Don’t Get Caught ‘Offside’

The Criminal Finances Act 2017 (‘CFA’) introduced new cross-jurisdictional offences (within the UK or abroad) for failure of a corporate to prevent the facilitation of tax evasion by persons associated with them.  The following is a brief summary of the new offences, in the footballing context, and highlights the need for football clubs to be proactive if they are to avoid the potential for significant penalties.

The new offences

The new tax evasion offences are largely modelled on the corporate offence in the Bribery Act 2010 of failing to prevent bribery, both nationally and internationally, by associated persons. The only defence is to prove that adequate procedures were in place to prevent the bribery.

Section 45 of the CFA makes it a criminal offence for corporates and partnerships to fail to prevent an associated person from facilitating UK tax evasion. Section 46 covers equivalent offences for facilitating tax evasion which is illegal under foreign law. An associated person is widely defined to include an employee, agent or any other person performing services for or on behalf of the company or partnership. It is irrelevant whether any benefit was derived from the evasion. 

Both offences are also strict liability offences, meaning that where tax evasion is found to have occurred a corporate will be guilty, unless it can be proven reasonable procedures were in place to prevent it, or, and unlikely in a football club context, it was not reasonable for measures to be in place. It would also be a defence if it could be demonstrated that the associated person was not acting on behalf of an organisation, however ignorance will not be a defence. It is therefore imperative corporates give these offences the consideration they deserve.

Penalties

Indeed, if an associated person is found to have committed an offence under these provisions the corporate could be liable to:

• an unlimited fine; and/or
• other ancillary orders including confiscation of assets.

There is also a risk of personal and corporate reputational damage which could in turn lead to second hand financial implications, for example if sponsorship deals are renounced. HMRC have indicated they will be ‘relentless’ in their pursuit of tax evaders and last April’s raids on Newcastle and West Ham, spanning England and France, are likely to be indicative of their approach.

Risk areas in Football

We have identified areas of particular relevance in the footballing context. For more information, see the full article however a non-exhaustive list of risk areas is as follows:

• Image rights deals where little or no commercial advantage is seemingly derived
• Payments to/from players by football clubs
• Payments made to agents, intermediaries or introducers and associated tax complications  particularly when players move on or their relationship with the club changes
• Use of tax avoidance schemes by players and staff

How we can help

Therefore given the severe nature of any potential penalty, and frequency of risk area scenarios, it would be prudent to seek specialist legal advice, sooner rather than later. Football clubs need to take steps to ensure that all contracts and roles of intermediaries, agents, players and staff are properly defined so that payments are made after appropriate risk assessments and due diligence. At Irwin Mitchell we have a sports sector team with national coverage and cross disciplinary expertise who can help you understand the new legislation and the potential impacts for you and your business, and provide bespoke compliance advice.

Ensuring adequate preventative measures are in place is the best way to avoid falling foul of the new legislation. Although it may seem onerous, specialist support can help reduce the initial burdens and prevent the need for further and more expensive, advice should things go wrong. Failure to be proactive could result in severe and potentially irreversible damage.