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Government finalises guidance on new corporate 'failure to prevent' tax evasion offences

Final guidance for the new corporate criminal offences of failure to prevent the facilitation of tax evasion has been published by HM Revenue and Customs (HMRC).07 Sep 2017

Although the guidance (48-page / 694KB PDF) has not changed substantially from the draft that was published for consultation, businesses should now be "pushing forward as a matter of urgency" to ensure that they have a 'clear timeframe and implementation plan' in place in time for the offences coming into force on 30 September 2017, according to tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com.

Large businesses are more likely to be caught out by the new offences due to their complex operating structures; while the financial services, accounting and legal sectors are likely to face particular challenges due to the type of work that they do, Collins said.

"All businesses should take action to ensure that they are aware of, and have control over, how their employees, agents and service providers are operating to reduce their risk of exposure to the new offences," he said.

"Although the guidance confirms that the government 'accepts' that some procedures, such as training programmes and new IT systems, will take large businesses in particular some time to roll out, it also 'expects there to be rapid implementation, focusing on the major risks and priorities'. Time is running out for businesses to put their implementation plans in place," he said.

Two new criminal offences will come into force on 30 September 2017, which effectively make businesses vicariously liable for the criminal acts of their employees and other persons 'associated' with them which lead to the facilitation of tax evasion, even if the senior management of the business were not involved or aware of what was going on. The date is significant, as it corresponds with the date by which the first automatic exchanges of information under the common reporting standard must take place.

The new criminal offences are set out in the Criminal Finances Act. The first applies to all businesses, wherever located, in respect of the facilitation of UK tax evasion. The second offence applies to businesses with 'a UK connection' in respect of the facilitation of non-UK tax evasion. The business will have a defence if it can prove that it had put in place reasonable prevention procedures to prevent the facilitation of tax evasion taking place, or that it was not reasonable in the circumstances to expect there to be procedures in place.

HMRC's guidance is designed to be of general application, although it states that it should be used to assist trade bodies when developing more detailed, sector specific procedures. It contains case studies and practical examples to help businesses assess the risk of their representatives criminally facilitating tax evasion, as well as non-exhaustive examples of how businesses may be able to show that they have complied with the 'reasonable procedures' defence.

One change that has been made to the final version of the guidance is a clarification that the domestic offence applies to all categories of UK tax and National Insurance contributions (NICs), but not the Scottish devolved taxes. The foreign offence applies to all taxes, provided that the overseas jurisdiction has an equivalent offence covering the associated person's criminal act.