This report covers the Corporate Criminal Offence legislation in effect 30 Sept 2017, that introduced a new corporate offence of failure to prevent facilitation of tax evasion that applies to all businesses, including partnerships.
Tax evasion and its facilitation are already criminal offences, however it has, until recently, been difficult to attribute criminal liability to a corporation where such instances occur.1
The Corporate Criminal Offence (CCO) legislation came into effect in the U.K. on 30 September 2017, making organisations liable if they fail to prevent their agents from criminally facilitating tax evasion.
The legislation introduces a new corporate offence of failure to prevent the facilitation of tax evasion, with a wide-ranging scope that applies to all businesses—including partnerships-- irrespective of size and sector. These rules also apply to partnerships.
The consequences of failing to comply are significant and potentially involve criminal prosecution, an unlimited fine, ancillary orders (such as confiscation orders or serious crime prevention orders) and reputational damage.
It is appropriate for organisations to perform an effective risk assessment and gap analysis of their exposure for facilitating tax evasion.
It is also important that all relevant global mobility and employment tax stakeholders are involved when performing the risk assessment to ensure that all potential areas of tax evasion are considered.
Critical areas for consideration include:
The only defence against penalties is where potential risks have been previously identified and that ‘reasonable procedures’ have been implemented or are already in place to prevent the facilitation offence.
Many organisations will be implementing CCO compliance projects and it is important for HR, employment tax and global mobility teams to consider what areas of their responsibilities could be impacted and how they can contribute to their internal CCO compliance projects.
There can be two areas in which the facilitation of tax evasion can occur:
For example, if a global assignee requests that the assignee’s trailing compensation (provided post-assignment) be sourced to a country to benefit from its lower tax rate, facilitation could occur when a global mobility service provider approves the incorrect sourcing period.
CCO is a worldwide issue as it applies to any global organisation that fails to prevent its agents from criminally facilitating a foreign tax loss, where there is a U.K. nexus. It is important to note that a nexus includes having a branch in the U.K.
To be charged under CCO, dual criminality is required in respect of overseas tax evasion offences. That is, the underlying evasion has to be an offence in the country where it is committed, and both offences would have been criminal if the activities took place in the U.K.
The only defence is that an organisation has ’reasonable procedures’ in place to prevent the facilitation offence.
As part of ‘reasonable procedures’, HMRC’s guidance requires organisations to perform a risk assessment to identify the risk of an offence occurring.
Once the areas of businesses susceptible to the risk of facilitating tax evasion have been identified, the existing controls in place to mitigate these should be evaluated.
Additional steps are then needed to bridge the gap between the existing controls and what ‘reasonable procedures’ should then be put in place for these areas. This will provide a foundation for the robust defence against possible failures.
The ‘reasonable procedures’ should be designed following six guiding principles:
The key message is that organisations need to perform an effective risk assessment and gap analysis of their exposure for facilitating tax evasion.
In addition, organisations need to make sure to follow the guiding principles in the HMRC and industry guidance, to deliver an approach that is proportionate, led from the top of your organisation and implemented in an integrated and sustainable way.
For related coverage, see “Corporate criminal offence – final HMRC guidance published“ (8 September 2017), published by KPMG LLP (U.K.).
The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.
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