The facilitation of tax evasion: it’s time for a risk assessment

  • Insight

09 October 2017

New corporate criminal offences in respect of the failure to prevent the facilitation of tax evasion came into force on 30 September 2017. 

HMRC has published the final version of its guidance regarding the new offences, which are found under the Criminal Finances Act 2017 (“the Act”). The guidance also outlines the prospective defence for corporates who implement reasonable procedures to prevent the facilitation of tax evasion. The guidance provided by HMRC can be found here.

Offences under the Act

The Act introduces two new offences that both companies and partnerships could be guilty of. The first applies to all businesses, regardless of where they are located, in respect of the facilitation of UK tax evasion. The second applies to businesses with a UK connection in respect of the facilitation of non-UK tax evasion.

This strict liability offence means that, where an associated person to an organisation facilitates the evasion of tax, the organisation will be vicariously liable and presumed to be guilty of the failure to prevent the offence. Guilt is presumed regardless of whether the corporate knew about the criminality. The only defence to prosecution will be if the corporate can demonstrate that “reasonable prevention procedures” had been implemented.

For an offence outside of the UK to apply under the Act, the legislation requires that there is ‘dual criminality’, meaning that the overseas jurisdiction must have both an equivalent tax evasion offence and a criminal act of facilitation offence in its domestic law. The foreign offence must also be considered a crime if it were to have happened in the UK. Where conduct contravenes the criminal law of another country relating to tax evasion, it may give rise to the foreign tax evasion offence as long as the above tests are met.

Guiding Principles

The guidance outlines six guiding principles that a corporate should consider in their efforts to prevent tax evasion from being committed on their behalf. These are:

  • Risk assessment – it is recommended that risk assessments to allow a corporate to accurately identify and prioritise the risks it faces are carried out and regularly reviewed.
  • Proportionality of risk-based prevention procedures – procedures should be in place to prevent “associated persons” from having the capacity to facilitate tax evasion.
  • Top level commitment – top level management should be committed to preventing “associated persons” from engaging in the facilitation of tax evasion.
  • Due diligence – applying due diligence procedures to those who perform services on behalf of the corporate, which will mitigate risk.
  • Communication (including training) – a corporate should communicate their prevention policies and procedures and provide training to ensure that these policies and procedures are understood by all members of the corporate.
  • Monitoring and review – monitoring, reviewing and improving the preventative measures taken by the corporate.

Above all, when determining if reasonable procedures have been implemented so that a defence can be established, a corporate will have to demonstrate that appropriate risk assessments were carried out and any identified risks have been mitigated.

For further information on the implications of this change in law, contact