This consultation considers draft legislation and guidance for the new corporate criminal offence of failure to prevent the criminal facilitation of taxevasion. Download Tackling_tax_evasion-legislation_guidance_corporate_offence_of_failure_to_prevent_criminal_facilitation_tax_evasion.pdf
Thursday, April 28, 2016
reformatted cxcerpts without citations from Crawford v. United States Department Of The Treasury (Case No. 3:15-CV-00250, United States District Court, S.D. Ohio, Western Division, Dayton,.April 25, 2016).
There are eight proposed claims before the Court.
- The first claim challenges the validity of the Canadian, Czech, Israeli, French, Danish, and Swiss IGAs used by the Treasury Department.
- The second claim addresses the information reporting provisions FATCA and the IGAs impose not on Plaintiffs, but on FFIs.
- The third claim aims at the heightened reporting requirements for foreign bank accounts under FATCA, the IGAs, and the FBAR.
- The fourth claim challenges the 30% tax imposed by FATCA on payments to FFIs from U.S. sources when these foreign institutions choose not to report to the IRS about the bank accounts of their U.S. customers (the "FFI Penalty").
- Similarly, the fifth claim challenges the 30% tax imposed by FATCA on account holders who exercise their rights under the statute not to identify themselves as United States citizens to their banks and to refuse to waive privacy protections afforded their accounts by foreign law (the "Passthrough Penalty").
- The sixth claim challenges the penalty imposed under the Bank Secrecy Act for "willful" failures to file an FBAR for foreign accounts, which can be as much as the greater of $100,000 or 50% of the value of the unreported account (the "Willfulness Penalty").
- The seventh and eighth claims challenge the information reporting requirements of FATCA and the IGAs as unconstitutional under the Fourth Amendment.
The Canadian, Czech, Israeli, French, Danish, and Swiss Intergovernmental Agreements
Once FATCA became law, the Government began requiring coordination with FFIs and foreign governments. To facilitate FATCA implementation, the United States has concluded over seventy IGAs with foreign governments addressing the exchange of tax information. Plaintiffs seek to enjoin IGAs with Canada, the Czech Republic, Israel, France, Denmark, and Switzerland in their entirety. Alternatively, they seek to enjoin parts of those IGAs.
The Canadian, Czech, French, Danish, and Israeli IGAs are similar because they are all "Model 1" IGAs, whereas the Swiss IGA is a "Model 2" IGA. The key distinction is that under Model 1 IGAs, foreign governments agree to collect their FFIs' U.S. account information and to send it to the IRS, whereas under Model 2 IGAs, foreign governments agree to modify their laws to the extent necessary to enable their FFIs to report their U.S. account information directly to the IRS. All six IGAs, in their preambulatory clauses, recognize the partner governments' mutual "desire to conclude an agreement to improve international tax compliance" or, in the case of Switzerland, a "desire to conclude an agreement to improve their cooperation in combating international tax evasion."
All six IGAs mention the Tax Information Exchange Agreements ("TIEAs") that the United States has with these six countries as part of preexisting treaties. See supra notes 5-6. All six IGAs similarly note the need for "an intergovernmental approach to FATCA implementation", or, in the Swiss case, "intergovernmental cooperation to facilitate FATCA implementation". Id.
The five Model 1 IGAs—Canadian, Czech, French, Danish, and Israeli—define "Obligations to Obtain and Exchange Information with Respect to Reportable Accounts" in Article 2. Canadian IGA art. 2; Czech IGA art. 2; French IGA art. 2; Danish IGA art. 2; Israel IGA art. 2. In addition to seeking to enjoin Article 2 in full, Plaintiffs attack the agreement that IGA partners, with respect to each "U.S. Reportable Account" of its FFIs, will report, "the account balance or value . . . as of the end of the relevant calendar year or other appropriate reporting period. . . ." Canadian IGA art. 2, § 2(a)(4); Czech IGA art. 2, § 2(a)(4); French IGA art. 2, § 2(a)(4); Danish IGA art. 2, § 2(a)(4); Israeli IGA art. 2, § 2(a)(4).
If Model 1 partner countries comply with Article 2 as well as the "Time and Manner of Exchange of Information" agreed to in Article 3 and other rules, then their reporting FFIs "shall be treated as complying with, and not subject to withholding under, section 1471", nor will they be required to withhold "with respect to an account held by a recalcitrant account holder" under § 1471. Canadian IGA art. 4, §§ 1, 2; Czech IGA art. 4 §§ 1, 2; French IGA art. 4 §§ 1, 2; Danish IGA art. 4 §§ 1, 2; Israeli IGA art. 4, §§ 1, 2. This is consistent with the Treasury Secretary's power to deem FFIs to be in compliance with § 1471 if statutory purposes are met. 26 U.S.C. § 1471(b)(2)(B).
The Israeli IGA is not yet in force. See Israeli IGA art. 10, § 1. However, the Government asserts that the Treasury Secretary has exercised his discretion not to impose § 1471 withholding against Israeli FFIs or recalcitrant account holders.
The Swiss IGA is different in that under its Article 3—which Plaintiffs seek to enjoin (doc. 32-1, Prayer for Relief at V)—the Swiss government agrees to "direct all Reporting Swiss Financial Institutions" to report certain information directly to the IRS. Swiss IGA art. 3, § 1. Under Article 5—which Plaintiffs also seek to enjoin (doc. 32-1, Prayer for Relief at V)—the U.S. government "may make group requests . . . based on the aggregate information reported to the IRS pursuant to" Article 3. Swiss IGA art. 5, § 1. "Such requests shall be made pursuant to Article 26 of the [Swiss] Convention, as amended by the Protocol," and, "such requests shall not be made prior to the entry into force of the Protocol[.]" Swiss IGA art. 5, § 2. The "Protocol" being "the Protocol Amending the [Swiss] Convention that was signed at Washington on September 23, 2009." Swiss IGA pmbl. That Protocol has not yet been approved by the Senate, and because of that, Article 5 of the Swiss IGA cannot yet be implemented.
Report of Foreign Bank and Financial Accounts
The third body of law at issue in this case pertains to the FBAR requirements. U.S. persons who hold a financial account in a foreign country that exceeds $10,000 in aggregate value must file a FBAR with the Treasury Department reporting the account. See 31 U.S.C. § 5314; 31 C.F.R. §§ 1010.306(c), .350. The current FBAR form is FinCEN Form 114. The form has been due by June 30 of each year regarding accounts held during the previous calendar year. 31 C.F.R. § 1010.306(c). Beginning with the 2016 tax year, the due date of the form will be April 15. Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. No. 114-41, § 2006(b)(11), 129 Stat. 443. A person who fails to file a required FBAR may be assessed a civil monetary penalty. 31 U.S.C. § 5321(a)(5)(A). The amount of the penalty is capped at $10,000 unless the failure was willful. See § 5321(a)(5)(B)(i), (C). A willful failure to file increases the maximum penalty to $100,000 or half the value in the account at the time of the violation, whichever is greater. § 5321(a)(5)(C). In either case, whether to impose the penalty and the amount of the penalty are committed to the Secretary's discretion. See § 5321(a)(5)(A) ("The Secretary of the Treasury may impose a civil money penalty[.]"); § 5321(a)(5)(B) ("[T]he amount of any civil penalty . . . shall not exceed" the statutory ceiling). Plaintiffs seek to enjoin enforcement of the willful FBAR penalty under § 5321(a)(5). They also ask for an injunction against "the FBAR account-balance reporting requirement" of FinCen Form 114. (Id., Prayer for Relief at EE.)
United States Senator Rand Paul
Plaintiff Paul seeks to base legal standing for Counts 1 and 2 on his role as a U.S. Senator, charged with the institutional task of advice and consent under the U.S. Constitution. He contends that the IGAs exceed the proper scope of Executive Branch power and should have been submitted for Senate approval. In its Entry and Order Denying Plaintiffs' Motion for Preliminary Injunction, the Court found this insufficient to meet the requirements of standing for three reasons, stating: (1) Plaintiff Paul has alleged no injury to himself as an individual, (2) the institutional injury he alleges is wholly abstract and widely dispersed, and (3) his attempt to litigate this dispute at this time and in this form is contrary to historical experience.
Read the entire case of Crawford v. United States Department Of The Treasury
[See free SSRN download of Lexisnexis® Guide to FATCA Compliance: Chapter 1]
The Financial Action Task Force (FATF) held a Consultation and Dialogue Meeting with Non-Profit Organisations (NPOs) on 18 April 2016 in Vienna, Austria.
The main objective of this meeting was to have an open dialogue with representatives from a variety of NPOs on the FATF’s ongoing work to revise its standards on non-profit organisations (FATF Recommendation 8 and its Interpretive Note). The FATF recognises the importance of engaging directly with NPOs on these important issues.
The meeting was chaired by the President of the FATF, Mr. Je-Yoon Shin (Korea), and hosted by the United Nations Office on Drugs and Crime at their headquarters in Vienna. In total 116 representatives of 21 FATF member and observer delegations, 26 NPOs and 37 private sector guests attended the meeting. The participants had an in-depth exchange of views on the following key issues:
· how NPOs play an important role in the fight against terrorism by helping to mitigate extremism
· ways in which the FATF standards protect NPOs from terrorist abuse and facilitate their access to financial services when implemented effectively
· the need for countries to understand, as a starting point, their NPO sector and its potential vulnerabilities to abuse by terrorists, taking into account that the majority of NPOs may represent little or no risk at all
· the importance of applying measures to protect NPOs from terrorist abuse, in line with the FATF’s risk-based approach, and proportionate with the risks identified, while at the same time respecting human rights, due process and the rule of law.
The FATF reiterates its commitment to continuing engagement with NPOs on these important issues.
The FATF will discuss the input received through this meeting and consult further with NPOs, with a view to finalising the revisions to FATF Recommendation 8 and its Interpretive Note in June 2016.
HOI HAM, YOUNG HO JOO, SU YEON YUN, HYUN JOO SHIN, YING AI LI, and JIN AE JUNG, SUNG HWAN KIM were arrested for laundering in excess of $1.4 million in illegal proceeds between 2011 and 2016. These illegal proceeds were generated by at least 10 illegal brothels in and around the New York City metro area that the defendants owned, operated, managed, or advertised. RYAN JUNGHUN KIM was arrested in Seoul, South Korea. MI SOOK KIM, MOOJA PETERSON, and HYUN JOO LEE have not yet been apprehended.
Manhattan U.S. Attorney Preet Bharara said: “Eleven individuals are charged with laundering more than a million dollars of proceeds from their illegal commercial sex businesses. I want to thank our federal and local law enforcement partners and recognize the assistance of the Seoul Metropolitan Police Agency.”
Special Agent-in-Charge David Schnorbus said: “The dismantling of this international conspiracy, stretching from South Korea to the United States, is an important achievement made possible by the coordinated efforts of all agencies supporting this investigation and prosecution. Diplomatic Security’s global presence enables our organization to partner with foreign law enforcement, and the investigative support of the Seoul Metropolitan Police Agency highlights that global reach.”
Special Agent in Charge Angel M. Melendez said: “Today's arrests and search warrants are the result of the great partnership between HSI and its law enforcement partners to shut down a large international prostitution and money laundering organization operating illegal brothels here in New York. Sex businesses like these pose a threat to public safety in our communities and must not be tolerated.”
Special Agent in Charge Shantelle P. Kitchen said: “Money laundering is not just a crime committed by drug dealers. The kinds of criminal enterprises that launder money to conceal illicit proceeds and to keep their operations going are as diverse as the ways that money can be laundered. IRS-Criminal Investigation is always ready to bring its financial investigative expertise to money laundering investigations of all kinds.”
Inspector-in-Charge Philip R. Bartlett said: “These individuals operated an illegal prostitution ring, lining their pockets with the profits from the world’s oldest profession. Today's arrests are yet another example of law enforcements commitment to identify, disrupt and dismantle organized criminal enterprises.”
Since 2012, the Investigating Agencies have been investigating a group of brothels (the “Brothels”) operating in and around New York. Each of the Brothels is independently owned and operated, but the owners of the Brothels work cooperatively through, among other things, the sharing of approved customer lists and information. Defendants RYAN JUNGHUN KIM, HOI HAM, SUNG HWAN KIM, YOUNG HO JOO, MI SOOK KIM, SU YEON YUN, HYUN JOO LEE, HYUN JOO SHIN, YING AI LI, JIN AE JUNG, and MOOJA PETERSON are individuals who operated the Brothels, including advertisers, website developers, brothel owners, and brothel managers.
The defendants typically used websites associated with the Brothels to advertise the women prostituted in the Brothels (the “Brothel Websites”). The Brothel Websites describe, among other things, specific services that the Brothels offer, including a service called the “girlfriend experience.” In addition to the Brothel Websites, the Brothels used an online aggregator of advertisements to advertise the Brothels (the “Advertising Website”). The management of online advertising and payment for this advertising was coordinated by the defendants. The defendants would regularly email among themselves sexually explicit photographs of women prostituted in the Brothels to be used in online advertising, as well as instructions for how certain posts should appear. They would also exchange emails concerning, among other things, advertising for the Brothels and payment of advertising fees to the Advertising Website.
To pay for these advertising fees, the defendants would use hundreds of thousands of dollars in illegal proceeds generated by the Brothels’ prostitution business. These proceeds would be transferred among the defendants through several methods, including cash deliveries, payment of credit card balances, and wire transfers. An account associated with RYAN JUNGHUN KIM received tens of thousands of dollars from accounts in the names of several of the defendants. HOI HAM, the defendant, made cash pickups from the Brothels on multiple occasions, and even discussed these pickups in electronic chat messages with RYAN KIM. Moreover, between December 2012 and May 2014, approximately $326,381 was transferred from a single credit card in HAM’s name to the Advertising Website. Similarly, between December 2011 and September 2013, approximately $150,000 in cash was deposited into an account in the name of SUNG HWAN KIM and approximately $90,000 during that same period was remitted to the Advertising Website. Finally, between December 2011 and May 2014, approximately $268,000 was deposited into a bank account maintained in the name of YOUNG HO JOO, the defendant, and another individual. During this same period, this account remitted approximately $92,311 to the Advertising Website. To date, the investigation, which is ongoing, has identified more than $1.4 million worth of illegal transactions.
Each of the defendants is charged with one count of conspiracy to commit money laundering, which carries of maximum sentence of 20 years in prison; and one count of conspiracy to violate the Travel Act, which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Wednesday, April 27, 2016
The legislation sets out the requirement for large businesses to prepare and publish their tax strategy. This guidance explains:
What a tax strategy must contain;
When penalties may be charged (including reasonable excuse);
The appeals process.
It emerged from the discussion that ministers support the establishment of an EU list of noncooperative jurisdictions and coordinated defensive measures to be defined by the Council, working closely and in parallel with the OECD to draw the international criteria in this area. The Presidency aims for consensus on the method for setting up such listing and will propose conclusions to be adopted at the May Ecofin.
We welcome the fact that all member states will enter into a pilot project for the automatic exchange of information on ultimate beneficial owners. Furthermore the Netherlands residency will take forward the work on the amendment to the 4th Anti-Money Laundering Directive which, as the Commission announced, will be submitted to the European Parliament and the Council in June. We want to advance on this legislative proposal as far as we can before we hand it over to our Slovak colleagues who, as I understand, also see it as one of their priorities.
We therefore invited the Commission to consider improvements to address certain issues linked specifically to money laundering, in particular to enhance accessibility of beneficial ownership registers on corporate and other legal entities, as well as on trusts and similar legal arrangements, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership between authorities, and strengthen customer due diligence rules.
[See free SSRN download of Lexisnexis® Guide to FATCA Compliance: Chapter 1]
Tuesday, April 26, 2016
- money laundering
- terrorism financing
- financing of the proliferation of weapons of mass destruction
- other serious and organised crime
To that end, they have signed arrangements regarding the timely, safe and secure access for tax and law enforcement authorities to such information. [See free SSRN download of Guide to FATCA Compliance]
Exchange of notes between the UK government and Crown Dependencies
Exchange of notes between the UK government and British Overseas Territories
Brazil: Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Legislative Decree No. 105/2016)
On April 15, 2016, Legislative Decree no. 105/2016 was published in the Official Brazilian Gazette, approving the text of the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters to automatically exchange information, signed by Brazil in November of 2011. Read the story at Mayer Brown.
Monday, April 25, 2016
This information is intended to help you understand your obligations under Australia’s participation in Automatic Exchange of Information (AEOI) regimes concerning the automatic exchange of financial account information with foreign jurisdictions. [See free SSRN download of Lexisnexis® Guide to FATCA Compliance: Chapter 1]
These regimes are known as the Foreign Account Tax Compliance Act (FATCA) in the case of exchange with the United States of America (U.S.) and the Common Reporting Standard – CRS or the Standard, as the context requires– in the case of exchange with other countries.
This guidance explains AEOI obligations from 1 July 2017, the date on which the CRS starts operation in Australia. Unless otherwise noted, the explanations in this guidance cover both FATCA and CRS from 1 July 2017. We have previously published separate guidance for FATCA purposes which may be relied upon for the period up to 30 June 2017.
There are some variations in terminology between FATCA and CRS. When the context requires, the following CRS terms should be read interchangeably with FATCA terms in this guidance:
Reporting Financial Institution (RFI)
Reporting Australian Financial Institution
Non-Reporting Financial Institution
Non-Reporting Australian Financial Institution
Non-Financial Entity (NFE)
Non-Financial Foreign Entity (NFFE)
Specified U.S. Person
U.S. Reportable Account
Dollar values stated in the guidance should be read for CRS purposes as referring to either Australian dollars or U.S. dollars according to the choice of the relevant entity, as permitted by Australian law for the CRS. For FATCA, the dollar values refer to U.S. dollars only.
This guidance provides general assistance and does not cover all possibilities. If you follow our information in this guidance and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly but we will not charge you a penalty.
This government guidance material will be updated from time to time.
Panama Papers Leading to 30 Country Interlinked Beneficial Ownership Registry for Company and Trusts
Over 20 countries have joined the UK-led pilot to automatically share ownership information for companies. As such their tax and law enforcement agencies will now exchange data on company beneficial ownership registers and new registers of trusts enabling more effective investigation of financial wrongdoing and tax-dodging. [See free SSRN download of Lexisnexis® Guide to FATCA Compliance 2016]
Statement by: UK, France, Germany, Italy, Spain, Netherlands, Romania, Sweden, Finland, Croatia, Belgium, Slovakia, Latvia, Lithuania, Ireland, Slovenia, Denmark, Malta, Cyprus, Gibraltar, Isle of Man, Montserrat, Bulgaria, Estonia, Portugal, Greece, Czech Republic, Luxembourg, Austria and Hungary
As recent events have shown we need to take firm collective action on increasing beneficial ownership transparency, building on our actions to date. Criminals continue to find ways to exploit the cracks in the current system, setting up complex structures in various and often multiple locations to hide their activities, be it money laundering, tax evasion or illicit finance. As with tax evasion, this requires a global response.
On beneficial ownership, it is essential to apply enhanced standards of transparency at European and international level. In this spirit, we have committed to establishing as soon as possible registers or other mechanisms requiring that beneficial owners of companies, trusts, foundations, shell companies and other relevant entities and arrangements are identified and available for tax administration and law enforcement authorities. We call on all other Member States, countries and jurisdictions to do so.
We also commit to the new pilot initiative for automatic exchange of information on beneficial ownership launched by the UK, France, Germany, Italy and Spain. This will give our tax and other relevant authorities full knowledge on vast amounts of information and help them track the complex offshore trails used by criminals. The intention is that this will mirror the ground-breaking steps we have taken on tax evasion under the CRS. In this regard we also call on all jurisdictions to implement the CRS to the agreed timetable and for those not yet committed to do so rapidly.
Automatic exchange of beneficial ownership information will, as with the CRS, be subject to the usual data and confidentiality protections and to any appropriate exceptions. We will look to ensure that this information is in a fully searchable format and that it also contains information on entities and arrangements closed during the relevant year. To be effective this should be a global system and we call for the rapid establishment of a global standard.
We also call for the development of a system of interlinked registries containing full beneficial ownership information and for common international standards for these registries and their interlinking. We intend to start this project as soon as is practicable. In our view, this new initiative will take a significant step forward in improving the transparency of beneficial ownership information and in removing the veil of secrecy under which criminals operate.
[See free SSRN download of Lexisnexis® Guide to FATCA Compliance 2016]
Sunday, April 24, 2016
Prescribers Must Provide Patients with Their Prescriptions; Sellers Must Obtain or Verify Valid Prescriptions before Dispensing Lenses
Federal Trade Commission staff has sent 45 letters to contact lens prescribers and 10 to contact lens sellers warning them of potential violations of the agency’s Contact Lens Rule, which is intended to facilitate the ability of consumers to comparison shop for contact lenses while ensuring that sales occur only in accordance with a valid prescription.
Under the Rule, prescribers fitting patients for contact lenses are required to give them their prescription at the end of the fitting. Prescribers also are prohibited from charging additional fees for releasing the prescription and from obligating a patient either to buy contact lenses from them, or to sign a waiver, before releasing a prescription.
Sellers may provide contact lenses to consumers only after either obtaining a copy of a valid prescription or, alternatively, verifying the prescription with the prescriber. Sellers may not dispense lenses using an expired prescription, and may only substitute lenses under certain conditions, as specified in the Rule.
The letters warn the prescribers and sellers that violations of the Rule may result in legal action, including civil penalties of up to $16,000 per violation. Along with the letters, staff also provided copies of the Rule, as well as guidance on prescribers’ and sellers’ obligations under the Rule: The Contact Lens Rule: A Guide for Prescribers and Sellers and Complying with the Contact Lens Rule.
In 2003, Congress enacted the Fairness to Contact Lens Consumers Act, which requires prescribers to release contact lens prescriptions to patients, and requires sellers of contact lenses to verify prescriptions with prescribers. In July 2004, the Commission issued the Contact Lens Rule to implement the Act.
The FTC has information to help consumers understand their rights under federal law. See: Prescription Glasses and Contact Lenses.
Saturday, April 23, 2016
This report is a unique and comprehensive survey of tax administration systems, practices and performance across 56 advanced and emerging economies (including all OECD, EU, and G20 members). It identifies some of the fundamental elements of national tax system administration and uses data, analyses and country examples to identify key trends, comparative levels of performance, recent and planned developments, and good practices.
This edition updates performance-related and descriptive material contained in prior editions with new data up to end-fiscal year 2013, and supplements this information on some new topics (e.g. aspects of compliance management and strategic priorities for increased use of on-line services). It also includes coverage of four additional countries (i.e. Costa Rica, Croatia, Morocco, and Thailand).
The Forum’s tax administration database provides comparative information on a selected range of tax administration-related information extracted from its biennial comparative series publication, most recently published in August 2015 as Tax Administration 2015 (formerly the Comparative Information Series). Tax Administration 2015 is a unique and comprehensive survey of tax administration systems and practices across 56 advanced and emerging economies (including all OECD, EU, and G20 members).
To assist researchers, a limited range of tables from Tax Administration 2015 can be accessed directly below:
INSTITUTIONAL AND ORGANISATIONAL ARRANGEMENTS
HUMAN RESOURCE MANAGEMENT
REVENUE COLLECTIONS AND RESOURCE USAGE
USE OF ONLINE SERVICES
In 2011, HMRC forecast that it would receive "billions" from the Swiss Disclosure Facility. In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF. This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries. [See free SSRN download of Lexisnexis® Guide to FATCA Compliance 2016]
As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.
For the LDF, as of June 2015 (the lastest date for which statistics are available), only 6,005 noncompliant taxpayers have disclosed via the LDF, As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.
Like the United States, the United Kingdom has non-compliant taxpayers evading tax via offshore accounts, and from a tax-burden equity and tax administrative perspective, it simply needs to stop. But how large a population are these non-compliant taxpayers, and what portion of lost tax revenues do they represent? Is it enough to produce five billion from Switzerland, three billion from Liechtenstein, or billions more from rectifying offshore non-compliance in general? Probably not.
Some figures from HMRC reports are below.
The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK? For 2014-15, it's approximately 29.7 million, of which 4.65 million pay the higher rate of 40% for income between 31,786 and 150,000 sterling. 332,000 filers report more than 150,000 sterling income and pay the highest applicable rate.
The next interesting issue is what portion of noncompliance is estimated to be offshore non-compliance. According to HMRC:
The tax gap, which is the difference between what we collect and the tax that is theoretically owed, was £35 billion in the tax year 2011 to 2012, or 7% of total tax liabilities.
Tax evasion accounted for £5.1 billion, the hidden economy accounted for £5.4 billion and criminal activity £4.7 billion of the tax gap.
Nearly half the tax gap, 47.7%, is down to non-payment by small and medium-sized enterprises (SMEs), and while much of this is due to error, there is a significant risk of evasion among a small minority of SMEs, which we are tackling.
Back of the napkin calculation estimation, approximately 16% of the 35 billion tax gap is from tax evasion and 1.4% of potential tax income to the state. Not all the 5.1 billion tax evasion results from offshore non-compliance. How much though ?
On 12 February 2015 HMRC disclosed that it had collected a total of £2 billion from offshore evasion disclosure and other compliance initiatives - primarily from the Swiss Disclosure Facility (SDF) and the Liechtenstein Disclosure Facility (LDF) - thus an additional billion since the 2012 report, approximately 333 million sterling additional per annum.
Based on my table constructed below from HMRC, 5,400 disclosures brought in one billion sterling, and it is unclear how many disclosures have been made in Switzerland. HMRC stated in 2012 that it had received 57,000 offshore disclosures from all disclosures. Thus disclosures are falling - hopefully because most have come in from the cold.
HMRC reported that between 2010 and 2014 it secured more than 2,650 criminal prosecutions and 2,718 years of prison sentences for all tax crimes, approximately 530 annual prosecutions, with an average 1.2 years prison sentence (one was reported to be for 11 years and thus, several must be for less than a year). The HMRC only prosecuted one Swiss leaked account, as explained below:
The HSBC Suisse data initially revealed 6,800 ‘entities’ – individuals, businesses and trusts – but this contained duplication (some people had multiple accounts). Removing duplication left us with 3,600 entities, all of which we have examined.
We have investigated and challenged more than 1,000 account holders, and collected £135 million from them in unpaid tax, interest and fines. In many of these cases, people chose to disclose their offshore income through the Liechtenstein Disclosure Facility, set up by international agreement, which gave them an exemption from criminal prosecution if they fully disclosed all information.
In 150 of these cases, we sought to collect evidence for criminal prosecution. To do this successfully, we needed to demonstrate criminal intent (rather than error, for example). In addition, because stolen data is considered ‘dirty’ it needs additional corroborating evidence.
With these tests of evidence, and with the exemptions arising from the Liechtenstein Disclosure Facility, we could only prepare three cases for submission to the Crown Prosecution Service. Having examined the evidence, the CPS considered only one case to be strong enough to take forward, and that was successfully prosecuted in 2012.
In around 2,000 cases, we found no evidence of evasion and believe the account holders to be compliant, although we continue to monitor them.
We are still examining around 100 cases and 400 cases were untraceable.
|disclosures||# settled||settled||unsettled||avg settlement|
table shows the Isle of Man disclosure facility (IOMDF) figures
31 March 2014 30 September 2014 31 March 2015 Registrations 134 190 232 Disclosures received 62 139 186 Yield generated from IOMDF settlements £600,000 £1,600,000 £3,700,000 Payments made in IOMDF cases not yet settled £1,500,000 £2,000,000 £1,900,000 Number of settlements to date 27 101 149
This table shows the Guernsey disclosure facility (GDF) figures
31 March 2014 30 September 2014 31 March 2015 Registrations 24 43 56 Disclosures received 6 21 37 Yield generated from GDF settlements £100,000 £200,000 £700,000 Payments made in GDF cases not yet settled £200,000 £600,000 £1,900,000 Number of settlements to date … 13 25
This table shows the Jersey disclosure facility (JDF) figures.
31 March 2014 30 September 2014 31 March 2015 Registrations 106 185 232 Disclosures received 39 124 181 Yield generated from JDF settlements £400,000 £1,000,000 £2,200,000 Payments made in JDF cases not yet settled £1,000,000 £2,300,000 £3,500,000 Number of settlements to date 20 86 131
Friday, April 22, 2016
Tackling tax evasion: a new corporate offence of failure to prevent the criminal facilitation of tax evasion
Thursday, April 21, 2016
Britain's Crown Dependencies and Overseas Territories (CDOT) have agreed to deliver information on company beneficial ownership to the UK authorities electronically within 24 hours, or within one hour in 'urgent' cases.
The agreements have been under negotiation for months. British CDOT leaders have issued statements promising rapid cooperation with the UK authorities on access to this information – although all stopped short of making a central registry of beneficial ownership publicly available as the UK government originally called for.
Read the full story on STEP
Bermuda became the 33rd signatory of the Multilateral Competent Authority Agreement for the automatic exchange of Country-by-Country reports (CbC MCAA), which is based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and puts in place the automatic exchange framework for exchanging Country-by-Country Reports, as contemplated by BEPS Action 13.
Under the CbC MCAA, tax administrations where a company operates will get aggregate information annually, starting with 2016 accounts, relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within a multinational enterprise group. It will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in.
The information will be collected by the country of residence of the parent of the MNE group, and will then be exchanged in accordance with the agreements now also signed by Bermuda. First exchanges will start in 2017-2018 on 2016 information. In case information fails to be exchanged, the BEPS Action 13 report provides for alternative filing so that the playing field is levelled.
For more information about the MCAA Country-By-Country Reporting, see: www.oecd.org/tax/automatic-
For more information on BEPS, see www.oecd.org/tax/beps.htm.
Wednesday, April 20, 2016
A leak of searchable 11.5 million files from the embattled offshore services provider Mossack Fonseca - 2.6 terabytes of data - is a lot of files and scanned documents to comb through, so this leak is potentially, and probably, more significant than the previous ICIJ reported leaks such as HSBC and UBS.
214,000 company details of 14,000 clients, including national political leaders of Western and Asian nations, business figures, and high net wealth families.
The leaked data covers nearly 40 years, from 1977 through the end of 2015. It allows a never-before-seen view inside the offshore world — providing a day-to-day, decade-by-decade look at how dark money flows through the global financial system, breeding crime and stripping national treasuries of tax revenues.
- The law firm’s leaked internal files contain information on 214,488 offshore entities connected to people in more than 200 countries and territories. ICIJ will release the full list of companies and people linked to them in early May.
- The data includes emails, financial spreadsheets, passports and corporate records revealing the secret owners of bank accounts and companies in 21 offshore jurisdictions, from Nevada to Singapore to the British Virgin Islands.
“When the complete list of 14,000 persons and each’s connections to offshore assets is published in early May by ICIJ, expect a free for all by the criminal investigative departments of the revenue authorities from the 200 countries uncovered in the files,” said Prof. William Byrnes of Texas A&M University’s School of Law. “This is the fifth major, game-changing, leak of offshore records, including Portcullis Trust (Singapore), HSBC, UBS, and LuxLeaks, but certainly not the last.”
“When all the leaked data is combined with all the thousands of taxpayer and offshore advisor files gleaned from offshore voluntary compliance and non-prosecution programs, then crunched with AI (artificial intelligence, or neural network) programs that “connects the dots”, many additional politicians and business leaders are going to be exposed to criminal and civil tax and corruption investigations.” continued William Byrnes. “I think many have been trying to run out the clock by suppressing this information. For some countries that strategy may work, but others countries will experience televised perp walks and political backlash.”
"In 2017, most of the world's countries, including Panama, will begin to automatically exchange financial account information in the OECD's Common Reporting Standard format with each other. This sharing of information requires that financial institutions employ the FATF and local money laundering provisions to identify the ultimate beneficial owners of corporate entities and trusts, record the information in the prescribed format, and then provide it to the local government who will then forward it via electronic upload to the countries' revenue departments of the identified residencies," explained Byrnes.
"A few firms', in jurisdictions like Panama, issue beneficial owners a 'power of attorney' to conduct business on behalf of a company. Although this is widely considered a 'worst' practice, the firms aggressively market that it is a method to avoid reporting requirements. But the persons administering the company mistakenly think that they can absolve themselves of the money laundering activities of the company. In contemporary times, someone will be held accountable Company directors, company secretary, company banker - someone, if not all, will be left holding the bag. And that will lead to deal making and whistleblowers as one party tries to negotiate with the authorities out of criminal responsibility by delivering another party's head for the guillotine".
Professor William Byrnes added, “I expect to see investigations and prosecutions of attorneys and staff of Mossack Fonseca, and eventual extradition. I even expect, like with UBS, one Mossack Fonseca employee to turn government witness to avoid jail time, and to testify to the activities of the firm - perhaps like the novel, "The Firm". Mossack Fonseca may even attempt to enter into nonprosecution agreements with governments and just pay a fine, like the Swiss banks and several Big 4 accomplished with tax matters."
"Based on news reports from the ICIJ, Mossack Fonseca senior lawyers have conspired with clients to commit tax or other types of civil and criminal fraud! By example, file notes contained in client documentation indicate that lawyers, and the staff that reported to them, back-dated corporate and legal documents to assist clients when under enquiry. By another more egregious example, Mossack Fonseca's founder assisted the money laundering mastermind, Gordon Parry, hide and use the proceeds of the UK's Great Train Robbery. After the full picture of millions of documents and client communications are assembled, lawyers and staff of Mossack & Fonseca, as well as their clients, are going to be called to account for their actions. I expect to see lawyers turn on lawyers, clients turn on lawyers and lawyers on clients. Law enforcement has an opportunity to shoot fish in a barrel with this firm. After the April 19th US DOJ announcement of opening a criminal investigation, I expect to read law enforcement press announcements offering whistleblower protection and leniency for employees or clients of Mossack Fonseca that provide usable evidence against the firm lawyers or the firm's politically connected clients."
"But will Mossack Fonseca turn over its remaining client files and testify against those that have been nontax compliant? It may be an end to the firm, but when its partners and staff are faced with a choice of either US and other countries long term prison sentences or providing evidence against clients, the clients are going to be ‘thrown under the bus’.”
Pivoting in the discussion, Professor William Byrnes continued “The US has a highly successful international financial service industry that is important to the US economy, exemplified by, firstly, the international financial centres such as Miami and New York) of over a half trillion dollars of foreign deposits of high net wealth individuals whom many experts allege are not tax and exchange control compliant in their home countries; secondly, over 900,000 Delaware companies is the second to Hong Kong, and ahead of British Virgin Islands (BVI is actually third in the world); and thirdly, the US territories’ offshore regimes, reducing the effective US corporate and income tax rates below 3.5 percent.”
“In 2011, 133,297 businesses incorporated in Delaware. Delaware has more corporate entities than people — 945,326 to 897,934,” he continued. “These absentee corporate residents account for a quarter of Delaware’s total budget, roughly $860 million in taxes and fees in 2011. Moreover, the economic spill-over impact for Delaware includes substantial employment and professional fees to Delaware business participating in the incorporation and advisory industry. Delaware is just behind China’s Hong Kong in number of annual incorporations and overall incorporations, and well ahead of the UK’s Virgin Islands (British) both in terms of offshore business and the dollars earned from that offshore business. Thus, I wonder how many of these Delaware companies, and Delaware corporate service providers, will be exposed once the data is disclosed by ICIJ in May?”
"The UK and France are taking a lead to push beyond annual information sharing, demanding real-time access to foreign banks' accounts and company house registries", stated Prof. William Byrnes of Texas A&M University’s School of Law. "The technology to protect this type of access from nefarious parties can not keep up with hackers. Given the amount of taxpayer identification and financial information that will be stolen annually from these systems and used to commit consumer and tax payment/refund fraud, governments and financial services firms are going to need to create new annual taxpayer ID regimes that each year freeze past, and generate new, distinct IDs for all national taxpayers." Byrnes continued, "My stock picks for the next five years are companies that will try to sort out all the fraud that begin occurring once the sharing starts, such as credit reporting agencies, blockchain technology firms, and big data firms."
"As the German Ministry of Finance notes", Professor Byrnes shared, "Germany has law and prosecutorial powers already on the books that allow banks and their employees to be held accountable for the participation of tax evasion or other money laundering activities of their clients. Legislating for more laws to the ever expanding book will not increase compliance. Enforcement of the current laws and the leveraging of existing strategies will."
"Germany may choose to prosecute its German banks and its banking employees, or foreign banks and foreign banking employees as the USA accomplished. Germany and France are large enough countries to be taken seriously for obtaining the cooperation of other countries like the USA, to have subpoenas enforced, and articles of extradition executed. The real issue is whether Germany has the political will to use these strategies and whether it considers these strategies cost effective to bring in tax dollars over enforcement in other areas?"
"Germany can begin, like the USA, "perp walking" bankers that have assisted non-tax compliant clients. One way to achieve such perp walks is to allow the non-compliant taxpayers leniency from prison time or the most severe civil sanction for the successful criminal prosecution of its bank, based upon evidence provided by the taxpayer. The German government can encourage whistle-blowing through large awards, even for non-tax compliant taxpayers, like the USA did with the $104 million award for Birkenfeld against UBS. The German government can turn it on the clients instead and offer the bank leniency for the same cooperation against the clients. The USA Swiss non-prosecution agreement program employed this strategy effectively to gather documentation against US noncompliant taxpayers."
"If countries apply a holistic strategy of leveraging the forthcoming CRS global tax information sharing system, a requirement for banks to file an SAR for potential incidences of non-tax compliance and severe fines for not doing so, a clearly defined whistleblower program and a clearly defined policy for the risk of criminal prosecution - this is enough to clean up a countries tax compliance system of nonreporting of income and assets."
"Direct access to bank accounts and bank customer information of foreign firms is just political talk, not thought out, and has little chance of coming to fruition. As if Germany will start allowing Italy much less Spain to start directly accessing German bank accounts? Or the UK grant Russia access to UK based bank accounts for that matter. Tax information exchange agreements exist for collecting foreign information, and going forward, CRS. A subpoena or the equivalent can be issued to collect information from parties within a court's jurisdiction. Non- compliance with subpoenas can be met with increasingly severe fines and eventual withdrawal of a business license."
"So I am at a loss to understand the need to access foreign accounts directly," said Byrnes. "Open and accessible information is certainly "convenient" and "expedient" for government authorities seeking better tax compliance, and taxpayer protections and national sovereignty are "cumbersome" and "bothersome". But the other side of the coin, as already commented below, is a 'brave new world' that most of us do not want to experience."
free download of Professor William Byrnes' LexisNexis® Guide to FATCA Compliance: Chapter 1
- Panama Papers Fallout: Mossack Fonseca & The Canada Revenue Agency
- France Wants Panama Back on International Tax Haven List, But Based on What Data?
- 37,000 Panama Paper Names Released by Sunday Times in Searchable Format
- Statement from OECD Secretary-General Angel Gurría on the “Panama Papers”
- Several Tax Administrations Meet This Wednesday to Discuss Acting on “Panama Papers”
The Department of Justice (Department) is committed to enhancing its efforts to detect and prosecute both individuals and companies for violations of the Foreign Corrupt Practices Act (FCPA), which criminalizes various acts of bribery and related accounting fraud.
This memorandum sets forth three steps in our enhanced FCPA enforcement strategy. As the first and most important step in combatting FCPA violations, the Department is intensifying its investigative and prosecutorial efforts by substantially increasing its FCPA law enforcement resources. These new resources will significantly augment the ability of the Criminal Division's Fraud Section and the Federal Bureau of Investigation (FBI) to detect and prosecute individuals and companies that violate the FCPA.
Specifically, the Fraud Section is increasing its FCPA unit by more than 50% by adding 10 more prosecutors to its ranks. At the same time, the FBI has established three new squads of special agents devoted to FCPA investigations and prosecutions.
We are sharing leads with our international law enforcement counterparts, and they are sharing them with us. We are also coordinating to more effectively share documents and witnesses. The fruits of this increased international cooperation can be seen in the prosecutions of both individuals and corporations, in cases involving Archer Daniels Midland, Alcoa, Alstom, Dallas Airmotive, Hewlett-Packard, IAP, Marubeni, Vadim Mikerin, Parker Drilling, PetroTiger, Total, and VimpelCom, among many others.
Third, as set forth below, the Fraud Section is conducting an FCPA enforcement pilot program. The principal goal of this program is to promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.
The International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG) announced today the details of their joint effort to intensify their co-operation on tax issues: the Platform for Collaboration on Tax. The Platform will not only formalise regular discussions between the four international organisations on the design and implementation of standards for international tax matters, it will strengthen their capacity-building support, deliver jointly developed guidance, and share information on operational and knowledge activities.
The overarching aim for cooperation among the IOs is to better support governments in addressing the tax challenges they face. The Platform will provide a means to help achieve this, by providing a structured and transparent framework for:
1. Producing concrete joint outputs and deliverables under an agreed work plan, implemented in collaboration by all or selected IOs, and leveraging each institution’s own work program and comparative advantage. The outputs may cover a variety of domestic and international tax matters.
2. Strengthening dynamic interactions between standard setting, capacity building and technical assistance (experience and knowledge from capacity building work feeding into standard setting and vice-versa, including timing of implementation).
3. Sharing information on activities more systematically, including on country level activities.
This effort comes at a time of great momentum around international tax issues, and was welcomed by the G20 finance ministers at their February meeting in Shanghai. Amid the growing importance of taxation in the debate to achieve the UN Sustainable Development Goals (SDGs), a major aim of the Platform is to better frame technical advice to developing countries as they seek both more capacity support and greater influence in designing international rules.
Among the Platform’s first tasks will be to deliver a number of 'toolkits' designed to help developing countries implement the measures developed under the G20/OECD Base Erosion and Profit Shifting Project and on other international tax issues. The first of these toolkits, focusing on tax incentives, was delivered in November. There will be an important link to the new BEPS implementation framework. Platform members will hold regular meetings with representatives of developing countries, regional tax organisations, banks and donors. Consultations with business and civil society will be organised as needed.
More information about the Platform for Collaboration on Tax is provided in the "Concept Note", jointly developed by the four international organisations.
Tuesday, April 19, 2016
Panama Papers Results in immediate foreign government access to taxpayer records and beneficial ownership instead of just annually
The UK led five EU nations to agree to allow foreign governments real-time access to taxpayer and beneficiary ownership information. The agreement will now be pushed through globally, expanding the OECD's CRS in several ways, both for immediate access and allowing for other non-tax departments to have access to the information.
The deal will allow tax and law enforcement agencies in these five European Union countries to exchange information about the ultimate owners of companies and trusts in real-time. Read the Telegraph story here. The BBC reported that secretive countries like the United States, China and Saudi Arabia will be in the crosshairs.
free download of Lexisnexis® Guide to FATCA Compliance: Chapter 1 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2742383
Excerpts from Department of Education Official Blog (News Release)
.... Unfortunately, in recent years, we’ve seen far too many schools maintain their institutional accreditation even while defrauding and misleading students, providing poor quality education, or closing without recourse for students. This is inexcusable. Accreditation can and must be the mark of quality that the public expects.
We are taking steps to increase transparency around accreditors’ reviews of institutions and resulting actions. We will soon publish guidance to encourage accreditors to use the flexibility they have in order to target their resources to problematic and poorly performing institutions and programs. And we are increasing our focus on outcomes in our own process of recognizing accreditors.
A sharpened focus on outcomes is particularly important for accreditors whose institutions have consistently shown below-average outcomes and more than their share of student complaints, investigations, and other indicators of concern. For instance, despite a history of significant and deeply concerning problems, the accreditation status of the now-defunct Corinthian Colleges, Inc. institutions was maintained or renewed by multiple accreditors. And those schools are just one example of the institutions that have maintained their accreditation while putting students, borrowers, and taxpayers at risk.
The Department is committed to strengthening its monitoring and review of agencies that have accredited such institutions. Specifically, we are increasing the rigor of our fact-finding process with the accreditors coming up for review this summer, as well as in other review and recognition processes going forward. This process includes requiring responses to questions about how the accreditor’s standards, policies, and practices allowed such poor and problematic performance to develop and continue; the specific actions an accreditor took and when; and how the accreditor plans to changes its practices to prevent those same situations from arising with similar institutions. This information will inform the Department’s decisions regarding recognition for accrediting agencies.
We encourage public comment to help inform these reviews of accrediting agency recognition. About three months before each meeting of the National Advisory Committee on Institutional Quality and Integrity (NACIQI), which makes recommendations to the Department on accrediting agency recognition, the list of agencies scheduled for review is posted in the Federal Register. The agenda for the June 2016 meeting and specific instructions for submitting public comment can be found here. Public comments on those agencies are due by April 8.
While we continue to explore every option the Department has to strengthen its own processes, we need Congress to step up, too. The Department’s authority to conduct oversight of and take action with accreditors is narrowly limited by statute. In our November 2015 announcement, we described the executive actions we were taking to strengthen transparency and accountability—and we also called on Congress to take up a series of legislative proposals. Those proposals would allow greater action to ensure quality and protect students. We hope that Congress heeds this call, and we look forward to working together to ensure greater accountability for accrediting agencies, and to protect students, families, and taxpayers.