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Trade bodies to develop latest HMRC tax evasion guidelines further

Chris Hamblin, Editor, London, 8 September 2017

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Sections 45 and 46 Criminal Finances Act 2017 create offences of corporate failure to prevent facilitation of UK tax evasion offences and corporate failure to prevent facilitation of foreign tax evasion offences. Yesterday, later than anticipated, HM Government published regulations that pertain to the Act and it hopes that the UK's financial trade bodies will adapt them.

It has done so in the Facilitation of Tax Evasion Offences (Guidance About Prevention) Regulations 2017, which come into force on the 30th of this month. The offences in ss45 and 46 can only be committed by a “relevant body”, defined in s44 as a body corporate or partnership (wherever incorporated or formed). Individuals cannot commit them.

The offences are committed when a person acting in the capacity of a person associated with the relevant body commits a tax evasion offence. This, according to s44, includes an employee of the relevant body who is acting in the capacity of an employee, an agent of the relevant body who is acting in the capacity of an agent, or any other person who performs services for or on behalf of the relevant body who is acting in the capacity of a person performing such services.

The offences are each subject to a defence of having in place reasonable prevention procedures to prevent persons who act in the capacity of a person associated with the relevant body from committing tax evasion offences (there will also be a defence where it is not reasonable to expect the relevant body to have any prevention procedures in place).

Yesterday’s guidelines, which emanated originally from HM Revenue & Customs, are there to help firms to devise reasonable prevention procedures and prod financial companies in the direction of a more effective, risk-based and "outcomes-focused" approach to mitigating the risk of associated persons criminally facilitating tax evasion. HMRC is hoping that trade bodies will develop it further and - an unusual step for trade bodies - submit it to the Government for endorsement. Earlier this year the Law Society of England and Wales reported that it was liaising closely with the British Bankers Association (which merged into UK Finance on 1st July) and the Institute of Chartered Accountants of England and Wales (ICAEW) on the preparation of sectoral guidelines.

Be prepared!

David Sleight, a Criminal Litigation Partner at Kingsley Napley LLP, told Compliance Matters: “The new corporate offence is somewhat of a gift to HMRC and they will be very keen to demonstrate that the “failure to prevent” legislation has teeth. Companies should be urgently considering the guidelines and critically assessing the adequacy of their existing systems and controls now.

"Be warned, though! The guidance expressly states that it does not take a one-size-fits-all approach. The document is not a checklist of things that all relevant bodies must do to reduce their risk of liability under the corporate criminal offences, and should not be used as such. Bespoke prevention procedures will have to be put in place to address particular circumstances and the risks arising from them. Failure to do so may put a firm or company in the firing line and in danger of criminal prosecution by HMRC.”

The crossover with compliance

Marie Barber, the managing director of tax consulting and accounting services at Duff & Phelps, told Compliance Matters: "Compliance officers have to know about this. This is regulation that falls between the responsibility of the compliance officers and the chief financial officers (CFOs) at asset management firms. I think that the compliance officers seem to have started looking at and assessing the regulations, but they haven't yet worked out where the tax evasion might occur. They are looking at third parties who perform services for their companies and asking themselves what they could be doing to commit tax offences.

"HMRC has accepted that the legislation comes into effect on 30th September but anticipates that firms will not get all this done in time. According to my experience, financial firms have started to do it but not finished. When the deadline comes, HMRC expects that they will at least have done the risk assessments, found out who their third parties are and anlysed the relationships, and started to take steps towards training and evolving their policies and procedures. Maybe one-third of them will have got there completely by 30th September - that's a rough figure. The rest will be a little bit late coming to the party."

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