Criminal tax law: UK corporate criminal offence (CCO)
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Criminal tax law:
UK corporate criminal
FSO Germany offence (CCO)
Tax Controversy
Impact on German companies
News Alert
January 2018
A new (corporate) criminal offence has been introduced in the
UK in September 2017 to combat tax evasion: Corporate offence
of failure to prevent the facilitation of tax evasion (CCO).
Under this offence, a company may face unlimited fines if a person
associated with it has enabled or facilitated tax evasion. To avoid
conviction, the company generally will need to demonstrate that
it has reasonable prevention procedures in place.
The CCO is neither restricted to the evasion of UK taxes nor to
offences committed in the UK. Due to the global reach of the CCO,
foreign companies, including German ones, with business dealings
in the UK will need to consider what action they need to take in
response to the new criminal offence.
This brochure illustrates the impact of the CCO on German
companies.
Criminal tax law:
UK corporate criminal offence (CCO)
Legislative process/ The new corporate criminal offence (CCO) is part of an extensive legislative package
(Criminal Finances Act 2017) aimed at combatting corporate tax evasion. The Criminal
entry into force Finances Act 2017 received royal assent on 27 April 2017 and the CCO has come into
force in September 2017.
In the absence of transitional rules affected companies need to take immediate action.
The CCO was modelled heavily on the UK Bribery Act and evidence of “reasonable
prevention procedures”, i.e. an appropriate internal control system (Internes Kontroll-
system (IKS)), will normally be the only way for companies to avoid penalties where the
other requirements of the offence have been met.
Ideally, an IKS that meets the statutory requirements of the CCO (see below for details)
should therefore be in place since October. To the extent that this is not yet the case,
a risk assessment as a prerequisite for the procedures should be performed and
documented as soon as possible. ■
Background Previously, the requirements for imposing fines on a company in the UK were very limited
if its employees aided and abetted tax evasion. In particular, it had to be proven that a
director of the entity had committed specific elements of the offence. If employees below
management level aided and abetted tax evasion, a corporate penalty could regularly not
be imposed. In Germany, authorities would be able to fine a company for violation of
obligatory supervision by supervisory personnel in such cases (Secs. 30 and 130 OWiG
[“Ordnungswidrigkeitengesetz”: German Administrative Offences Act]).
Owing to the different legal situation in the UK, management pleading ignorance of
operational matters in order to avoid prosecution of the company allegedly has become
fairly widespread. The CCO has been designed to combat this trend. ■
2 | FSO Germany Tax Controversy News Alert | January 2018
Impact
on German companies
The offence General
The CCO comprises two separate offences:
1. The UK tax evasion facilitation offence relates to the facilitation of UK tax evasion.
2. The foreign tax evasion facilitation offence relates to the facilitation of non-UK tax
evasion, e.g., German taxes.
Each offence has three requirements: (for the additional requirements of the non
UK tax evasion offence see below)
A taxpayer has committed
tax evasion … 1. Taxes have been evaded (by either an individual or a legal entity).
2. A person associated with the company (associated person) has criminally enabled
or facilitated the tax evasion.
… that was criminally facilitated
3. The company has not taken reasonable prevention procedures to prevent its associated
by an associated person …
person from enabling or facilitating tax evasion.
… of a relevant body … If the other requirements (1. and 2.) have been met, the company will be criminally
liable unless it can prove that a reasonable IKS has been put in place which can prevent
the misconduct by the associated person (“reasonable prevention procedures”).
Alternatively, a company can escape punishment if it can prove that an IKS would appear
… without reasonable unreasonable. However, this exculpation will rarely succeed (e.g., small undertakings).
prevention procedures
The CCO covers criminal tax evasion only and not legal tax avoidance.
The definition of associated persons is very broad and includes individuals and bodies
corporate. It covers all employees and other individuals working for or on behalf of the
company. Subsidiaries are also considered associated persons.
The associated person must have criminally enabled or facilitated the tax evasion
(especially aiding and abetting). There are several ways this can happen: Being knowingly
concerned in, or in taking steps with a view to, tax evasion as well as abetting such tax
evasion. In addition, inciting or encouraging a client already resolved to evade taxes is
interpreted as facilitating.
The CCO only applies to bodies incorporated and partnerships formed, i.e., relevant
bodies are either corporations or partnerships. The CCO does not apply to individuals.
FSO Germany Tax Controversy News Alert | January 2018 | 3
Criminal tax law:
UK corporate criminal offence (CCO)
Examples of the facilitation of tax evasion
• Assisting a client to forge or produce false papers
• Implied approval of a client’s opaque corporate structures
• Failure to object to obviously improper advice of an advisor of the client
• Collaborating with a client to abuse the laws of a foreign country
• Accepting clients with suspicious activities in terms of tax evasion
UK tax evasion facilitation offence
The UK tax offence applies when UK taxes have been evaded.
In this case, it is irrelevant where the relevant body is domiciled. It is also irrelevant from
where the associated person enabled or facilitated the evasion of UK taxes (extra-territorial
effect).
Under the UK tax offence, the UK may also impose unlimited fines on foreign (e.g., German)
companies. This even applies when the associated person was acting in another country.
Foreign tax evasion facilitation offence
The foreign offence applies when non-UK taxes have been evaded.
The foreign offence has two additional criteria:
1. The relevant body has a UK nexus.
2. There is dual criminality, both in terms of the original tax evasion and in terms of the
associated person’s criminal act of facilitation.
4 | FSO Germany Tax Controversy News Alert | January 2018Impact
on German companies
UK nexus Dual criminality
The relevant body has a UK nexus if Dual criminality exists
• it is a body incorporated, or a partnership formed, under • If the tax crime constitutes an offence under the law of a
UK law (e.g., UK LLC) foreign country (e.g., Germany) and would constitute a tax
evasion in the UK, if the actions took place in the UK.
• it carries on business or part of its business in the UK
• At the same time, the foreign jurisdiction must have an
• any conduct constituting part of the foreign tax evasion
equivalent offence covering the associated person’s criminal
facilitation offence takes place in the UK (e.g., employee of
act of facilitation and it must also be the case that the actions
a German bank advises a client during a business trip to
of the associated person constitute a crime if they took place
London on evading Spanish income taxes)
in the UK. The UK understanding of facilitation of a tax crime
would essentially be compatible with the German legal doctrine
of criminal aiding [“Beihilfe”] and abetting [“Anstiftung”].
However, in individual cases there may be differences which
would need to be analyzed as part of the defence.
Examples of global reach
• An employee of the French branch of a German bank (with a branch in the UK) helps
a French client evade taxes.
• A foreign subsidiary of a German bank (with a branch in the UK) advises clients on
their tax structures for evading German taxes.
• Employees of a German bank (with no branch in the UK) advise German clients in
the UK on evading German taxes.
German parent company
Chinese
UK subsidiary Irish subsidiary UK branch
subsidiary
US branch
In the scope of the CCO regarding all (global) tax crimes
In the scope of the CCO regarding tax crimes committed in the UK or in relation to UK taxes
FSO Germany Tax Controversy News Alert | January 2018 | 5Criminal tax law:
UK corporate criminal offence (CCO)
Exculpation A cornerstone of the CCO is the statutory exculpation for the relevant body if it
demonstrates that it had reasonable procedures in place (designed) to prevent
associated persons from committing tax evasion facilitation offences.
Ultimately, the CCO is intended to encourage companies to maintain an IKS for tax
purposes or a tax compliance management system (Tax-CMS). The CCO was modelled
on the UK Bribery Act, under which evidence of “adequate procedures” is also the only
way for companies to exculpate themselves from acts of corruption.
The CCO calls for a tax compliance organization has certain similarities to an IKS or tax
CMS under German law (AEAO [“Anwendungserlass zur Abgabenordnung”: Decree on
the Application of the German Tax Code] relating to Sec. 153; IDW AssS 980).
The importance of such an IKS should be far greater in the UK where failure to install an
IKS is a punishable statutory offence. In Germany, the exculpatory effect of a tax CMS has
not been incorporated into law yet / to date. However, it has an indicative effect and can
provide effective protection against allegations of tax evasion.
The UK tax authorities have set out six guiding principles for developing “reasonable
procedures” which are very similar to the seven basic components of a German tax CMS
under IDW AssS 980 (see text box). The nature and scope of the procedures required for
exculpation will always depend on the size and complexity of the relevant body. ■
Six guiding principles of reasonable procedures
1. Risk assessment
2. Proportionality of risk-based prevention procedures
3. Top-level commitment
4. Due diligence
5. Communication, including training
6. Monitoring and review
Risk assessment Top-level commitment Communication, including training
1 3 5
2 4 6
Proportionality of risk-based Due diligence Monitoring and
prevention procedures review
6 | FSO Germany Tax Controversy News Alert | January 2018Impact
on German companies
Sanctions The range of sanctions for the CCO is immense:
• Unlimited fines
• Ancillary orders, such as seizure orders or serious crime prevention orders*
Conclusion The CCO is neither restricted to the evasion of UK taxes nor to offences committed in
the UK. For German companies with a UK nexus, there is therefore a risk of criminal
liability not only if UK taxes are evaded (UK offence), but also where German or other
non-UK taxes are evaded (foreign offence).
In view of the CCO, German companies with business dealings in the UK should analyze
their risk of criminal liability in the UK and review whether their tax compliance system
meets the legal requirements of the CCO and provides effective protection.
Due to the overlapping requirements for an exculpatory IKS/ tax CMS in the UK and in
Germany, companies can consider conjoining implementation of procedures to mitigate
criminal tax law risks in the UK with plans to introduce an IKS in Germany in accordance
with IDW AssS 980. ■
* For more detail see also: http://www.cps.gov.uk/legal/s_to_u/serious_crime_prevention_orders_(scpo)_guidance/
FSO Germany Tax Controversy News Alert | January 2018 | 7EY | Assurance | Tax | Transactions | Advisory
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