Financial, legal and accounting firms most at risk from new tax evasion facilitation offence

Draft legislation and guidance by HMRC, which has now been published for consultation, acknowledges that these firms will face the biggest challenges once companies become legally liable for criminal tax evasion facilitation by those who act on their behalf. The consultation confirms the territorial scope of the offence and the actions that it covers, and includes guidance on the 'reasonable procedures' companies should put in place to protect them from liability for the actions of those individuals.

"The draft guidance identifies that certain business sectors will be higher risk than others in respect of the new offence, and will face the biggest challenges when it comes to carrying out risk assessments and ensuring that adequate procedures are in place to prevent the facilitation of tax evasion by any employees or agents," said tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com. "This will be particularly true for those firms involved with advising corporates or High Net Worth individuals, which tend to have the most complex tax affairs."

"Companies will need to make sure that they have robust policies in place, and that these are communicated across all levels of the organisation. Practical steps will also need to be taken to monitor and ensure enforcement," he said.

The new criminal offence was first announced by the government as part of the 2015 Budget, and is based on provisions in the 2010 Bribery Act which criminalised businesses that failed to prevent bribery by their employees or agents. Companies will have a defence if they are able to show that they had put "reasonable procedures" in place to prevent non-compliance by their representatives. The offence is designed in order to "overcome the difficulties in attributing criminal liability to corporations for the criminal acts of those who act on their behalf", according to the consultation document.

Under the plans as currently drafted, companies and partnerships would commit a criminal offence if their employees, or others acting on their behalf criminally facilitated the evasion, rather than the avoidance, of tax. The employee or individual would have had to have intended to help with tax evasion, so it would not catch businesses whose representatives act unwittingly.

According to Collins, the plans set out in the consultation slightly extend the scope of the planned offence in order to capture non-UK companies if any part of the acts classed as 'facilitating tax evasion' took place in the UK. Previous announcements and consultations limited the offence to UK and non-UK entities in respect of UK tax evasion, regardless of where the conduct that gave rise to the offence took place; as well as to UK entities and their branches in respect of the facilitation of non-UK tax evasion.

"Now, a US company could in theory commit an offence in respect of the evasion of, for example, Nigerian tax if the employee or agent is based in the UK – or is travelling through," he said. "This will pose a substantial risk for many companies, which will need to ensure that they have close control over operations across all jurisdictions."

"It would be better for an offence in relation to foreign tax evasion to be introduced in concert with other major countries, otherwise UK businesses are under a greater burden than, say, US or German businesses operating in the same foreign markets," he said.

The draft HMRC guidance sets out six "guiding principles" which firms should refer to when developing reasonable procedures to prevent their representatives from facilitating tax evasion. The procedures should be proportionate; should be backed up by "top-level commitment" from the organisation; should form part of the company's wider risk assessment processes; should include appropriate due diligence; should be communicated throughout the organisation and full training provided; and should be regularly monitored and reviewed with improvements made where necessary.

The question of whether the procedures that a particular organisation has put in place are reasonable will depend on the particular facts and circumstances of every case, according to the consultation. However, the onus will remain on the organisation seeking to rely on the defence to show that its procedures were in fact reasonable. The guidance also explicitly states that businesses of different sizes will apply the principles in different ways, and that what is "reasonable for a small business in a low risk sector may be entirely unreasonable for a large business in a high risk sector".

The consultation closes on 10 July 2016.