the UK Bribery Act:

Carrying out a risk assessment to identify the specific risks of facilitation.
Implementing procedures which are proportionate to the specific risks identified in the risk assessment.
Performing due diligence of staff, third parties and clients in proportion to the risks that they pose to the business.
Ensuring that there is a top level commitment within the organisation to preventing the facilitation of tax evasion.
Communication (including training) to employees and third parties to ensure procedures are embedded and understood.
Carrying out ongoing monitoring and review of procedures and risk assessment.

PwC UK can help

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.