Research conducted by law firm Pinsent Masons found that 55% of FTSE 100 companies do not mention how they are managing the risks of tax evasion in their published documents.

Of the financial services businesses in the FTSE 100, 33% make no mention of tax evasion or how they manage the risk.

The firm analysed tax strategy documents, annual reports, Environment Social and Governance (ESG) policies and other key documents. From 2016, it has been compulsory for large UK companies to publish a tax strategy which must contain extensive details of the company’s tax planning arrangements and attitude towards HMRC.

Pinsent Masons says new legislation means the FTSE 100 and other businesses are now at risk of criminal prosecution if they fail to prevent the facilitation of tax evasion.

Under the Criminal Finances Act (CFA) 2017, which came into force one year ago on 30 September 2017, businesses are now criminally liable if any of their employees, agents or others third parties facilitate tax evasion whilst providing services on their behalf.

‘FTSE 100 firms failing to publicly address tax evasion could raise questions for stakeholders over their management of reputational and financial risks,’ said Jason Collins, partner at Pinsent Masons.

‘Compliance practices at FTSE 100 firms are increasingly under scrutiny now that they are liable for tax evasion at any level. Financial services firms in particular will be under the spotlight – it comes with the territory.

‘Companies can now effectively become criminally liable for third party tax evasion. It will no longer be a reasonable excuse to say that management was totally unaware of any tax evasion that took place and would never allow it had they been.

‘With the potential for unlimited fines its not surprising that shareholders and other stakeholders will want reassurance that big businesses have got the risks of tax evasion under control.’

The researchers add that ‘the lack of communication could also make it harder for companies to demonstrate that they have taken “reasonable prevention procedures”, which is a key defence for a company found liable under the new laws. This may also be troubling for shareholders’.

They point out that failure to comply with the new law could result in unlimited financial penalties, ancillary orders such as confiscation orders or serious crime prevention orders, and serious reputational damage. A successful criminal prosecution may also prevent a company from bidding from public sector contracts. A company does not have to be directly involved in the tax evasion or even be aware of it to be prosecuted under the new law.

The research also found that, in contrast to tax evasion, just 10% of FTSE 100 firms failed to mention how they deal with corruption in their published documents. Companies have been required to set out their approach to corruption since the Bribery Act was introduced in 2010 – the latest requirements for tax evasion mirror these existing ones.

Report by Rob Munro