Andrew Shaw (Tax Senior Manager, Anderson Anderson & Brown LLP)
If your business hasn’t undertaken a review of the CCO legislation, it could be exposed to one or more of the following:
- Criminal prosecution
- Unlimited penalty
- Loss of revenues
- Adverse publicity
The CCO has been included within UK Legislation since September 2017, however many businesses are yet to take the necessary action.
As it stands, it is deemed to be a criminal offence should any business fail to prevent a person associated with it from facilitating tax evasion. Anyone performing services for or on behalf of the business is an associated person, such as an agent, intermediary, subcontractor or employee.
In order for a business to be found to ‘facilitate tax evasion,’ three conditions must be met:
- Criminal tax evasion must have been committed by a taxpayer, in the UK or overseas
- Criminal facilitation of this offence is committed by an associated person of the business
- The business failed to prevent the associated person from committing that criminal act
The illustration below demonstrates how simple it could be for a company to be unwittingly liable:
- ABC Ltd contracts services from Contractor X
- Employees of Contractor X deliberately fails to declare all of their income and thus commit tax evasion
- If Contractor X is aware their employees are doing this, for example where an employee or subcontractor mentions a comment about paying less or no tax in an overseas jurisdiction, ABC Ltd’s defence against such facilitation would be for them to demonstrate they had reasonable procedures in place to prevent such an evasion from happening. If ABC Ltd cannot show this, then they could be liable under CCO legislation.
In order to have ‘reasonable procedures’ in place, it is firstly imperative for companies to conduct detailed internal risk assessments to identify any potential weaknesses under the legislation. It is then essential to act on the results of their risk assessment by implementing safe guards and defences to ensure that internal controls are deemed sufficiently robust to detect a potential tax evasion.
We are seeing more and more businesses being asked by their customers what procedures they have in place in order to comply with CCO legislation, and thus all businesses (regardless of size) are starting to take action. This legislation is now being enforced by larger businesses and if their associated persons (e.g. subcontractors) are not able to demonstrate or confirm their position with regards to tax evasion and CCO, they risk future business with their customer. The scope of the legislation is very wide reaching and businesses should act if they have not already done so. Businesses which require additional guidance or support should seek this from a suitably qualified advisor.
