When most people think of tax evasion, they typically think of hedge fund managers and other rich business people moving their money offshore. Though that happens fairly often, even a small business owner can be guilty of tax evasion, wittingly or unwittingly.
If your company or an employee in your company is found guilty of facilitating or committing tax evasion, the law will find your company responsible for failing to prevent the illegal activity. The law states that a business will be held responsible if one of its employees or contractors is proven to have been involved in any tax evasion activities, even if the company had no knowledge of the people associated with tax evasion.
Therefore, it is in your best interest to take steps to prevent such actions from happening rather than regret them in hindsight. The only defense in such a case is to prove that you took reasonable measures to prevent the facilitation of tax fraud.
If you do not want your company to be liable for such actions, take the necessary steps to avoid facilitating tax fraud. These steps include the following:
- Educate and Train Your Staff
First and foremost, you need to ensure that your company’s entire staff are crystal clear on the rules pertaining to tax evasion. They must know which rules they need to comply with and which warning signs to look out for regarding tax fraud.
Your employees need to know how to perform their due diligence when checking for tax evasion, and if they notice any red flags, they should know how to report them as swiftly as possible.
The way to ensure the above is to educate and train your staff on all matters regarding tax evasion. Train them on how to notice signs of tax evasion, no matter how subtle. Ensure that they understand the repercussions of such violations of the law.
When the authorities come calling, you should prove that you delivered the education and training to your employees. You should also provide evidence that your employees reported any sign of tax evasion and the subsequent actions your company took to report it to the authorities.
- Identify the Weaknesses in Your Organization
If you want to avoid facilitating tax evasion in your company, then you should know who inside it poses the highest risk for tax evasion. Every company, even those with immaculate reputations, possesses a chance for tax fraud within them.
You should identify the weaknesses in your organization right from the start when you are hiring your employees. You should conduct an employee background check for each member of your staff. Not only should you conduct such checks before hiring your employees but also at least once every year for which they work for you.
It does not matter whether your company is a high-risk one such as a tax advisory, legal or financial services firm. Always be on guard as you never know who in your company might be the weak link in the chain.
- Scrutinize Anyone With Whom You Do Business
Tax evasion not only applies to people within your organization but also to those with whom your company does business. Therefore, you should ensure you conduct your third-party due diligence if you want to avoid facilitating tax evasion.
Third parties in this regard refer to suppliers and customers. Your company should not be involved in any measure with anyone who is in any way associated with tax evasion.
It would be best to develop a comprehensive screening process to know each customer’s and contractor’s tax compliance status. The clearer your criteria for identification, the lesser the risk in which you will be putting your company.
Always remember that tax evasion does not only apply to suppliers or clients that have ties to offshore tax havens. Even a seemingly harmless local company could be guilty of facilitating tax evasion, and you might end up on the local news.
The good news is that there are new international standards made to promote tax transparency and prevent tax evasion such as OECD’s Common Reporting Standards
- Encourage Employees to Report any Red Flags Promptly
As stated above, the best defense against tax evasion charges of which you were unaware is to prove that you took necessary action against it. To that end, you should encourage your employees to report any suspicious activity they think might be related to tax evasion.
Therefore, your company should have a hotline or special number that employees can call whenever they notice any red flags associated with tax evasion. Any other reporting channels you can create will also make reporting such activity convenient and prompt.
Put in place various procedures to ensure that such reports receive a response as quickly as possible. The faster such information is forwarded to the authorities, the better the chance your company has to avoid facilitating tax evasion.
Tax fraud is a serious crime and the punishment is just as solemn. The steps above should put your company in a great position to avoid tax evasion. Taking the necessary steps to avoid such charges certainly beats facing the repercussions.