Criminal Finances Act 2017 – Corporate Tax Evasion Offence

16 May 2017

How taxing are the new requirements for firms?

The Criminal Finances Act 2017 has received Royal Assent and will come into force this Autumn. It enshrines into law the new criminal offence for corporations that fail to prevent the facilitation of tax evasion. This is modelled on the ‘failure to prevent bribery’ offence in the Bribery Act 2010.

So what should firms be thinking about?

  • Risk assessment – Firms should conduct a thorough, proportionate, “tax evasion” risk assessment of their business and their contractual relationships. Leveraging existing risk assessment methodology may be advisable where the firm is confident in its approach, but demonstration of looking through a tax evasion ‘lens’ is critical. The implications may be wide reaching, for example does your firm’s appetite to jurisdictional risk incorporate countries recognised as offshore centres/tax havens?
  • Procedures – Risk assessment should drive the implementation of appropriate procedures to prevent the facilitation of tax evasion. This may mean conducting more/different due diligence in relation to clients, suppliers, contractors and employees, as well as looking at where and how transactions/payments are made, especially if offshore jurisdictions are involved.
  • Staff training – Staff don’t all need to be tax experts, however educating relevant staff on how to identify potential tax evasion is essential to protect the firm from the new offence. Identifying ‘red flags’ tailored to the nature of your operations, services and clients and coaching staff to challenge information is critical. Additionally training should cover staff obligations, escalation requirements and knowledge of the legislation itself.
  • Governance – Board and senior management accountability should be defined and documented. Embedding tax evasion prevention controls within your firm will require business input to help identify risks, so ensuring business buy-in at the risk assessment stage is critical. A firm’s culture will fundamentally determine whether controls work in practice – it is up to management to drive this tone from the top.
  • Monitoring and review – Monitoring and regular review of the risk assessment, mitigating controls, and training requirements will be essential to demonstrate that a robust financial crime framework is in place, with appropriate MI escalated to senior management to monitor the implemented procedures.

Whilst practical guidance for the financial services sector is still due to be formalised, firms should not delay in looking at the impacts the new corporate tax evasion offence will have on their existing financial crime framework.

The extra territorial nature of this offence means that many UK firms will need to engage with overseas offices/functions to ensure a global approach is taken to these new requirements.

If you wish to discuss the content of the Act further or if you have any questions, then please get in touch.

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