Plans to criminalise companies that fail to put in place measures preventing tax evasion by their employees and representatives could result in increased admin burdens and a reduced ability to attract top executive talent, according to a senior tax expert.
Jason Collins, head of tax, litigation and regulatory at Pinsent Masons believes the measures set out in the Criminal Finances Bill, which is due to have its second reading in the House of Commons on 25 October, will result in impose heavy administrative burdens on businesses once it comes into force sometime next year.
As part of the Bill if an employee is found to have engaged in the facilitation of tax evasion, the company is automatically liable because that employee is associated with them.
If convicted, companies would be liable to a significant fine reference to turnover, potentially be barred from participating in certain sectors like government contracts, and possibly lose via the reputational damage a criminal record may cause.
“These proposals very deliberately target the most senior executives in a business,” said Collins. “Although the offence is committed by the company, which board member wants their CV to include: presiding over a company which gained a criminal record?”
The new rules are modelled on the Bribery Act, the first prosecutions of which have started coming through now, five years after it was introduced.
‘Huge challenge’ for companies
To prevent prosecution, companies need a defence to show that they have reasonable prevention procedures in place to stop their employee from engaging in criminal activity.
Collins believes the new rules will be a “huge challenge” for businesses, as they will have to plan well ahead with an initial risk assessment, regular ongoing assessments, additional procedures to make sure staff are unable to engage in facilitation, and an education programme to educate employees about what tax evasion means and when they should be escalating related issues to their line manager.
According to Collins, his firm has already begun dealing with questions from clients on how to respond to the rules, and developing tools to work out what procedures will have to be in the risk assessment.
UK and non-UK jurisdiction
It will apply to non-UK based, as well as UK based, corporations which fail to prevent their representatives from criminally facilitating a UK tax loss. It will also catch UK-based corporations which fail to prevent their representatives from criminally facilitating a tax loss overseas. This will include those jurisdictions where compliance with tax codes is less rigidly followed than in the UK, according to Collins.
"Although not all parts of a multinational's business might be affected by the non-UK tax evasion offence; in practice, operating two standards might look like the facilitation of non-UK tax evasion is being endorsed so long as you are not caught," he said.
If a company had a criminal record under these new laws would that stop you applying for a job? Or would a company obtaining such a record prompt you to leave?
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