The Criminal Finances Act 2017 introduced a new corporate criminal offence on 30th September 2017 for failure to prevent associated persons from facilitating tax evasion. This offence is committed by companies or partnerships rather than individuals. Associated persons can be members of staff, agents or persons who undertake services on behalf of the company.
Tax evasion is already a criminal offence, as can be the facilitation of another’s tax evasion. However, previously the government had no means of recourse against a company which turned a blind eye, or even actively encouraged, strategies which facilitated tax evasion. Now companies may be responsible for the actions of their associated persons.There is a three-step test that determines liability to a prosecution under the new offence:
- Criminal evasion by a taxpayer.
- Criminal facilitation of the evasion by an associated person.
- If the first two offences are committed then the business will also automatically commit the new offence, unless it has established reasonable prevention procedures.
The actions of the taxpayer and the associated person which are criminalised are deliberate and dishonest conduct. Tax evasion should not be confused with tax avoidance or tax planning and inadvertent or negligent facilitation is not covered.
Also, the facilitation has to happen in the capacity of the association with the company. This means that it is unlikely a company will be responsible for failing to prevent an employee facilitating a family member’s tax evasion at home.
Subject to the defence, the offence is one of strict liability and does not require proof of involvement from the ‘directing minds’ such as senior managers and directors. Crucially, this means a business need not be aware that an associated person has facilitated tax evasion and can be liable if it allows tax evasion to occur passively.
Not only can fines be unlimited but prosecution could have a catastrophic impact on a firm’s reputation.
It is clear given the strict liability imposed by the Act that prudent businesses are looking to implement procedures that help identify and prevent any potential risks, and crucially provide a defence to the actions of unscrupulous associated persons.
The Government’s guidance (like the offence itself) is modelled around anti-bribery legislation. There are 6 familiar guiding principles which companies should review for information on preventing the facilitation of tax evasion:
- Risk assessment
- Proportionality of risk-based prevention procedures
- Top level commitment
- Due diligence
- Communication (including training)
- Monitoring and review.
The preventive measures to be established may not need to be absolute but should be reasonable and proportionate to the activities undertaken and, therefore, the risks faced by a business. Financial services, law firms and accounting practices may face the greatest risk, which should be reflected in the measures to be implemented.
Prudent companies should therefore review their commercial arrangements with associated persons (such as agents, consultants or other persons who perform services on their behalf) and assess the likelihood of risk. Depending on the risk, they should also consider amending employment contracts and staff handbooks to reflect the introduction of the Criminal Finances Act 2017.
BHW Solicitors can help you to review your commercial arrangements in light of the Act. Our specialist commercial lawyers can draft working agreements and contracts which attempt to mitigate particular risk.
For more information about the Criminal Finances Act 2017, please contact BHW’s corporate team on 0116 289 7000 or email firstname.lastname@example.org.