Academic journal article Business Law International

Commentary: UK Corporate Offence of Failure to Prevent the Facilitation of Tax Evasion

Academic journal article Business Law International

Commentary: UK Corporate Offence of Failure to Prevent the Facilitation of Tax Evasion

Article excerpt


The new offence of failure to prevent the facilitation of tax evasion came into force in the United Kingdom on 30 September 2017. It has caused some concern within many industries given its potentially wide remit and the increased media attention accorded to any suggestion of impropriety in relation to tax. Additionally, itsjurisdictional scope has given rise to questions even for wholly non-UK groups or entities since activity by an entity with no UK nexus is within the remit of the rules if facilitation is directed at UK tax, and facilitation of non-UK tax is also within the rules if the entity has sufficient UK nexus.

The offence was introduced to extend the scope of liability for tax evasion beyond the individuals directly involved in the offensive behaviour, to the institutions employing such individuals. Such individuals assisted tax evaders in ways that, while not endorsed by the institution concerned, were certainly not the focus of robust objection or oversight. There was no law available in the UK under which the institution could be criminally liable because, for most criminal offences, a corporate can only be guilty of a criminal offences if the conduct was carried out by the 'directing mind and will' of the entity. This is a challenging concept, particularly in organisations above a certain size, as it requires proof of involvement at or close to board level. As a solution to the this, the new offence, which is modelled on the corporate 'failure to prevent bribery' offence in section 7 of the Bribery Act 2010 (the 'Bribery Act'), effectively 'layers' a corporate strict liability offence over pre-existing offences of tax evasion and criminal facilitation. This is an important change, which can sometimes be overlooked. Tax evaders and those who assist them are still committing the same criminal offences; now, however, relevant bodies of whom facilitators are associates also commit an offence unless they have an appropriate defence in relation to internal procedures.

The offence

The new offence is contained in what is now the Criminal Finances Act 2017 and is, in reality, two separate offences. The first is the offence of failure to prevent the facilitation of UK tax evasion (the 'domestic offence'). The second is the offence of failure to prevent facilitation of foreign tax evasion (the 'foreign offence'). However, they have some key features in common and both are supplemented by official Her Majesty's Revenue and Customs (HMRC) guidance (the 'guidance'), which is mandated by the legislation itself. In each case, a body corporate or a partnership (referred to as a 'relevant body'), whether established for business or non-business purposes, may be prosecuted for failure to prevent the facilitation of tax evasion if:

* a person ('T') evades tax;

* an associate ('A') of the relevant body criminally facilitates that evasion while acting in the capacity of an associate of the relevant body; and

* the relevant body is unable to show it had in place 'reasonable prevention procedures' (or that it wasn't reasonable for prevention procedures to be in place).

Both offences are strict liability offences and thus require no knowledge or intention on the part of the relevant body. T need not have been prosecuted for evasion and A need not have been prosecuted for criminal facilitation. T (or A) may in fact have made a disclosure of the evasion (or criminal facilitation) in order to secure immunity from prosecution or similar. However, T and A must nonetheless have committed the offences in question in order for any offence to be committed by the relevant body. As discussed further below, both evasion and facilitation require a high standard of knowledge and intention - thus, relevant bodies will not be exposed based on, for example, mere error by A or by T arranging his affairs in a tax-efficient manner not amounting to evasion. While the new corporate 'failure to prevent' offences operate on a strict liability basis, the underlying substantive offences require a high degree of culpability on the part of those committing them. …

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