There continues to be strong political commitment globally to tackle tax evasion.  Earlier this month, the OECD announced the opening of a new facility through which CRS-avoidance arrangements/schemes can be reported.

This facility is part of a wider process the OECD has put in place to deal with schemes that purport to avoid reporting under CRS. As part of this process all actual or perceived loopholes that are identified are systematically analysed in order to decide on appropriate courses of action. This will further strengthen the effectiveness of the CRS which by design already limits opportunities for taxpayers to circumvent reporting to the greatest possible extent.

Jurisdictions such as Ireland are being held accountable by the OECD, as part of their effective implementation of CRS, to put in place anti-abuse rules to prevent any practices intended to circumvent the reporting and due diligence procedures under CRS.

Another significant related development comes from HMRC who published guidance for their new corporate offence for failure to prevent the criminal facilitation of tax evasion. The law is found in the Criminal Finances Act which received Royal Assent on 27 April 2017 and is intended to be effective by September 2017.

The new Corporate Criminal Offence (‘CCO’) legislation is closely modelled on the Bribery Act 2010 and holds any relevant body responsible for preventing associated persons from criminally facilitating tax evasion.

The CCO has a wide extraterritorial effect. It applies to all UK taxes and to non-UK taxes for relevant bodies with UK operations.  For example, it applies to a non-UK business which has a person acting on its behalf who facilitates in the UK the evasion of foreign tax.

Financial institutions are considered high risk entities in nearly all cases, as such it is imperative that robust compliance procedures for all tax evasion related requirements are in place and effective.

Where a criminal facilitation offence is committed by an associated person the relevant body will be liable unless it can show: (1) that it had in place reasonable procedures to prevent the facilitation offence, or (2) that it was not reasonable in the circumstances to expect the firm to have implemented any procedures.

Financial institutions are considered high risk entities in nearly all cases.

The new law creates two separate offences, being facilitation of a UK tax evasion offence and facilitation of a foreign tax evasion offence.  Each offence has three requirements:

1. Criminal tax evasion by a taxpayer (either an individual or legal entity) under the existing criminal law;
2. The criminal facilitation of that tax evasion by an associated person of the relevant body;
3. The relevant body failing to prevent its associated person from committing the criminal facilitation act.

The UK offence applies to UK-based entities and those established under the law of another country.

HMRC’s guidance suggests six key principles which relevant bodies should consider, adapted for the nature, complexity and risk profile of each business. The six principles are:

1. Risk assessment
2. Proportionality of risk based prevention procedures
3. Top-level commitment
4. Due diligence
5. Communication (including training)
6. Monitoring and review

HMRC has noted that despite the rapid timetable, they do not plan to delay implementation in any way.

Penalties for companies prosecuted include unlimited financial penalties and ancillary orders, such as confiscation orders or serious crime prevention orders.

What should you do now?

Corporate bodies and partnerships need to consider next steps.  This law is wide-ranging and requires immediate action.  You should now consider the following:

• Is your organisation affected by the CCO and how?
• What controls are in place to mitigate level of risk of fraud identified?
• What procedures should be put in place to be proportionate with the level of risk identified?
• Who at management level should be responsible for ensuring no facilitation takes place in the organisation?
• Apply due diligence procedures to address the risks identified to include training of all staff
• Implement an ongoing monitoring process on at least an annual basis to adapt to changes in the business, personnel, etc.

How can EY help?

EY has extensive experience in addressing the increasingly demanding corporate environment in relation to tax evasion and fraud in particular.  EY has a multidisciplinary team of tax, legal, financial crime and fraud investigations professionals to support clients.  EY has engaged with the UK tax authority on this legislation from an early stage so are excellently placed to deliver comprehensive risk assessments and support clients in implementing a robust framework to mitigate any potential fraud risk identified.

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