The risk assessment: A “reasonable procedure” to ensure your organisation is not facilitating tax evasion

18 May 2017

With the Criminal Finances Bill recently receiving Royal Assent and the September implementation date for the new corporate offence of failure to prevent the facilitation of tax evasion fast approaching, our clients are starting to think about what “reasonable procedures” look like in the context of their business.

The fundamental starting point for this is carrying out an initial risk assessment so that you can demonstrate that you have articulated and documented the nature and extent of the risk of your associated parties facilitating tax evasion before you start thinking about your control environment. This is something firms should be doing now to ensure the new legislation does not catch them unprepared.

In my experience, the diverse range of regulatory expectations around risk assessments sometimes makes these more of a “tick box” exercise that adds little value. In reality, completing a risk assessment to understand where the organisation’s efforts should be focused with regards to facilitation of tax evasion is crucial for ensuring the firm allocates its resources in the right risk areas. In the short term, a high level one-off exercise may be sufficient but, in the longer term, HMRC advises that tax evasion is incorporated in the organisation’s wider risk assessment. This presents organisations with the opportunity to identify efficiencies between their wider economic crime controls and the controls they need in order to demonstrate reasonable procedures.

Some of the key things to consider when completing the risk assessment are:

  • Oversight of the process by senior management;
  • Appropriate allocation of resources to risk management;
  • A clear articulation of tax evasion risks where this is considered as part of the firms’ wider risk assessment, amongst others.

It is important for the risk assessment to consider to what extent the internal structures or procedures may increase the level of risk. Such contributing factors may include deficiencies in employee training, a lack of clarity on the firm’s approach towards the provision of high risk services and products and lack of clear tone from the top.

Finally, I would like to emphasise the importance of refreshing the risk assessment on a regular basis since the nature of the risks of facilitating tax evasion evolves as the firm’s business and customer base changes. The HMRC gives a good example of how an organisation’s risk profile increases as it starts to serve customers in jurisdictions not reporting taxpayer information.

Completing the facilitation of tax evasion risk assessment is one of the actions organisations must take now to be well prepared for September. You can find more information on the offence and how PwC can help here or contact Matt Russell to discuss this issue further.

Matthew Russell | Partner


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