TEAM Members Share the Front Line on Tackling Tax Evasion
The statutory climate is changing. New legislation will force some recruiters to break way from a bad culture. Otherwise, they leave themselves open to being prosecuted as criminals!
Some of you reading this article are likely to be facing ramifications from your overseas contractors being labelled ‘criminals’ by local courts for failing to meet their statutory tax and social security liabilities. Across Europe, thousands of contractors face bankruptcy from tax investigations which led to substantial claims for tax shortfalls, escalating interest and financial penalties. This activity is particularly prevalent in Germany and in Sweden; and has kick-started in Belgium where the authorities are focusing on false or non-existent A1 Certificates. Automatic Exchange of Information is helping tax authorities across the world build their cases.
Until now, existing legislation has made it difficult for tax evasion activity by placements to be attributed to recruitment businesses and their directors. Prosecutors had to show the directors were either complicit or aware of such illegal activities. This has been almost impossible to prove when decisions on ‘compliance’ are made at lower levels in their businesses.
On 13 October 2016, following months of consultation, the UK government published draft legislation for the new corporate offence of failing to prevent the criminal facilitation of tax evasion. What impact will this radical law have on TEAM Members, inside and outside the UK?
Under the new law:
1. Every enterprise, including a recruitment business, is deemed liable for the actions of an individual, whether employee or contractor, acting on its behalf. This is irrespective of any benefit accruing to the business from the individual’s criminal activity.
2. The offence applies to a UK recruitment business failing to deter those acting on its behalf (such as sales consultants and placements) from criminally facilitating a tax loss either in the UK or in a foreign jurisdiction with equivalent tax evasion laws in place.
3. The offence also applies to a non-UK recruitment business failing to prevent those acting on its behalf from criminally facilitating an illegal tax loss in the UK.
4. Importantly, the offence is attributed to the business itself.
Going forward, every recruiter will need appropriate protocols in place to prevent facilitation of tax evasion by its personnel and contractor placements. Such protocols have parallels with those recommended to help mitigate issues arising from the current Prevention of Money Laundering Act as well as the Bribery Act. Obvious ones are risk assessments, due diligence checks, regular staff training PLUS a solid commitment from directors and management to establish a business culture where assisting tax evasion is never tolerated.
Be warned. Without such protocols, recruiters will be exposed to potential prosecution simply because their contractors have improperly dealt with their tax affairs. It will not be good enough to say: “I was unaware of my contractor’s situation”. It will become your company’s responsibility.
One likely trigger for criminal activity is where a contractor is receiving overseas contract funds either through their own UK personal service company or via a UK umbrella. Both operating structures have to be “fit for purpose’. This means they must be operating fully in line with the tax laws of the country of work. Otherwise, an offence has been committed under the new laws.
If you need assistance preparing for the new legislation, we are here to help.
As a reliable and risk-averse provider of fully-compliant ‘solutions’ for TEAM Members’ contractor and interim placements across Europe and in other key countries, ItsInternational works closely with locally-regulated service providers and locally-registered employers-of-record to ensure your valuable placements are structured to operate your assignments within the laws of their countries of work. This is transparently driven by our local network in unison with local tax offices.
As a TEAM Member, if you are either placing or aspiring to place consultants or interims abroad on fixed-term assignments, you can benefit from accessing the TEAM INTERNATIONAL HELPLINE – a free service provided by ItsInternational’s Central London offices exclusively for you.
Either call 0044 (0)20 7477 2660 for your complimentary consultation or email us at TEAM@itsinternational.ltd.uk
For more details, visit www.jobsatteam.com/Team-Service-Provider/its-international/430/