Corporate Criminal Offence - Travel and tourism businesses are you complying ?

There is a widely held view that amongst others, Corporations/Multinationals supported by their Advisors are not paying their “fair share” of tax. This has resulted in relentless scrutiny from the media and ever greater calls for aggressive action to be taken by tax authorities. A most recent example of this is the huge leak of financial documents referred to as the Paradise Papers which purportedly exposes amongst others how multinationals use complex structures to protect their cash from higher taxes. This follows the leak of the Panama Papers in 2015.

On 30 September 2017, new corporate offences in relation to failure to prevent the facilitation of tax evasion entered into force as part of the Criminal Finances Act 2017. This Act is part of the ongoing and expanding scrutiny and strong enforcement activity by authorities worldwide (including HMRC) and is part of the continued global focus on the prevention of tax evasion and other financial crimes.

There are two new offences:

  • failure to prevent facilitation of UK tax evasion offences (the UK/Domestic offence)
  • failure to prevent facilitation of foreign tax evasion offences (the foreign offence)

The new offences are of broad application. A "relevant body", which can include advisors, will commit an offence if it fails to prevent the facilitation of tax evasion (whether in the UK or elsewhere) by an “associated person" (broadly employees and agents). It is not necessary for the relevant body itself to have benefited from tax evasion.

The corporate will have a strict criminal liability for failing to prevent the facilitation of tax evasion, without the need for prosecution of the underlying facilitation or evasion offences by attributing criminal liability to companies for the criminal acts of ‘associated persons’ in facilitating tax evasion by other parties, e.g. customers or suppliers. ‘Associated persons’ can include employees, contractors, agents or any other person that provides services for or on behalf of the corporate.

The offence can occur in respect of evasion of any tax (in the UK or an overseas jurisdiction), and will be relevant to all businesses (namely, corporate bodies and partnerships) whatever their size or industry sector. A successful prosecution under these rules could lead to the business facing:

  • An unlimited fine
  • Public record of the conviction
  • Significant reputational damage and adverse publicity

The only defence is for the relevant body to show that it had in place reasonable prevention procedures OR that it was not reasonable in all the circumstances for it to have such prevention procedures in place.

The defence under Bribery Act 2010 is slightly different (it requires a corporate to establish that it took "adequate procedures" to avoid the commission of a substantive bribery offence; not having procedures is not a Bribery Act 2010 defence). The Serious Fraud Office (SFO) will have the power to investigate and prosecute these new offences in addition to HM Revenue & Customs (HMRC) and the Crown Prosecution Service (CPS).

As part of its guidance on the new offences, HMRC expects corporations to maintain written records setting out their "position on involvement in the criminal facilitation of tax evasion, including the provision of services which pose a high risk of being misused to commit a tax evasion offence". To facilitate this corporations should conduct detailed risk assessments, demonstrating senior level commitment which should be reflected in Codes of Conduct, implement training and ongoing monitoring and review processes. SMEs are expected to put in place some measures.

Corporations in the Tourism sector such as Airlines, Holiday Travel and Hotels by their very nature can be involved in complex cashflows within the UK and overseas for collection of revenues and disbursement of associated costs for services such as:

  • Hotel accommodation
  • Car Hire
  • Air Fares
  • Cruise costs
  • Overseas resort costs including establishment costs
  • Excursion revenues
  • The treatment of these costs and collection of related revenues can involve complex and country and jurisdiction variable forms of treatment for Corporation and Income taxes and VAT.

The Tourism Sector and relevant Advisors should incorporate the additional obligations imposed by the Criminal Finances Act 2017 into their planning for such commercial cashflows and ensure that they are accounted for appropriately under the ruling tax regimes.

This 2017 Act is expected to be enhanced with the introduction of other elements as HMRC are on the journey of achieving a cultural change.