The facilitation of tax evasion; are your prevention procedures still reasonable?

Corporate criminal offences: failure to prevent the facilitation of tax evasion. Are your prevention procedures still reasonable?

It has now been over five years since the introduction of CORPORATE CRIMINAL OFFENCES ("CCO").

As of January 2023, HMRC had nine live CCO investigations, with 26 other cases under review, spanning 11 different business sectors. HMRC has also reviewed and rejected an additional 77 other potential cases.

BACKGROUND TO THE OFFENCES

On 30 September 2017, Criminal Finances Act 2017 ("CFA 2017") introduced two CORPORATE CRIMINAL OFFENCES ("CCO")  for the failure to prevent the facilitation of either

1. UK or
2. Overseas tax evasion

These CCOs enable a corporate entity or partnership with any connection to the UK

• To be criminally prosecuted should anyone associated with that entity commit a tax evasion facilitation offence (concerning either UK or non-UK taxes).

Persons associated with an entity include employees, agents and others who perform services for or on behalf of the entity.

For an entity successfully prosecuted under these CCOs, the consequences could be severe, including

• Unlimited financial penalties,
• Confiscation or serious crime prevention orders,
• Exclusion from public procurement processes or
• Issues with regulatory bodies.
• Find out more about the CCOs here. https://www.eversheds-sutherland.com/documents/services/taxation/tax-evasion-event-flyer.pdf

ARE YOUR PREVENTION PROCEDURES REASONABLE?

Although the CCOs are strict liability offences (i.e. an entity does not have to have any intention to commit an offence), there is a defence to prosecution, provided an entity can demonstrate that

• It either has reasonable prevention procedures concerning potential tax evasion facilitation by associated persons, or
• There are reasonable grounds for not having any such procedures in place.

These prevention procedures are the primary reason for the introduction of the CCOs.

The CCOs are the stick that encourages the adoption of reasonable prevention procedures, which in turn are the main mechanism to reduce occurrences of tax evasion through taxpayers' "self-policing" of the actions of their associated persons.

HMRC

We are seeing an increasing focus from HMRC on the reasonable prevention procedures put in place by taxpayers.

Over the initial years of the CCOs being in force, HMRC took a light-touch approach to enforcement while taxpayers put their prevention procedures in place.

The pandemic further extended this "honeymoon period", but now this seems to be coming to an end.

HMRC are clearly seeking a substantive prosecution under the CCOs to give them additional "teeth", as they did for the Bribery Act (the legislation upon which the CCOs are based).

As of January 2023, HMRC had nine live CCO investigations, with 26 other cases under review, spanning 11 different business sectors. HMRC has also reviewed and rejected an additional 77 other potential cases.

A high-profile "scalp" will bring the reasonableness of current prevention procedures into very sharp focus.

Further, as part of HMRC's Business Risk Review+ ("BRR+") process applied to larger taxpayers, inadequate CFA 2017 compliance (essentially a failure to have reasonable prevention procedures) will result in an automatic "high risk" rating with HMRC, resulting in increased scrutiny and compliance obligations.

For "low-risk" businesses on a three-year BBR+ review cycle, the approach of HMRC on CFA 2017 compliance is likely to have changed since the last review.

WHAT TO DO

In light of this escalating HMRC scrutiny and focus, taxpayers should be reviewing their prevention procedures.

Even taxpayers who undertook a robust initial risk assessment and implemented recommended prevention procedures should revisit their controls.

Remember, The principles of reasonable prevention procedures require periodic monitoring of those procedures and regular updates to reflect any changes to the business and associated risks.

Source

https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Tax_planning_and_consultancy/Tax_and_financial_crime