27.09.2017

Criminal Finance Act 2017 – Tax Evasion

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From 30 September 2017, under the Criminal Finances Act 2017, companies and partnerships become criminally liable if they fail to prevent tax evasion by either a member of their staff or an external agent, even where the business was not involved in the act or was unaware of it.

With the introduction of new taxpayer information sharing agreements, HMRC has access to greater levels of taxpayer information than ever before - over 100 countries and jurisdictions exchange taxpayer information on offshore assets.

The driving force behind the introduction of this new corporate offence is offshore tax evasion, however, the offence will apply to both onshore and offshore tax evasion where there is a UK element.

Obtaining evidence against those who evade tax by hiding their money offshore has been extremely difficult in the past, especially in those jurisdictions where turning a blind eye is common place – or where tax evasion is not even a criminal offence. Applying the new corporate offence beyond the borders of the UK helps to address this.

The offence of tax evasion is not new; however it is now possible to assign criminal liability to the firm where it occurred, with a prosecution leading to a conviction and unlimited penalties.

So what do you need to know?

For a firm to be held liable under the CFA, there must have been:

  • Stage one: criminal tax evasion by a taxpayer (either an individual or an entity) under the existing law
  • Stage two: criminal facilitation of this offence by a representative of the corporation, as defined by the Accessories and Abettors Act 1861
  • Stage three: the corporation failed to prevent its representative from committing the criminal act outlined at stage two.

A business may be able to avoid criminal liability if it can show that it has implemented reasonable prevention procedures, or if it can show that in the circumstances it would have been unreasonable or unrealistic to have expected it to have had procedures in place.

What does your firm need to do?

  • Review your current practices and procedures to minimise any risks
  • Train staff to ensure they can recognise and prevent financial crime; that they understand the offence of tax evasion and what they need to do to monitor and mitigate it. Make it clear the firm has a zero tolerance where facilitating tax evasion is concerned
  • Undertake risk assessments of your products, services, client data and internal systems that could be used to enable tax evasion. For example, staff who have not taken holidays or are reluctant to
  • Ensure there is sufficient oversight of processes and client information
  • Provide a robust whistle-blowing procedure.

Does this measure cover tax avoidance?

The new laws target deliberate and dishonest behaviour at the taxpayer level.

They do not create any new offences at the individual level - if activity would currently be considered tax evasion under the existing law then it will continue to be so.

Likewise, if activity would not currently be considered tax evasion, then the new law does not make it tax evasion.

Further references

References to the new criminal offence have been added to Financial crime – the basics, Fighting fraud and Countering bribery and corruption in Unicorn’s Governance, Risk and Compliance eLearning library.

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