With the commencement of the Criminal Finances Act 2017 (the ‘Act’) imminent (30 September 2017), introducing long awaited corporate offences for organisations’ failure to prevent the facilitation of tax evasion, sporting organisations need to consider carefully the potential risks to their business. Sporting organisations, including football and rugby clubs in particular, should already be aware that they present high profile targets for HMRC and that their conduct will, undoubtedly, continue to face enhanced scrutiny following the commencement of the Act. Centrefield has set out below five headline thoughts for organisations to consider when assessing the impact of the new offences:
#1 International risks – the Act’s extra-territorial application means that sporting organisations will be liable not only for failing to prevent the facilitation of tax evasion in the UK, but tax evasion anywhere in the world. Organisations will therefore need to identify and consider the potential risk areas within their business both in the UK and internationally, whether through their fixed ground operations or the actions of intermediaries, professional advisors or other service providers.
#2 Identifying associates – the Act creates a broad liability for sporting organisations, capturing the acts of any person acting as an associate of that organisation. This extends not only to employees and those contractually tied to any organisation, but to any person who could be considered to be performing services for or on behalf of that organisation, including any intermediaries or representatives in any proposed transactions. Sporting organisations will therefore need to clearly identify the individuals and organisations who may be considered as performing services on their behalf and how their conduct can be monitored and managed.
#3 Internal procedures – sporting organisations will be able to raise a defence where they can demonstrate the presence of reasonable procedures to prevent the facilitation of tax evasion. Organisations should therefore consider a detailed review of their internal policies, procedures and relevant training, both to help reduce the risk of facilitating tax evasion and provide a potential defence should any breach occur.
#4 Top level commitment – when considering the reasonableness of an organisation’s internal procedures, investigating authorities will consider the conduct of senior management. Directors and senior individuals will need to demonstrate a clear commitment to preventing the facilitation of tax evasion. Even if not personally liable under the Act, directors should consider their conduct in the wider context of their legal duties to act in a company’s best interests and the potential for individual reputational damage in the event of a breach.
#5 Commercial transactions – sporting organisations will need to consider how they can mitigate the risk of facilitating tax evasion in future transactions, whether in respect of intermediary relations, player transfers, image rights arrangements, sponsorship agreements, business partnerships or other business service arrangements. Organisations should have a clear understanding of the relevant transaction and payment structures, and consider whether its existing and future contractual documentation provides adequate protections against the facilitation of tax evasion by any connected parties.
With the potential for unlimited fines and significant reputational damage to organisations found guilty of an offence, it is clear that the sports industry cannot afford to turn a blind eye to potential tax evasion.
The Criminal Finances Act commences on 30 September 2017. If you would like more information on any of the points raised above or any advice in connection with the Criminal Finances Act 2017, please contact David Bentham (Partner), Stuart Baird (Partner) or David Anderson (Associate), or call 0161 672 5450.
Please note the information contained in this briefing is intended as a general review of the subject featured and is not intended as specific legal advice.