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Corporate Criminal Offence (CCO) – Failure to Prevent the Facilitation of Tax Fraud (FTP)

HM Revenue & Customs (HMRC) have released figures for the number of live CCO enquiries as at 31 December 2019, as follows:

  • HMRC has 9 live CCO investigations with a further 21 opportunities under review across 10 different business sectors, including financial services, oils, construction, labour provision and software development
  • these investigations and opportunities sit across all HMRC customer groups from small business through to some of the UK’s largest organisations.

The number of open investigations and range of business types and sizes affected indicates that HMRC are serious about using these new criminal powers and are proactively enforcing the legislation.

Understandably HMRC are not providing full details of the investigations currently underway owing to taxpayer confidentiality but the sectors they mention suggest they are particularly targeting:

  • Private banks
  • Asset and wealth management
  • Construction
  • Labour service providers
  • Any sectors likely to have lengthy supply chains and extensive use of contractors

Summary of CCO rules

The CCO rules were introduced in September 2017 as part of the Criminal Finances Act (CFA) and make it a criminal offence for any company (worldwide not just UK companies) who fail to prevent its employees, or others acting on its behalf from facilitating tax evasion. Successful prosecutions can result in unlimited fines and a criminal record for the company which as well as the reputational issues can restrict access to regulated markets and the ability to bid for central and local government contracts. There are two CCO offences, the UK tax evasion offence which HMRC police and the foreign tax evasion offence which the Serious Fraud Office (SFO) police.

It is important to note that the only defence available to companies who have failed to prevent the facilitation of tax fraud, and therefore committed one of the offences, is to demonstrate that they had reasonable and proportionate preventative measures in place, despite the failure.

The number of open investigations and range of businesses affected indicates that HMRC are serious about using these new criminal powers

Areas of risk

A particular area of risk for accountants/lawyers/tax advisers (and therefore us) from recent experience is with HMRC’s civil (COP9 – Contractual Disclosure Facility) and criminal investigations of tax fraud. Although the focus will be whether there has been facilitation by an employee of someone acting on behalf of the company (e.g., contractors, agents) these investigations also provide an opportunity for HMRC to consider the behaviour and potential involvement of the company’s accountant and tax advisors.

We know that HMRC’s Fraud Investigations Services raise questions about the CCO in all COP9 cases involving corporate tax irregularities. The initial questions involve the both the company’s and the adviser’s understanding of the CCO rules, whether the business has undertaken a risk assessment and has documented preventative measures in place.

What we can do

The Tax Risk and Dispute Resolution department at Blick Rothenberg have assisted several clients with the new rules and spoken to many more but are aware that many of our corporate clients may be wholly unaware of the CCO rules or may not have considered it a high priority. HMRC’s release of the number of cases either under investigation or being considered for investigation should act as a wake-up call for those clients who have not actively considered their compliance with the CCO rules.

The news is also an ideal opportunity to put this high on the agenda for upcoming conversations with clients. The Tax Risk and Dispute Resolution department can assist with these conversations and where appropriate, assist clients with understanding the CCO rules, designing and undertaking risk assessments and implementing preventative measures.

If you would like to know more about how we can help our corporate clients comply with the CCO rules please get in touch with any of the contacts on the right hand side of this article or your usual Blick Rothenberg contact.

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