State expedites new tax offence

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The draft guidance outlines the issues corporates should address to satisfy the “reasonable procedures” defence.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.

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.

Appropriate training and policies should be introduced, and regularly reviewed, to ensure staff are briefed on the detection, prevention and reporting of suspected tax evasion offences. In larger organisations, these training sessions should be formalised and documented. Businesses can, however, take some comfort that while all due diligence procedures should be tailored towards the risks of the facilitation offence, the government accepts there is scope for these to be incorporated into existing procedures, for example in relation to anti-money laundering and anti-bribery and corruption.

Finally, the government expects senior management to be visibly involved in the prevention procedures. We envisage that senior managers of large businesses will do so by way of delegation to a committee, in a manner that is reflective of the practice adopted to comply with the similar principle of “top-level commitment”, which is required by anti-bribery legislation.

The latest draft of the legislation and guidance is open for consultation until July 10. The new offence is expected to come into force later this year as part of the new Criminal Finances Act.

Aaron Stephens is partner and head of corporate crime, Kate Ison is senior associate in contentious tax, and Rebecca Wardle is associate in commercial dispute resolution at Berwin Leighton Paisner LLP