Legislative bodies of the UK enacted Criminal Finance Act (“the Act”) on 30 September 2017. The Act establishes liability for entities that failed to prevent facilitation of tax evasion committed by their associated persons.
The new type of offence was added in order to set up the liability of any entity that allows its associated persons to facilitate tax evasion of other persons. It can be applicable either for companies or for partnerships of any type that have not taken sufficient measures to prevent such facilitation. For purposes of the Act associated persons can be employees, agents or other persons acting in the capacity of any entity.
Such offence can be committed in the territory of the UK or in a foreign state. Several requirements are to be met in order to impose liability on any entity that has not prevented its associated persons from facilitation of tax evasion (“the Facilitation”):
- a company or a partnership was incorporated under the law of the UK;
- an entity carries on business or part of a business in the UK;
- any separate act as a part of the foreign tax evasion facilitation offence takes place in the UK.
The Act makes a distinction between foreign tax evasion and tax evasion in the UK, as well as between foreign Facilitation and Facilitation in the UK:
- Tax evasion in the UK is cheating the public revenue or taking steps with a view to the fraudulent evasion of a tax.
- Facilitation in the UK is taking steps with a view to the fraudulent evasion of a tax by another person; aiding, abetting, counselling or procuring the commission of a UK tax evasion offence; being involved in the commission of an offence consisting of taking steps with a view to the fraudulent evasion of a tax.
- Foreign tax evasion is an offence under the law of a foreign country, or breach of a duty relating to a tax imposed under the law of foreign country, or offence regarded by the courts of the UK as amounting to taking steps with a view to the fraudulent evasion of tax.
- Foreign facilitation is an offence under the law of a foreign country, or commission by another person of a foreign tax evasion offence, and, if the foreign tax evasion offence were a UK tax evasion offence, a UK tax evasion facilitation offence.
To clarify situations when such offences take place and when liability can be imposed on the entity, Guidance for offence of failure to prevent facilitation of tax evasion shows 3 stages of its commission:
- The criminal tax evasion by a taxpayer (private individual or legal entity).
- The criminal facilitation of the tax evasion by an associated person of the entity who is acting in its capacity.
- The entity failed to prevent its associated person from committing the facilitation.
Legislation also describes circumstances that exempt an entity from liability for failure to prevent facilitation of tax evasion if it took place. Such circumstances are:
- “prevention procedures that was reasonable in all the circumstances to be in place”;
- “it was not reasonable in all the circumstances to expect an entity to have any prevention procedures in place”.
The liability for this type of offence is a fine which amount is not limited by the law, so the court of the UK or its parts will determine the amount of a fine to be charged from the entity that was found guilty.