Following the launch of new tax evasion measures – which came into force in September 2017 – Northern corporates and partnerships could be at financial and reputational risk, warns leading audit, tax and consulting firm RSM.
The Criminal Finances Act requires incorporated bodies (usually companies) and partnerships to prevent potential criminal facilitation of tax evasion by ‘persons associated with’ them, which could be staff but it also stretches to anyone who provides a service for a company, including suppliers, advisers, agents, intermediaries and contractors.
Failure to prevent this occurring will now constitute a criminal offence, unless it is possible to demonstrate that ‘reasonable prevention procedures’ are in place. The rules apply to both UK and foreign tax evasion offences and carries an unlimited fine as the penalty for non-compliance. However, for some businesses the reputational damage could be far worse.
Andrew Walker, tax risk and investigation partner at RSM, said: ‘The offence of ‘failing to prevent’ attracts strict liability. A corporate doesn’t need to be guilty of deliberate dishonesty, only being ‘asleep at the wheel’ so business across the North West need to ensure the right governance is implemented to ensure compliance.
‘In most instances, businesses will not be starting from scratch. Many will have considered similar legislation, such as the Bribery Act 2010, and have an existing due diligence programme for risks like corruption and money laundering. Ideally, the response to the new offence can sit within existing governance, risk and due diligence frameworks. However, if a business doesn’t already have an existing and sufficiently robust risk management framework, one will need to be developed.
‘Identifying potential risks of tax evasion facilitation is key. A business needs to highlight areas of the business that pose the greatest risks to uncover the extent to which existing procedures mitigate those risks and unearth where the gaps are.
‘The new measures are effective now and they are not just for banks and large financial services firms, it applies to all relevant bodies, regardless of their size or industry. In addition, as the liability lies with the company for internal staff and any company providing a service, due diligence needs to take into account the level of control the organisation has over the ‘associated persons’, which will prompt contractual changes to ensure compliance throughout the supply chain.
‘The full impact of these rules on companies and their supply chain will become clearer as more businesses implement prevention procedures. However, one thing is clear, North West businesses need to address the risks now to stay on the right side of the law.’
