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Warning tax evasion policy can foil M&A deal at 'eleventh hour'

Warning tax evasion policy can foil M&A deal at 'eleventh hour'

Inadequate compliance with the taxman's rules on preventing tax evasion can foil an M&A deal "at the eleventh hour", a business advisory firm has warned.  

Accountancy and business advisory firm BDO said it had witnessed firms addressing the risk of corporate criminal offences as "business as usual", warning non-compliance could stop an acquisition or merger in its tracks. 

James Egert, tax partner at BDO, warned the rules applied just as much to small businesses as they did to bigger cooperations. 

Mr Egert said: "To highlight this, in the M&A world, we are seeing CCO clauses included in deal documentation and forming part of transaction due diligence. 

"However, for the first time in our experience, we have witnessed a purchaser threatening to pull out of a deal at the eleventh hour purely because the target company was unable to evidence that any steps had been taken towards compliance with the CCO legislation."

The warning comes as the latest data published by HM Revenue & Customs shows it is currently pursuing ten live investigations into corporate criminal offences and reviewing a further 22 "live opportunities" under the legislation, including 12 in the financial services sector. 

In its 2015 Budget the government confirmed it would make it illegal for businesses to fail put in place "reasonable procedures" preventing criminally facilitated tax evasion. 

For advisers this means they would need to act if they found a client had undeclared assets on their books.

The corporate criminal offences were introduced as part of the Criminal Finances Act 2017 and apply to businesses of all sizes regardless of their industry sector. 

Organisations found guilty of the offences face unlimited fines as part of a campaign by the government to encourage companies to do more to prevent tax crime.  

Mr Egert said the latest figures served as further evidence businesses needed to "clearly demonstrate" compliance with the rules. 

He added: "Whereas some businesses may consider this work to be of lower priority during the Covid-19 period, the reality is that it is more relevant now than ever. 

"As a result of Covid-19, there have been widespread staff reductions and unprecedented numbers of employees working remotely, potentially leading to an increased burden on remaining staff and a lower level of oversight of their activities. 

"With senior management focused on business critical functions, outdated processes which have not been reviewed to take into account the changes in working practice will give rise to a heightened risk of compliance failures."

In an update on its website HMRC said the coronavirus pandemic had impacted the development of corporate criminal offences investigations and opportunities.

But it added: "However, HMRC continues to progress CCO investigations and opportunities wherever it is safe for HMRC and its customers to do so."

rachel.mortimer@ft.com 

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