The Criminal Finances Act 2017 (CFA) came into force on 30 September 2017, meaning that corporate bodies (including universities) will now commit a criminal offence if their employees, agents, or any other persons who are associated with them facilitate the evasion of tax in the UK or overseas.
In this article we look at the impact of the CFA, what it means and how it might affect your HEI.
An HEI will now commit a criminal offence if it fails to prevent the facilitation of UK tax evasion, or fails to prevent the facilitation of overseas tax evasion. If convicted of an offence, the courts can impose unlimited fines.
Only corporate bodies can be held criminally liable; the offences cannot be committed by individuals. This definition encompasses many entities, including private and public limited companies, partnerships, limited liability partnerships, charities, schools and universities. Entities located outside the UK, and that have a similar character to those listed above, are also caught.
An HEI will be guilty of the new offence if:
To be guilty all elements of the offence need to be fulfilled.
A person commits a UK tax evasion facilitation offence if he/she:
Anyone can commit a tax evasion facilitation offence but unless the individual is an 'associated person' an HEI cannot commit the new offence.
A person who commits a UK tax evasion offence is associated with an HEI if he/she is:
Whether a person is an employee or agent of an HEI will, generally, be straightforward. However, HEIs should be careful about the third category as this is a 'catch all' definition.
Guidance from the Government indicates that a person is associated with a corporate body if he/she acts for or on behalf of it by doing something on behalf of it, or doing something for the corporate body it needed to do. In determining whether a person is an associated person, all the relevant circumstances need to be considered.
The definition is very broad and HEIs should carefully examine their contracts and business relationships to ensure that parameters are clearly defined.
If an associated person is guilty of a UK tax evasion offence, an HEI will have a defence to the new offences, if it can prove:
The Guidance provides some examples of the processes and procedures that can be put in place to prevent associated persons from criminally facilitating tax evasion. The procedures will vary for different types of organisations, depending on their size, complexity and risk profile but there are six guiding principles to follow:
Risk assessment: The HEI should assess the nature and extent of its exposure to the risk of associated persons associated criminally facilitating tax evasion offences. The risk assessment should be documented and kept under review.
Proportionality: Procedures for an HEI to adopt to prevent associated persons from criminally facilitating tax evasion need to be proportionate to the risk the HEI faces.
An HEI should take account of the level of control and supervision it is able to exercise over persons acting on its behalf and the proximity of those persons to the HEI. HEIs are not required to implement excessively burdensome procedures in order to eradicate all risk, but they should pay more than mere lip-service to preventing the criminal facilitation of tax evasion.
Top level commitment: The top-level management of an HEI should be committed to preventing associated persons engaging in criminal facilitation of tax evasion. They should foster a culture within the HEI in which activity intended to facilitate tax evasion is never acceptable.
Due diligence: The HEI should apply due diligence procedures, taking an appropriate and risk based approach, in respect of persons who perform or will perform services on behalf of the HEI, in order to mitigate identified risks.
Communication and training: The HEI should ensure that its prevention policies and procedures are communicated, embedded and understood throughout the organisation, through internal and external communication, including training. This should be proportionate to the risk the HEI assesses that it is exposed to.
Monitoring and review: The HEI should monitor and review its preventative procedures and make improvements where necessary.
Universities should carry out risk assessments at the earliest opportunity, to identify if there are risks in their business and contractual relationships. Following this, they should implement proportionate procedures that are designed to prevent the facilitation of tax evasion.
Although we have only made reference to UK tax evasion facilitation offences in this article, the legislation similarly applies to associated persons who have facilitated tax evasion overseas.