International Financial Law Prof Blog

Debate: Should Medicaid Expand Home-Based Health Care Coverage?

Robert S. Bloink (pro) and William H. Byrnes (con)

Many states have now expanded their home-based and community-based services for Medicaid recipients. Still, many others have been reluctant to expand these state-level Medicaid home-based health care services.

Critics of expanding Medicaid home-based health care services argue that expanding these programs will encourage more individuals to enroll in Medicaid for long-term care coverage, which would expand the overall costs of administering Medicaid programs in these states.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about how expanding Medicaid’s funding for home-based care services might affect Medicaid costs for states generally.

A summary of the debate that ensued between the two professors is published here in Think Advisor.

Tax and Crime: OECD Publications and reports

 

	Fighting Tax Crime – The Ten Global Principles, Second Edition Forthcoming, will be released on 17 June 2021 First published in 2017, Fighting Tax Crime: The Ten Global Principles is the first comprehensive guide to fighting tax crimes. It sets out ten essential principles covering the legal, institutional, administrative, and operational aspects necessary for developing an efficient and effective system for identifying, investigating and prosecuting tax crimes, while respecting the rights of accused taxpayers. This second edition addresses new challenges, such as tackling professionals who enable tax and white-collar crimes, and fostering international co-operation in the recovery of assets. Drawing on the experiences of jurisdictions in all continents, the report also highlights successful cases relating to the misuse of virtual assets, complex investigations involving joint task forces, and the use of new technology tools to fight tax crimes and other financial crimes. The Ten Global Principles are an essential element of the OECD's Oslo Dialogue, a whole-of-government approach for fighting tax crimes and illicit financial flows.
	Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes Published 25 February 2021 This report sets out a range of strategies and actions for countries to take to tackle professional intermediaries who enable tax evasion and other financial crimes on behalf of their criminal clients. The report highlights the damaging role played by these intermediaries and the importance of concerted domestic and international action in clamping down on the enablers of crime, and includes recommended counter-strategies for deterring, disrupting, investigating and prosecuting the professionals who enable tax and white collar crimes.
	Tax Crime Investigation Maturity Model Published 30 November 2020 The Tax Crime Investigation Maturity Model aims to help jurisdictions understand where they stand in the implementation of the OECD's Fighting Tax Crime: The Ten Global Principles, based on a set of empirically observed indicators. By setting out indicators for each increasing level of maturity, the model also charts out an evolutionary path for future progress towards the most cutting-edge practices in tax crime investigation across four levels of maturity: Emerging, Progressing, Established and Aspirational.
‌	Combatting Tax Crimes More Effectively in APEC Economies Published 14 October 2019 Tax evasion and related financial crime threaten the strategic, political, and economic interests of all countries. Recognising the threat that such illicit financial flows pose to the Asia-Pacific region, APEC Finance Ministers developed the Cebu Action Plan, a roadmap for a more sustainable financial future, calling on all APEC Economies to build their capacity to address financial crimes. To support these efforts, the OECD has developed this report which describes the range of OECD legal instruments, policy tools, and capacity building initiatives available to enhance the fight against tax crime in the Asia-Pacific region, drawing on examples and successful practices in APEC Economies.
‌	Money Laundering and Terrorist Financing Awareness Handbook for Tax Examiners and Tax Auditors Published 13 June 2019 Financial crimes, including tax evasion, money laundering, and terrorist financing undermine jurisdictions' political and economic interests and pose a serious threat to national security. Tax crime is a key source of dirty money and as such, tax authorities have a central role to play in identifying and reporting money laundering and terrorist financing. The purpose of this handbook is to raise the awareness level of tax examiners, auditors, and investigators, of their role in combatting these illegal activities.
‌	Improving Co-operation between Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption Published 22 October 2018 Drawing on the experiences of 67 countries, this study focuses on the legal, strategic, operational, and cultural aspects of co-operation between tax authorities and anti-corruption authorities. The report will enable countries to review and evaluate their own approaches for co-operation on matters relating to tax and corruption, and identify opportunities for improvements based on practices that have proved successful elsewhere. The report was prepared jointly by the OECD and World Bank and will be used to support ongoing capacity building work carried out by both organisations.
‌‌	Fighting Tax Crime: The Ten Global Principles Published 8 November 2017 This report sets out the 10 essential principles for effectively fighting tax crimes. It covers the legal, institutional, administrative, and operational aspects necessary for putting in place an efficient system for fighting tax crimes and other financial crimes. It draws on the insights and experience of jurisdictions around the world. The purpose is to allow jurisdictions to benchmark their legal and operational framework, and identify areas where improvements can be made. Future work in this area will include adding country specific details, covering a wide range of countries.
	Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes (Third Edition) Published 8 November 2017 Financial crimes are increasingly sophisticated, with criminals accumulating significant sums through offences such as drug trafficking, fraud, extortion, corruption and tax evasion. Different government agencies may be involved in detecting, investigating and prosecuting these offences and recovering the proceeds of crime, or may hold information essential to these activities. This report describes the current position in 51 countries as to the law and practice for domestic inter-agency co-operation in fighting tax crimes and other financial crimes including, for the first time, co-operation with authorities responsible for the investigation and prosecution of corruption. It identifies successful practices based on countries' experiences of inter-agency co-operation in practice and makes recommendations for how co-operation may be improved.
	Shining Light on the Shadow Economy: Opportunities and threats Published 29 September 2017 This report looks at the impact on the shadow economy of changes in ways of working and business models, the growth of the digital economy and the emergence of new technologies. While these are causing some new shadow economy activities to emerge and some existing ones to expand in scale or scope, they are also providing tax administrations with new opportunities and tools to enhance compliance. The report sets out a number of examples of effective actions being taken by tax administrations utilising technology, behavioural insights and new sources of data.  It also recommends a number of areas for further targeted work to help improve tax administrations' ability to tackle shadow economy activity, including for collaborative work on the sharing and gig economy. The report is a complementary report to Technology Tools to Tackle Tax Evasion and Tax Fraud.
	Technology Tools to Tackle Tax Evasion and Tax Fraud Published 31 March 2017 This report provides an overview of some of the technology tools that tax authorities have implemented to address tax evasion and tax fraud, focussing on electronic sales suppression and false invoicing. The report also includes a more technical catalogue of these technology solutions, with a view to encouraging other tax authorities that are facing the same types of risks to draw on that experience. The report also discusses complementary work that tax authorities are undertaking to address the cash economy and sharing economy, which, although not types of tax evasion and fraud themselves, can facilitate it.
	Improving Co-operation between Tax and Anti-Money Laundering Authorities: Access by tax administrations to information held by financial intelligence units for criminal and civil purposes Published 18 September 2015 This report uses survey data to analyse the levels of co-operation between the authorities combatting serious financial crimes such as tax crimes, bribery corruption, money laundering and terrorism financing. More specifically, it assesses various models for the sharing of Suspicious Transaction Reports by the Financial Intelligence Unit with the tax administration, both for criminal and civil purposes. It finds that there are significant potential benefits from greater cooperation, with each authority pooling their knowledge and skills. The report subsequently recommends that subject to the necessary safeguards, tax administrations should have the fullest possible access to the STRs received by the FIU in their jurisdiction.
‌	Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors Published 7 November 2013 The purpose of this handbook is to raise the awareness of tax examiners and auditors of issues concerning bribery and other forms of corruption and provide guidance on how to recognize indicators of possible bribery or corruption in the course of regular tax examinations and audits.
	Evading the Net: Tax Crime in the Fisheries Sector Published 7 November 2013 This report looks at the issue of tax crime in the fisheries sector, including frauds over taxes on profit and earnings, customs duties, VAT and social security, with examples from real cases. These include crimes that rely on features characteristic of the fisheries sector, as well as those seen in other industries. The report discusses aspects of the sector that make it vulnerable to tax crime, including a lack of transparency and difficulty in obtaining beneficial ownership information resulting from the use of offshore companies and the practice of registering vessels under flags of convenience. Strategies used by tax administrations and other authorities to prevent, detect and investigate tax offences are outlined and the report makes recommendations for steps countries can take, alone or in co-operation, to combat these crimes.
	Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes Published 7 November 2013 This second edition of Effective Inter-Agency Co-operation in Fighting Tax Crimes and Other Financial Crimes describes the current position in 48 countries with respect to the law and practice of domestic inter-agency co-operation in fighting tax crimes and other financial crimes. It outlines the roles of agencies in different countries, legal gateways to enable these agencies to share information and other models for co-operation, such as joint investigations and the establishment of intelligence centres including officials from different authorities.

 

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Electronic Sales Suppression: A threat to tax revenues Published 18 February 2013 This report describes the functions of point of sales systems and the specific areas of risk to tax administrations. It sets out in detail the electronic sales suppression techniques that have been uncovered and shows how such methods can be detected by tax auditors and investigators. The report also considers a number of strategies adopted in different countries to tackle electronic sales suppression and highlights best practices. In particular, it makes a number of recommendations to countries for addressing this important area of risk.

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International Co-operation against Tax Crimes and Other Financial Crimes: A Catalogue of the Main Instruments Published 14 June 2012 This report aims at improving the understanding and use of international co-operation mechanisms. After describing the different agencies involved in the fight against financial crimes, the report provides an overview of the international instruments available and summarises current initiatives to improve inter-agency co-operation. The core of the report is a catalogue describing the basic features of the main instruments for international co-operation in combating financial crimes.

	Money Laundering and Terrorist Financing Awareness Handbook for Tax Examiners and Tax Auditors Published 8 October 2009 This handbook provides guidance in identifying money laundering during the conduct of normal tax audits, and describes the nature of money laundering activities so that tax examiners and auditors can better understand how their contribution can assist criminal investigators in countering money laundering.
‌	Report on Abuse of Charities for Money-Laundering and Tax Evasion Published 24 February 2009 The report summarises the status attached to charities in 19 countries surveyed and compiles the common methods of the abuse of charities and the sectors at risk. It sets out the detection strategies that countries have adopted. It also provides the red flag indicators that will help tax staff in processing tax returns and carrying out audits. The report gives examples of information resources and describes the detection and investigation approaches adopted by a number of the countries.
	Report on Access for Tax Authorities to Information gathered by Anti-Money Laundering Authorities Published September 2007 The OECD has surveyed 30 countries, examining where the responsibility for anti-money laundering programmes was placed, the types of information gathered by or available to, anti-money laundering authorities and confidentiality requirements.  The original survey was published in 2002 and this update reports the position as at September 2007. Overall, the update reveals a trend towards countries enabling more effective exchange of information between tax authorities and anti-money laundering authorities.
‌	Report on Tax Fraud and Money Laundering Vulnerabilities involving the Real Estate Sector Published 2007 This report contains information on the tax evasion and money laundering vulnerabilities associated with the real estate sector. The information contained in the report was provided by 18 countries represented in the Sub-Group in response to a questionnaire that was sent to delegates in July 2006.
	Report on Identity Fraud: Tax Evasion and Money Laundering Vulnerabilities Published 2006 The report compiles the common methods of identity fraud encountered and the sectors at risk. It sets out the detection strategies that countries have adopted and importantly provides a listing of red flag indicators which countries can use in training tax auditors. It also includes illustrative case studies to aid comprehension and give practical guidance to tax authorities that are seeking to implement or refine their strategies to effectively address the risks of identity fraud.

TaxFacts Intelligence June 3, 2021

Happy Summer, readers! This week’s newsletter is dedicated to helping clients—both employers and employees—maximize their health-related benefits and tax credits (even when those benefits are only available for a limited time). Do you have questions about situation-specific COBRA eligibility, little-known HSA tricks or the ever-evolving EEOC vaccine guidance for employers? Read on to see if we’ve got the answers this week. 

Prof. William H. Byrnes

Robert Bloink, J.D., LL.M.

EEOC Updates Vaccine Incentive Guidance for Employers

The EEOC has posted an update to its vaccine guidance for employers. Under the new guidance, employers are permitted to offer incentives to employees who voluntarily provide confirmation that they have received the COVID-19 vaccine from a third party. Requesting these confirmations will not be treated as disability-related inquiries under the ADA or requests for genetic information under GINA. Employers should be aware that these incentives are treated differently than incentives offered for employer-provided vaccines. If the incentive is actually for the purpose of encouraging an employee to receive the vaccine from the employer or an agent, employers should continue to use caution against offering an incentive that can be construed as “coercive”. That’s because employees must provide certain health information before receiving the vaccine—and employees should not be pressured to disclose medical information to their employers. For more information on the available tax credit for employers who offer paid vaccine leave to employees, visit Tax Facts Online. Read More

Related Questions:

773. What happens when the employee has exhausted the paid time off under the Families First Coronavirus Response Act (FFCRA)? Does the employee have the right to return to work?

8895. What is a “de minimis” fringe benefit?

Am I Eligible for Federal COBRA Assistance? Case-Specific IRS Guidance

The IRS guidance on the availability and implementation of the ARPA 100 percent COBRA premium assistance provides some useful guidance on specific scenarios that employers and employees may now be facing. Generally, individuals remain assistance-eligible individuals (AEIs) during eligibility waiting periods if the period overlaps with the subsidy period. For example, the individual will be an AEI during periods outside the open enrollment period for a spouse’s employer-sponsored health coverage. Employers who change health plan options must place the AEI in the plan that’s most similar to their pre-termination plan, even if it’s more expensive (and the 100 percent subsidy will continue to apply). Importantly, employers who are no longer covered by federal COBRA requirements may still be required to advance the subsidy (for example, if the employer terminated employees so that the federal rules no longer apply). If the employer was subject to COBRA when the individual experienced the reduction in hours or involuntary termination, the employer must offer the subsidy. For more information on the COBRA premium subsidy, visit Tax Facts Online. Read More

Related Questions:

0121. COBRA Subsidies Back on the Table for 2021

371. When must an election to receive COBRA continuation coverage be made?

Maximizing Post-Pandemic HSA Benefits

HSAs and other tax-preferred health benefits have taken on a whole new meaning in the wake of the pandemic. It’s important that clients fully understand the rules so that they aren’t leaving valuable benefits on the table. In 2022, annual HSA contribution limits will rise to $3,650 for self-only coverage or $7,300 for family HDHP coverage. (HDHPs are health insurance plans that have a minimum annual deductible of $1,400 for self-only coverage ($2,800 for family coverage).). Taxpayers aged 55 and up can contribute an extra $1,000 per year. Taxpayers don’t have to fund an employer-sponsored HSA. Even if the client has been laid off or furloughed, clients with HDHP coverage can open an HSA at their bank and fund the account independently. Additionally, clients who have lost their jobs continue to have access to the funds in their old HSA, and can even transfer that HSA to a new provider. In other words, as long as the client remains covered by a HDHP, there is no “use it or lose it” rule. The funds simply roll over from year to year and continue to grow tax-free. For 2021, that same benefit has been extended to health FSAs. With an HSA, however, the rollover benefit is even more substantial because once the participant reaches age 65, the account can be accessed without penalty for any reason—much like a typical retirement account. The funds are simply taxed as ordinary income upon withdrawal, like a 401(k) or IRA. For more information on HSA advantages, visit Tax Facts Online. Read More

Related Questions:

388. What is a Health Savings Account (HSA) and how can an HSA be established?

391. Who is an eligible individual for purposes of a Health Savings Account (HSA)?

DOL Released Final Rule on Considering Non-Financial Factors in Selecting Retirement Plan Investments The DOL released a final rule on whether environmental, social and governance (ESG) factors can be considered when retirement plan fiduciaries are selecting plan investments without violating their fiduciary duties.  Plan fiduciaries are obligated to act solely in the interest of plan participants and beneficiaries when making investment decisions.  The final rule confirms the DOL position that plan fiduciaries must select investments based on pecuniary, financial factors.  Fiduciaries are required to compare reasonably available investment alternatives–but are not required to scour the markets.  The rule also includes an “all things being equal test”–meaning that fiduciaries are not prohibited from considering or selecting investments that promote or support non-pecuniary goals, provided that they satisfy their duties of prudence and loyalty in making the selection.  For more information, visit Tax Facts Online. Read More We are curious for your feedback on the rule and its impact on your function as a financial advisor, if any? Email me at williambyrnes-gmail

Colombia Joins OECD's International Compliance Assurance Program (ICAP)

The International Compliance Assurance Programme (ICAP) is a voluntary risk assessment and assurance programme to facilitate open and co-operative multilateral engagements between MNE groups and tax administration in jurisdictions where they have activities. Colombia will start participating in September 2021.

TAX ADMINISTRATIONS PARTICIPATING IN ICAP

The tax administrations participating in ICAP are listed below. This list will be updated as further tax administrations confirm participation in the programme.

• Australia
• Austria
• Belgium
• Canada
• Colombia
• Denmark
• Finland
• France
• Germany
• Ireland
• Italy
• Japan
• Luxembourg
• Netherlands
• Norway
• Poland 
• Russia
• Singapore
• Spain
• United Kingdom
• United States

WHERE TO FIND OUT MORE

In addition to the ICAP Handbook, further information on the tax administrations participating in ICAP can be found in this database (.xlsx). Questions concerning the programme may also be directed to [email protected].

ICAP AWARENESS SESSIONS

In March and April 2021, the OECD held two awareness sessions for MNEs willing to learn more about the programme. Download the supporting presentation (PDF) used during these sessions.

ICAP FREQUENTLY ASKED QUESTIONS

A list of frequently asked questions from MNE groups are available.

Find out more about the OECD work on:

• Forum on Tax Administration
• Country-by-Country Reporting (BEPS Action 13)
• Mutual Agreement Procedures (BEPS Action 14)
• Tax certainty 

ICAP HANDBOOK

The International Compliance Assurance Programme: Handbook for tax administrations and MNE groups contains information on the process for ICAP reflecting the experience and feedback of tax administrations and MNE groups that participated in two pilots for the programme, commencing in 2018 and 2019. The handbook includes a detailed description of each stage of the ICAP process, the documentation and information an MNE group participating in ICAP will provide, the level of comfort they may achieve as a result of participation in the programme, and a comparison of ICAP with other possible routes to greater tax certainty.  Download the handbook

TaxFacts Intelligence June 10, 2021

The Biden administration is moving full steam ahead with proposals to modify the U.S. and international tax systems. Some proposals would create a huge benefit for taxpayers–while others could leave clients on the hook for a surprise tax bill. This week, we dig a little deeper into the proposals–and outline a few surprises contained in the newly-released Green Book. Are your clients ready for what’s to come?

Prof. William H. Byrnes

Robert Bloink, J.D., LL.M.

Biden’s Latest Tax Proposals: Two Big Surprises for Tax Professionals 

More details about President Biden’s tax plan have emerged—and the latest proposal contains two major tax surprises. First, Biden’s tax plans would make any capital gains tax hike retroactive to April 28, 2020. That means clients who have engaged in tax planning strategies to avoid higher rates might wind up subject to the higher rates regardless, if this provision makes its way into the final proposal. Second, not only would the stepped-up basis rules be repealed, but taxpayers who inherit property would be required to recognize gain at the time of death—even if the individual doesn’t immediately sell the inherited property. In other words, the property could be immediately subject to both the estate tax and income or capital gains tax. Click here to get a more in-depth expert analysis of the latest tax proposals. Read More

Related Questions:

692. How is the tax basis of property acquired from a decedent determined?

G-7 Announces Support for Global Minimum Corporate Tax

Democrats have often advocated for imposition of a global minimum corporate tax rate—and the latest Biden tax plan would increase the U.S. corporate income tax rate from 21% to 28%. Over the weekend, top international finance officials in the Group of Seven (G-7) indicated broad support for a worldwide minimum corporate income tax of at least 15%. If implemented, the global minimum tax would ensure that large corporations pay a minimum tax on their earnings, regardless of where the entity is located. International support could be a critical turning point for President Biden’s corporate tax increase proposals. After all, a key criticism of increasing U.S. corporate income taxes is that it puts U.S. corporations at a global disadvantage and incentivizes techniques to shift income to lower tax jurisdictions. With a worldwide minimum tax in place, U.S. corporations would lose incentive to move their income elsewhere. Of course, it remains to be seen whether the proposals will come to fruition, and advisors should continue to monitor the evolving situation closely when advising on corporate tax issues. For more information on the U.S. corporate income tax structure, visit Tax Facts Online. Read More

Related Questions:

797. How is a corporation taxed on capital gains?

798. How was a corporation’s alternative minimum tax calculated prior to repeal by the 2017 Tax Act?

When Can an Employer Require All Employees to be Vaccinated: The Details

The EEOC recently clarified the incentive issue when it comes to employers who wish to encourage vaccination in the workplace. The guidance also addresses whether employers can strictly require employees to be vaccinated for COVID-19 before they re-enter the workplace. Generally, employers can require vaccination if vaccination is job-related and a business necessity given COVID-19 safety concerns. However, if an employee has a disability or sincerely-held religious belief that would prevent vaccination, the employer must offer reasonable accommodation—unless the accommodation requested would create an undue hardship. The employer generally cannot require those employees with medical reasons or religious objections to choose between obtaining the vaccine and returning to work unless allowing the unvaccinated employee to return to work would pose a “direct threat” to the health and safety of the workforce. For more information on the employer tax credit for vaccine-related leave, visit Tax Facts Online. Read More

Related Questions: 0101. Mandatory COVID Vaccination

We want your feedback on TaxFacts Q&A for the future? Email me at williambyrnes-gmail

US Treasury States Minimum Corporate Tax Rate Should Be Higher Than 15%

Over the last two days, leaders from the Office of Tax Policy at the U.S Department of the Treasury participated in meetings with the Steering Group of the Inclusive Framework on base erosion and profit shifting (BEPS) as part of the Organization for Economic Cooperation and Development (OECD) / G20 international tax negotiations. As part of those meetings, discussions on the global corporate minimum tax rate began in earnest. 

Treasury expressed its belief that the international tax architecture must be stabilized, that the global playing field must be fair, and that we must create an environment in which countries work together to maintain our tax bases and ensure the global tax system is equitable and equipped to meet the needs of for the 21st-century global economy.  It is imperative to work multilaterally to end the pressures of corporate tax competition and corporate tax base erosion. Treasury reiterated that with the global corporate minimum tax functionally set at zero today, there has been a race to the bottom on corporate taxes, undermining the United States’ and other countries’ ability to raise the revenue needed to make critical investments. Treasury made clear that a global corporate minimum tax rate would ensure the global economy thrives based on a more level playing field in the taxation of multinational corporations and would spur innovation, growth, and prosperity while improving fairness for the middle class and working people. 
 
Treasury proposed to the Steering Group that the global minimum tax rate should be at least 15%. Treasury underscored that 15% is a floor and that discussions should continue to be ambitious and push that rate higher. 

Treasury was heartened by the positive reception to its proposals and the unprecedented progress being made towards establishing a global corporate minimum tax. 

EU Communication on Business Taxation for the 21st Century

The EU needs a robust, efficient and fair business tax framework that supports the post-COVID-19 recovery, removes obstacles to cross-border investment and creates an environment conducive to fair and sustainable growth.

That is why, on 18 May 2021, the Commission published the Communication on Business Taxation for the 21st Century. The Communication sets out both a long-term vision to provide a fair and sustainable business environment and EU tax system, and a tax agenda for the next two years, with targeted measures that promote productive investment and entrepreneurship and ensure effective taxation.

What are the main problems this Communication addresses?

The context for EU business taxation policy has changed radically in the past year. The public health challenges stemming from the COVID-19 pandemic turned into the most drastic economic crisis in the EU history, causing rising inequality, and deeply impacting social safety nets.

The pandemic has also accelerated existing trends, such as digitalisation, and highlighted problems with the current corporate tax system:

• The current international corporate tax system was designed more than a century ago and is based on outdated principles of tax residence and source. Developments in globalisation and digitalisation have left these principles increasingly out of synch with the economy of today and the made tax rules increasingly difficult to apply to modern business realities. 
• In the EU, the patchwork of national corporate tax rules creates complexities for businesses operating cross-border in the Single market. Grappling with up to 27 different national tax systems creates particular challenges for EU SMEs, start-ups and other businesses looking to grow, expand and trade cross-border. This hurts investment and growth, as well as the EU’s competitiveness.
• While corporate income is taxed at the national level, business models continue to become ever more international, complex and digital. This creates high compliance costs for business and risks of double taxation. At the same time, some companies exploit loopholes between tax systems through aggressive tax planning strategies. This also makes it difficult for citizens to know how much companies are actually paying in tax, which risks undermining trust in the tax system as a whole.

What will the Commission propose?

In the long-term, the Communication will create a new framework for business taxation in the EU, which will reduce administrative burdens, remove tax obstacles and foster a more business-friendly environment in the Single Market. The “Business in Europe: Framework for Income Taxation” (or BEFIT) will provide a single corporate tax rulebook for the EU, based on a formulary apportionment and a common tax base. BEFIT will cut red tape, reduce compliance costs, reduce tax avoidance opportunities and support jobs, growth and investment in the EU.

In the short term, the Communication also sets out a series of targeted initiatives to address current problems in business taxation and create a more stable, supportive and fair corporate tax framework for the future. The Commission will propose to:

• Better support business, and particularly SMEs, in their recovery, with a Recommendation on the domestic treatment of losses. The Recommendation prompts Member States to allow loss carry back for businesses to at least the previous fiscal year. Loss carry back has the advantage of benefitting only the businesses that were profitable in the years before the pandemic, so it supports healthy businesses. Companies that were making a profit and paying taxes in the years prior to 2020 would be able to offset their 2020 and 2021 losses against these taxes. This ensures that the measure is targeted at businesses suffering as a direct result of the pandemic, and that public money is not spent trying to help private businesses that are failing for reasons unrelated to the crisis. Member States will also have to limit the amount of losses to be carried back to  €3 million per loss making fiscal year. This will help level the playing field and better support business during the recovery, and will particularly benefit SMEs.
• Promote innovation by addressing the debt-equity bias in corporate taxation through an allowance system. The economic crisis following the COVID-19 pandemic has contributed to a significant increase in companies’ stock of debts. The current pro-debt bias of tax rules, where businesses can deduct interests attached to a debt financing, but not the costs related to equity financing, can encourage companies to accumulate debts. This could lead to high waves of insolvency, with a negative effect for the EU as a whole. The Commission proposal will try to redress the debt-equity bias and contribute to the re-equitisation of companies financially vulnerable because of the COVID-19 crisis.
• Ensure greater public transparency on the taxes paid by businesses, by proposing that certain large companies operating in the EU should have to publish their effective tax rates. The proposal will allow public scrutiny where aggressive tax planning strategies are used and will provide policy-makers with a better overview of the tax contribution made by large multinational companies in the EU.
• Tackle the abusive use of shell companies, through new anti tax-avoidance measures. Shell companies are legal entities and arrangements that have little or no substance and economic activity, and in some cases may be used purely for aggressive tax planning. The Commission will propose new monitoring and reporting requirements for shell companies, so that tax authorities have better oversight and can better respond to aggressive tax planning through these entities.

What is the timing for the upcoming proposals?

• Adopt a recommendation on the domestic treatment of losses for SMEs during the recovery (alongside this Communication) – published
• Table a legislative proposal to address aggressive tax-planning opportunities linked to the use of shell companies (ATAD 3)  - by Q4 2021
• Make a legislative proposal creating a Debt Equity Bias Reduction Allowance (DEBRA)  - by Q1 2022
• Make a legislative proposal for the publication of effective tax rates paid by large companies, based on the methodology under discussion in Pillar 2 of the OECD negotiations  - by 2022
• Table a proposal for BEFIT (Business in Europe: Framework for Income Taxation), moving towards a common tax rulebook and providing for fairer allocation of taxing rights between Member States - 2023

Find out more:

• Communication on Business Taxation for the 21st Century
• Press release
• MEMO

FinCEN Reissues Real Estate Geographic Targeting Orders for 12 Metropolitan Areas

The Financial Crimes Enforcement Network (FinCEN) today announced the renewal of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate.  The GTOs are identical to the November 2020 GTOs.  The purchase amount threshold remains $300,000 for each covered metropolitan area.

The terms of this Order are effective beginning May 5, 2021 and ending October 31, 2021.  GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises.  Renewing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

The GTOs cover certain counties within the following major U.S. metropolitan areas:  Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. 

FinCEN appreciates the continued assistance and cooperation of the title insurance companies and the American Land Title Association in protecting the real estate markets from abuse by illicit actors.

Any questions about the Orders should be directed to FinCEN’s Regulatory Support Section at [email protected].

A copy of the GTO is available here (April 29, 2021).

Frequently asked questions regarding these GTOs are available here.

Global e-commerce jumps to $26.7 trillion, 30% of global gross domestic product, COVID-19 boosts online sales

The dramatic rise in e-commerce amid movement restrictions induced by COVID-19 increased online retail sales’ share of total retail sales from 16% to 19% in 2020, according to estimates in an UNCTAD report published on 3 May.

UNCTAD released the report as it hosted a two-day meeting on measuring e-commerce and the digital economy.

According to the report, online retail sales grew markedly in several countries, with the Republic of Korea reporting the highest share at 25.9% in 2020, up from 20.8% the year before (Table 1).

Meanwhile, global e-commerce sales jumped to $26.7 trillion in 2019, up 4% from 2018, according to the latest available estimates.

This includes business-to-business (B2B) and business-to-consumer (B2C) sales, and is equivalent to 30% of global gross domestic product (GDP) that year.

EU Publishes New Potential Sources of Tax revenue

In addition to simplifying existing own resources, the need to introduce new own resources of the EU budget has been on the EU agenda for a long time. Some of the key arguments in favour of new sources of revenue have been:

• reducing the weight of the Gross National Income (GNI)-based own resource in the EU budget;
• bringing more proportionality, fairness and stabilising impact to the EU budget, while reflecting the fluctuations in Member States' economic cycles;
• reforming the own resources system to help address new challenges, by designing new own resources that bring also additional benefits alongside the stream of fiscal income;
• introducing more diversified and resilient types of own resources, directly related to EU competences, objectives and priorities.

According to Article 311 of the Treaty on the Functioning of the European Union (legal basis for the Own Resources Decision), the Union "shall provide itself with the means to attain its objectives and carry through its policies". When introducing new Own Resources, attention should be paid to (i) their transparency, simplicity and stability; (ii) their consistency with EU policy objectives; (iii) their impact on competitiveness and sustainable growth; and (iv) their equitable breakdown among Member States.

The plastic own resource, a contribution based on the non-recycled plastic packaging waste, has been in place as a new revenue source to the 2021-2027 EU budget since January 2021.

Other potential new sources of revenue

In the coming years the Commission, the European Parliament and the Council will work together to introduce new own resources for the EU budget. These resources will not create new taxes for European taxpayers, as the EU does not have the power to levy taxes. Existing tax instruments are mainly deployed at national level, hence the introduction of new categories of own resources will fully respect national fiscal sovereignty.

Possible new own resources:

	Carbon border adjustment mechanism: the Commission will make a detailed proposal by June 2021, with a view of introducing the new source of revenue by 1 January 2023 at the latest. The carbon border adjustment mechanism entails a tax on any product imported from a country outside of the EU that does not have a system to price carbon, like the EU ETS (see below). This is meant to adjust the price of the imported goods as if they were produced in the EU and ensure fairness for European companies.
	Digital levy: the Commission will out forward a proposal by June 2021, with a view of introducing the new own resource by 1 January 2023 at the latest. The digital levy would stem from digital business activities, which are intrinsically dematerialised and profiting from mostly intangible assets. A digital levy would be a solution to the inadequateness of current corporate tax rules for the digital economy.
	EU ETS-based own resource: the Commission will make a proposal for an EU Emissions Trading System (ETS)-based own resource, including a possible extension of this system to the maritime and aviation sectors, in the spring of 2021. The ETS is the EU carbon market, through which installations (companies) buy or receive emission allowances. Allowances permit companies to emit an equal amount of greenhouse gases emissions within an established cap that decreases over time. The ETS has a direct link to the functioning of the Single Market and it is a key tool of EU action to reduce greenhouse gas emissions in a cost-effective way.

In addition, the Commission will propose further new own resources, which could include a Financial Transaction Tax, a financial contribution linked to the corporate sector or a new common corporate tax base. The Commission will work to make the relevant proposals by June 2024.

The largest EU stimulus package ever

The EU’s long-term budget, coupled with NextGenerationEU, the temporary instrument designed to boost the recovery, will be the largest stimulus package ever financed through the EU budget. A total of €1.8 trillion will help rebuild a post-COVID-19 Europe. It will be a greener, more digital and more resilient Europe.

The new long-term budget will increase flexibility mechanisms to guarantee it has the capacity to address unforeseen needs. It is a budget fit not only for today's realities but also for tomorrow's uncertainties.

The last step of the adoption of the next long-term EU budget was reached on 17 December 2020.

Main elements of the agreement

Multiannual Financial Framework 2021-2027
total allocations per heading*

	MFF	NextGenerationEU	TOTAL
1. Single market, innovation and digital	€132.8 billion	€10.6 billion	€143.4 billion
2. Cohesion, resilience and values	€377.8 billion	€721.9 billion	€1 099.7 billion
3. Natural resources and environment	€356.4 billion	€17.5 billion	€373.9 billion
4. Migration and border management	€22.7 billion	-	€22.7 billion
5. Security and defence	€13.2 billion	-	€13.2 billion
6. Neighbourhood and the world	€98.4 billion	-	€98.4 billion
7. European public administration	€73.1 billion	-	€73.1 billion
TOTAL MFF	€1 074.3 billion	€750 billion	€1 824.3 billion

_{All amounts in € billion, in constant 2018 prices. Source: European Commission}

_{* The amounts include the targeted reinforcement of ten programmes for a total of €15 billion, compared to the agreement from 21 July 2020. The programmes are Horizon Europe, Erasmus+, EU4Health, Integrated Border Management Fund, Rights and Values, Creative Europe, InvestEU, European Border and Coast Guard Agency, Humanitarian Aid.}

NextGenerationEU

NextGenerationEU is a €750 billion temporary recovery instrument to help repair the immediate economic and social damage brought about by the coronavirus pandemic. Post-COVID-19 Europe will be greener, more digital, more resilient and better fit for the current and forthcoming challenges.

• The Recovery and Resilience Facility: the centrepiece of NextGenerationEU with €672.5 billion in loans and grants available to support reforms and investments undertaken by EU countries. The aim is to mitigate the economic and social impact of the coronavirus pandemic and make European economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions. Member States are working on their recovery and resilience plans to access the funds under the Recovery and Resilience Facility.
• Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU): NextGenerationEU also includes €47.5 billion for REACT-EU. It is a new initiative that continues and extends the crisis response and crisis repair measures delivered through the Coronavirus Response Investment Initiative and the Coronavirus Response Investment Initiative Plus. It will contribute to a green, digital and resilient recovery of the economy. The funds will be made available to
  - the European Regional Development Fund (ERDF)
  - the European Social Fund (ESF)
  - the European Fund for Aid to the Most Deprived (FEAD)
  These additional funds will be provided in 2021-2022.
• NextGenerationEU will also bring additional money to other European programmes or funds such as Horizon2020, InvestEU, rural development or the Just Transition Fund (JTF).

NextGenerationEU breakdown

Recovery and Resilience Facility (RRF)	€672.5 billion
of which, loans	€360 billion
of which, grants	€312.5 billion
ReactEU	€47.5 billion
Horizon Europe	€5 billion
InvestEU	€5.6 billion
Rural Development	€7.5 billion
Just Transition Funds (JTF)	€10 billion
RescEU	€1.9 billion
TOTAL	€750 billion

_{Source: Conclusions of the European Council of 21 July 2020}

Figures

NextGenerationEU figures per EU country

• Recovery and Resilience Facility: grants allocation per Member State
• REACT-EU: allocations 2021
• Just Transition Fund: allocations per Member State
• European Agricultural Fund for Rural Development: allocations per Member State

MFF figures per EU country

• MFF 2021-2027 Breakdown of Cohesion Policy allocations per Member State (2018 prices)
• MFF 2021-2027 Breakdown of Cohesion Policy allocations per Member State (current prices)
• MFF 2021-2027 Breakdown of European Agricultural Guarantee Fund per Member State (current prices)
• MFF 2021-2027 Breakdown of European Agricultural Fund for Rural Development per Member State (MFF only, current prices)

Financing the EU long-term budget and NextGenerationEU

The EU long-term budget will continue to be financed through the well-known revenue sources of the EU budget: customs duties contributions from the Member States based on value added tax (VAT) contributions based on gross national income (GNI) In addition, as of 1 January 2021, a new national contribution based on non-recycled plastic packaging waste will be introduced as a source of revenue of the EU budget.

Borrowing to finance the recovery

To finance NextGenerationEU, the European Commission - on behalf of the European Union – will borrow on the markets at more favourable rates than many Member States and redistribute the amounts. For the Commission to start borrowing, all Member States must ratify the new Own Resources Decision in line with their constitutional requirements.

The European Commission already issues bonds to finance loans to EU and third countries under four programmes, including up to €100 billion for the SURE programme to support jobs and keep people in work.

To raise up to around €800 billion in current prices until 2026 for NextGenerationEU under the best financial terms – 5% of EU GDP – the Commission will use a diversified funding strategy.

• Borrowing to finance the recovery
• NextGenerationEU diversified funding strategy

A clear roadmap towards new sources of revenue to help repay the borrowing

The Commission will put forward proposals by June 2021 on sources of revenue linked to:

	a carbon border adjustment mechanism
	a digital levy
	the EU Emissions Trading System

By June 2024, the Commission will propose new sources of revenue, such as:

	a Financial Transaction Tax
	a financial contribution linked to the corporate sector
	a new common corporate tax base

GDP increased at an annual rate of 6.4 percent, First Quarter 2021

Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2020, real GDP increased 4.3 percent.

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see "Source Data for the Advance Estimate" on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2021.

The increase in real GDP in the first quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in private inventory investment and exports. Imports, which are a subtraction in the calculation of GDP, increased (table 2).

COVID-19 Impact on the First-Quarter 2021 GDP Estimate

The increase in first quarter GDP reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic. In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans, were distributed to households and businesses through the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2021 because the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note.

The increase in PCE reflected increases in durable goods (led by motor vehicles and parts), nondurable goods (led by food and beverages) and services (led by food services and accommodations). The increase in nonresidential fixed investment reflected increases in equipment (led by information processing equipment) and intellectual property products (led by software). The increase in federal government spending primarily reflected an increase in payments made to banks for processing and administering the Paycheck Protection Program loan applications as well as purchases of COVID-19 vaccines for distribution to the public. The decrease in private inventory investment primarily reflected a decrease in retail trade inventories.

Current‑dollar GDP increased 10.7 percent, or $554.2 billion, in the first quarter to a level of $22.05 trillion. In the fourth quarter, GDP increased 6.3 percent, or $324.5 billion (tables 1 and 3). More information on the source data that underlie the estimates is available in the Key Source and Data Assumptions file on BEA's website.

The price index for gross domestic purchases increased 3.8 percent in the first quarter, compared with 1.7 percent in the fourth quarter (table 4). The PCE price index increased 3.5 percent, compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index increased 2.3 percent, compared with an increase of 1.3 percent.

Personal Income

Current-dollar personal income increased $2.40 trillion in the first quarter, or 59.0 percent, compared with a decrease of $351.4 billion, or 6.9 percent, in the fourth quarter. The increase primarily reflected government social benefits related to pandemic relief programs, notably direct economic impact payments to households established by the Coronavirus Response and Relief Supplemental Appropriations Act and the American Rescue Plan Act (table 8). Additional information on several factors impacting personal income can be found in "Effects of Selected Federal Pandemic Response Programs on Personal Income."

Disposable personal income increased $2.36 trillion, or 67.0 percent, in the first quarter, compared with a decrease of $402.1 billion, or 8.8 percent, in the fourth quarter. Real disposable personal income increased 61.3 percent, compared with a decrease of 10.1 percent.

Personal saving was $4.12 trillion in the first quarter, compared with $2.25 trillion in the fourth quarter.  The personal saving rate—personal saving as a percentage of disposable personal income—was 21.0 percent in the first quarter, compared with 13.0 percent in the fourth quarter.

UK sanctions 22 individuals involved in serious international corruption

Foreign Secretary Dominic Raab has announced the UK’s first sanctions under the new Global Anti-Corruption regime.

• sanctions target 22 individuals involved in notorious corruption cases in Russia, South Africa, South Sudan, and throughout Latin America
• Foreign Secretary vows to stop corrupt individuals using the UK as a safe haven for dirty money
• new sanctions regime stops those involved in serious corruption from entering and channeling money through the UK

Individuals involved in some of the world’s most serious cases of corruption will no longer be able to channel their money through UK banks or enter the country thanks to new sanctions announced by the Foreign Secretary today.

The UK has, for the first time, imposed asset freezes and travel bans against 22 individuals under the new Global Anti-Corruption sanctions regime which gives the UK unprecedented power to stop corrupt actors profiting from the UK economy and exploiting our citizens.

Corruption hurts individuals and undermines global trade, development and the rule of law. Over 2% of global GDP is lost to corruption every year, and corruption increases the cost of doing business for individual companies by as much as 10%.

Corruption also threatens our national security by exacerbating conflict and facilitating serious and organized crime, creating space for terrorist and criminal groups like Daesh and Boko Haram to operate.

This new regime will allow the UK to combat serious corruption, in particular bribery and misappropriation. It will promote effective governance, robust democratic institutions and the rule of law – demonstrating our power as a force for good around the world.

Foreign Secretary Dominic Raab, said:

Corruption has a corrosive effect as it slows development, drains the wealth of poorer nations and keeps their people trapped in poverty. It poisons the well of democracy.

The individuals we have sanctioned today have been involved in some of the most notorious corruption cases around the world.

Global Britain is standing up for democracy, good governance and the rule of law. We are saying to those involved in serious corruption: we will not tolerate you or your dirty money in our country.

The measures are deliberately targeted, so the UK can impose sanctions on corrupt individuals and their enablers, rather than entire nations.

They are being taken partly in tandem with the US, which is today also announcing further corruption sanctions. Acting together sends the clearest possible signal that corruption comes with a heavy price.

The UK’s first wave of sanctions under this new sanctions regime is targeting:

• those involved in the diversion of $230 million of Russian state property through a fraudulent tax refund scheme uncovered by Sergei Magnitsky – one of the largest tax frauds in recent Russian history
• Ajay Atul, and Rajesh Gupta, and their associate Salim Essa, for their roles in serious corruption. They were at the heart of a long-running process of corruption in South Africa which caused significant damage to its economy
• Sudanese businessman Ashraf Seed Ahmed Hussein Ali, widely known as Al Cardinal, for his involvement in the misappropriation of significant amounts of state assets in one of the poorest countries in the world. This diversion of resources in collusion with South Sudanese elites has contributed to ongoing instability and conflict
• several individuals involved in serious corruption in Latin America, including facilitating bribes to support a major drug trafficking organization and misappropriation that has led to citizens being deprived of vital resources for development

The Global Anti-Corruption sanctions regime builds on the success of the Global Human Rights sanctions regime established in July 2020, which has resulted in the UK imposing sanctions on 78 individuals and entities involved in serious human rights violations, including from Myanmar, Belarus, China and Russia.

The UK will continue to use a range of means to tackle serious corruption around the world, including funding the International Corruption Unit in the National Crime Agency. The International Corruption Unit and its predecessors have restrained, confiscated or returned over £1.1 billion of stolen assets, stolen from developing countries since 2006.

Documents

UK sanctions list 1

UK sanctions list 2

Details

New UK sanctions regimes came fully into force under the Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act) at 11 pm on 31 December 2020. The regulations establishing these regimes apply in the whole of the UK, including in Northern Ireland.

Some of these regimes contain sanctions measures (for instance asset-freezes or travel bans) that apply in respect of persons or ships which have been designated or specified.

The UK sanctions list

The UK government publishes the UK sanctions list, which provides details of those designated under regulations made under the Sanctions Act. The list also details which sanctions measures apply to these persons or ships, and in the case of UK designations, provides a statement of reasons for the designation.

HM Treasury’s Office for Financial Sanctions Implementation provides a consolidated list of persons and organizations under financial sanctions, including those under the Sanctions Act and other UK legislation. Find out:

• who is subject to financial sanctions

• how to challenge a sanctions decision

Publicizing sanctions decisions

When the UK government makes a decision to make, vary or revoke a designation or ship specification, it will update the UK sanctions list in accordance with the publicity provisions in the relevant sanctions regulations.

Labor market disruption & COVID-19 support measures contribute to widespread falls in taxes on wages in 2020

The COVID-19 crisis has resulted in the largest decrease in taxes on wages since the global financial crisis of 2008-09, according to a new OECD report.

Taxing Wages 2021 shows that declining household incomes coupled with tax reforms linked to the pandemic are driving widespread declines in effective taxes on wages across the OECD.

The report highlights record falls across the OECD during 2020 in the tax wedge – the total taxes on labour paid by both employees and employers, minus family benefits, as a percentage of the labour cost to the employer. 

The tax wedge for a single worker at the average wage was 34.6% in 2020, a decrease of 0.39 percentage points from the previous year. This is a significant fall, but is smaller than the decreases seen in the global financial crisis – 0.48 percentage point in 2008, and 0.52 percentage points in 2009. The tax wedge increased in 7 of the 37 OECD countries over the 2019-20 period and fell in 29, mainly due to lower income taxes.

The drop in the tax wedge was even more significant for households with children, bringing tax rates on these family types to new lows. The average tax wedge for a one-earner couple at the average wage with children in 2020 was 24.4%, a decrease of 1.1 percentage points versus 2019. This is the largest fall and lowest level seen for this household type since the OECD started producing Taxing Wages in 2000.

Between 2019 and 2020, the tax wedge for this household type decreased in 31 countries, and rose in only 6. It decreased by more than 1 percentage point in 16 countries. The largest decreases were in Lithuania, the United States, Poland, Italy, Canada and Korea. The only increase over 1 percentage point was in New Zealand.

The gap between the OECD average tax wedge for the single average worker (34.6%) and the one-earner couple with children (24.4%) has widened by 0.7 percentage points since 2019, reflecting policy changes that provided additional support to families with children during the COVID-19 crisis.

The falls in country tax wedges for the single worker, the one-earner couple with two children, and the single parent resulted predominantly from changes in tax policy settings, although falling average wages also contributed in some countries. By contrast, increases in the tax wedge were almost all driven by rising average wages, offset only slightly by policy changes.

Of the ten countries where specific COVID-19 measures affected the indicators, support was primarily delivered through enhanced or one-off cash benefits, with a focus on supporting families with children.

The report shows that labour taxation continues to vary considerably across the OECD, with the tax wedge on the average single worker ranging from zero in Colombia to 51.5% in Belgium.

Further information and individual country notes: https://www.oecd.org/tax/taxing-wages-20725124.htm.

Hospital Researcher Sentenced to Prison for Conspiring to Steal Trade Secrets and Sell to China, Defendant Will Pay More Than $2.6 Million in Restitution

An Ohio man was sentenced to 33 months in prison for conspiring to steal exosome-related trade secrets concerning the research, identification and treatment of a range of pediatric medical conditions.

Yu Zhou, 51, of Dublin, Ohio, pleaded guilty in December 2020 to stealing scientific trade secrets related to exosomes and exosome isolation from Nationwide Children’s Hospital’s Research Institute for his own personal financial gain. Zhou also conspired to commit wire fraud.

“Yu Zhou sought to exploit U.S. taxpayer dollars intended to fund critical, life-saving research at Nationwide Children’s Hospital through the whole-sale theft of their trade secrets,” said Assistant Attorney General John C. Demers for the Justice Department’s National Security Division. “Zhou’s greed was encouraged and enabled by a series of Chinese Government programs which incentivize thievery in an attempt to supplement China’s own research and development goals on the back of American ingenuity and investment. This successful prosecution should serve as a warning to anyone who seeks to profit from pilfering hard-earned U.S. trade secrets.”

“Yu Zhou willingly took part in the Chinese Government’s long-term efforts to steal American intellectual property,” said Acting U.S. Attorney Vipal J. Patel for the Southern District of Ohio. “Zhou and his wife executed a scheme over the course of several years to set up businesses in China, steal American research, and profit from doing so. The couple deserves the time it received in federal prison.”

According to court documents, Zhou and his co-conspirator and wife, Li Chen, 48, worked in separate medical research labs at the Research Institute for 10 years each (Zhou from 2007 until 2017 and Chen from 2008 until 2018). They pleaded guilty to conspiring to steal at least five trade secrets related to exosome research from Nationwide Children’s Hospital. Chen was sentenced in February to 30 months in prison for her role in the scheme.

Exosomes play a key role in the research, identification and treatment of a range of medical conditions, including necrotizing enterocolitis (a condition found in premature babies), liver fibrosis and liver cancer.

Court documents detail that Zhou and Chen conspired to steal and then monetize one of the trade secrets by creating and selling exosome “isolation kits.” Zhou’s research at Nationwide Children’s included a novel isolation method in which exosomes could be isolated from samples as small as one drop of blood. This method was vital to the research being conducted in Zhou’s lab – because necrotizing enterocolitis is a condition found primarily in premature babies, only small amounts of fluid can safely be taken from them.

Zhou and Chen started a company in China to sell the kits.

The defendants received benefits from the Chinese government, including the State Administration of Foreign Expert Affairs and the National Natural Science Foundation of China. Zhou and Chen were also part of application processes related to multiple Chinese government programs, including talent plans, a method used by China to transfer foreign research and technology to the Chinese government.

As part of their convictions, the couple will forfeit approximately $1.45 million, 500,000 shares of common stock of Avalon GloboCare Corp. and 400 shares of common stock of GenExosome Technologies Inc. They were also ordered to pay $2.6 million in restitution.

Chen and Zhou were arrested in California in July 2019 and their case was unsealed in August 2019 when they appeared in federal court in Columbus.

Two Companies and Nine Individuals Indicted for Alleged Large-Scale Visa Fraud Employment Scheme

An indictment returned by a federal grand jury in the Southern District of Georgia has been unsealed charging two businesses and nine of their officers and managers located across the country for their roles in an alleged conspiracy to defraud the U.S. government and commit various fraud and criminal immigration offenses for profit.

According to court documents, Regal Hospitality Solutions, LLC; Educational World, Inc.; Karen Makaryan, 42, Sargis Makaryan, 42, and Samvel Nikoghosyan, 40, of Destrehan, La.; Artur Grigoryan, 38, of Biloxi, Miss.; Armen Ayrapetyan, 37, of Duluth, Ga.; Jason Hill, 28, of Virginia Beach, Va.; Fremie Balbastro, 49, of Myrtle Beach, S.C.; and Larisa Khariton, 73, and Jon Clark, 71, of North Port, Fla., were charged in a 36-count indictment returned by a federal grand jury on April 8. Each defendant was charged with one count of conspiracy to defraud and commit offenses against the United States, including encouraging and inducing an alien to reside in the United States, alien harboring, transporting aliens, and visa fraud.  Each defendant also was charged with substantive counts of encouraging and inducing an alien to reside in the United States, alien harboring, and transportation of aliens. In addition, Regal Hospitality Solutions, LLC; Karen Makaryan; Sargis Makaryan; Samvel Nikoghosyan; Artur Grigoryan; Armen Ayrapetyan; Fremie Balbastro; and Jason Hill were also charged with one count of conspiracy to commit wire fraud and 10 counts of wire fraud.

“The defendants in this case allegedly engaged in an expansive conspiracy to enrich themselves by exploiting both the immigration system and noncitizen workers,” said Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division. “Systemic fraud and abuse of U.S. visa programs and processes designed to protect American workers and businesses will not be tolerated, and offenders will be held accountable.” 

“Hospitality venues often struggle with finding workers, and in recent years that has been an even greater challenge,” said Acting U.S. Attorney David H. Estes for the Southern District of Georgia. “Agencies that provide workers can be exceptionally helpful in such circumstances – but they must provide that assistance in accordance with the law. In this case, businesses in St. Simons Island were among those allegedly exploited along with the illegally provided workers.”

“The Department’s Bureau of Educational and Cultural Affairs aims to increase mutual understanding between the people of the United States and the people of other countries by means of educational and cultural exchange,” said Acting Assistant Inspector General for Investigations Robert Smolich of the U.S. Department of State, Office of Inspector General, Office of Investigations. “When bad actors corrupt these programs for personal gain, it not only diminishes an important tool of diplomacy, it harms the thousands of individuals who participate in these programs hoping to gain skills and experience to make a better life. Today we took a step forward in restoring integrity back to those programs.”

“These defendants’ alleged scheme to game the immigration system and defraud the government has backfired and they will now be held accountable,” said Special Agent in Charge Katrina W. Berger of Homeland Security Investigations (HSI), Georgia and Alabama. “Schemes like this not only exploit the noncitizen workers involved, they also damage the other legitimate businesses in the community. Protecting the integrity of the visa program and immigration system is vital to the security of our nation.”

According to the indictment, from an unknown date through at least May 2017, the individual defendants enriched themselves by participating in a scheme to recruit and hire noncitizen laborers without authorization to work for defendant Regal Hospitality Solutions, LLC (RHS). RHS allegedly entered into contracts to provide hospitality-related businesses with lawful laborers to work in housekeeping, retail, and foodservice positions. To fill those positions, RHS defendants hired noncitizens who were not authorized to work for RHS in the United States. In some cases, the RHS defendants arranged for and provided housing and transportation to the workers.

The defendants and other co-conspirators also allegedly encouraged and induced noncitizen laborers on expiring and expired J-1 exchange visitor visas to obtain B-2 tourist visas and to work in the United States for RHS, knowing that employing such laborers on B-2 visas was illegal. Educational World, Inc. (Ed World) – a visa preparation company –  and the Ed World defendants, after charging noncitizen laborers approximately $650 per application, prepared and submitted applications for B-2 visas on behalf of the workers, which contained false and misleading statements designed to indicate that the noncitizens intended to obtain the B-2 visa for the purpose of engaging in tourism and that the noncitizens were complying with United States immigration laws. In fact, the Ed World defendants knew that those noncitizens were already present in and intended to stay in the United States for employment, not tourism.

The indictment further alleges that the Ed World defendants submitted petitions for H-2B temporary work visas that contained false and misleading information about the location where noncitizen laborers allegedly were to be employed. RHS paid a commission to Ed World for noncitizens Ed World recruited to work for RHS, including those who were not authorized to work for RHS in the United States.

According to the indictment, RHS and the RHS defendants also made false and misleading representations that RHS would staff positions at the hospitality establishments contracting with RHS only with laborers who were legally authorized to work for RHS in the United States.

Individual defendants have made their initial court appearances and the arraignment of all defendants will be scheduled before U.S. Magistrate Judge Benjamin W. Cheesbro of the U.S. District Court for the Southern District of Georgia. If convicted, the individual defendants face maximum potential statutory penalties of five years in prison on the count of conspiracy to defraud and commit offenses against the United States; 10 years in prison on the counts of encouraging and inducing an alien to reside in the United States, alien harboring, and transportation of aliens; and 20 years in prison on the counts of wire fraud conspiracy and substantive wire fraud. The organizational defendants are subject to a maximum fine on each count of conviction of $500,000 or twice the gross amount of gain or loss resulting from the offense. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The U.S. Department of State Office of Inspector General is investigating the case with assistance provided by HSI and U.S. Citizenship and Immigration Services.

IRS establishes new "Office of Promoter Investigations", appoints Director with 20-year exam experience

As part of the continued focus on compliance issues, the Internal Revenue Service announced yesterday the establishment of the IRS Office of Promoter Investigations. The new office will further expand on the efforts of the Promoter Investigations Coordinator that began last summer.

“By establishing the Office of Promoter Investigations, we are continuing our increased focus on promoters of abusive tax avoidance transactions, which we have demonstrated over the last year,” said IRS Commissioner Chuck Rettig. “This office will coordinate efforts across multiple business divisions to address abusive syndicated conservation easements and abusive micro-captive insurance arrangements, as well as other transactions.”

Lois Deitrich, a 20-year veteran of the agency, will be the new office’s acting director.

Even though OPI will be positioned within SB/SE, Deitrich will work on agency-wide compliance issues, including coordination of promoter activities with promoter teams in other business divisions, including Large Business & International, Tax Exempt/Government Entities, the Office of Fraud Enforcement, and Criminal Investigations.. She will serve as the principal advisor and consultant to IRS division commissioners and deputy commissioners on issues involving promoters of abusive transactions and the schemes they peddle. The OPI will also develop strategic plans, programs and policy.

Prior to the creation of OPI, the SB/SE division completed a realignment of field examination employees who work on promoter investigations. This realignment brought SB/SE revenue agents under a single director within the Field Exam Division, increasing the focus and attention they apply to investigations going forward. With additional training, resources and applied analytics, SB/SE will bring improved focus on identifying, investigating and taking necessary enforcement action to halt promotion of abusive transactions.

De Lon Harris, commissioner, SB/SE Exam, noted that the realignment of field employees will continue to strengthen the internal compliance efforts within SB/SE.

"These groups are exclusively dedicated to investigating those who peddle abusive tax schemes. Bringing these agents together, in combination with the creation of the service-wide Office of Promoter Investigations, will help strengthen our compliance work and is yet another opportunity to increase our capacity to conduct these investigations," said De Lon Harris, commissioner, SB/SE Exam. "Our promoter office will strategically focus resources to help expand detection and deterrence efforts of promoter work across the IRS."

Deitrich will take over the work the agency has been pursuing for the past year under Brendan O'Dell, who was selected as the Promoter Investigation Coordinator in early 2020.

Prior to this position, Deitrich served as the director of the southwest area of SB/SE’s Field Examination, where she was responsible for overseeing SB/SE field operation for abusive transaction investigations. She brings extensive experience in the abusive transaction space and the Special Enforcement Program. Previously, she served as director of Exam Case Selection and Exam Quality and Technical Support.

Investigation & Report on Allegations of Misuse of Department of State Resources By Secretary of State

OIG reviewed allegations that former U.S. Secretary of State Michael Pompeo directed Department of State (Department) employees to carry out tasks of a personal nature to benefit him and Mrs. Pompeo. The allegations stated that the Secretary hired a political appointee to complete such tasks and assigned such work to other employees in the Office of the Secretary and the Bureau of Diplomatic Security.

OIG found that both Secretary and Mrs. Pompeo requested that the political appointee and other employees in the Office of the Secretary undertake work of a personal nature, such as picking up personal items, planning events unrelated to the Department’s mission, and conducting such personal business as pet care and mailing personal Christmas cards. OIG  found that such requests were inconsistent with Department ethics rules and the Standards of Ethical Conduct for Employees of the Executive Branch. However, with only a few exceptions, OIG did not find that Secretary and Mrs. Pompeo made personal requests to the special agents in the Bureau of Diplomatic Security who were protecting them. These agents generally told OIG that the Pompeos did not ask them to undertake tasks of a personal nature.

OIG made three recommendations to the Department. OIG recommended that the Office of the Legal Adviser update its guidance to the Office of the Secretary to include guidance on the use of Department funds to pay for gifts to U.S. citizens and the use of Department employees to arrange personal dinners and entertainment. OIG recommended that the Bureau of Diplomatic Security amend its Protection Handbook to include examples of appropriate and inappropriate requests to agents performing protective functions, and direction concerning what to do when an agent is tasked with an inappropriate request and who to contact to address concerns. Finally, OIG recommended that the Under Secretary for
Management draft and publish guidance on the use of a subordinate’s time for tasks of a personal nature, including direction concerning what to do and who to contact when a Department employee is tasked with an inappropriate request. The Department concurred with all three recommendations.

Read the full 26 page investigation report here.

High-Level Organizer of Notorious Hacking Group Sentenced to Prison for More than $1 Billion Scheme of Tens of Millions of Consumers Debit and Credit Cards

Overall Damage to Banks, Merchants, Card Companies, and Consumers Estimated at more than $1 Billion

A Ukrainian national was sentenced in the Western District of Washington to 10 years in prison for his high-level role in the criminal work of the hacking group FIN7.

Fedir Hladyr, 35, served as a manager and systems administrator for FIN7. He was arrested in Dresden, Germany, in 2018, at the request of U.S. law enforcement and was extradited to Seattle, Washington. In September 2019, he pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit computer hacking.

“The defendant and his conspirators compromised millions of financial accounts and caused over a billion dollars in losses to Americans and costs to the U.S. economy,” said Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division. “Protecting businesses – both large and small – online is a top priority for the Department of Justice. The department is committed to working with our international partners to hold such cyber criminals accountable, no matter where they reside or how anonymous they think they are.”

“This criminal organization had more than 70 people organized into business units and teams.  Some were hackers, others developed the malware installed on computers, and still others crafted the malicious emails that duped victims into infecting their company systems,” said Acting U.S. Attorney Tessa M. Gorman of the Western District of Washington. “This defendant worked at the intersection of all these activities and thus bears heavy responsibility for billions in damage caused to companies and individual consumers.”

“These cyber thieves orchestrated an elaborate network of hackers and systems to infiltrate businesses and exploit consumers’ personal information,” said Special Agent in Charge Donald M. Voiret of the FBI’s Seattle Field Office. “Their specialized skills to target certain industries amplified the damage exponentially. Thanks to the hard work of law enforcement partners both in the U.S. and overseas, these fraudsters are not beyond our reach and cannot hide from the law.”

According to documents filed in the case, since at least 2015, members of FIN7 (also referred to as Carbanak Group and the Navigator Group, among other names) engaged in a highly sophisticated malware campaign to attack hundreds of U.S. companies, predominantly in the restaurant, gambling, and hospitality industries. FIN7 hacked into thousands of computer systems and stole millions of customer credit and debit card numbers that were then used or sold for profit. FIN7, through its dozens of members, launched waves of malicious cyberattacks on numerous businesses operating in the United States and abroad. To execute its scheme, FIN7 carefully crafted email messages that would appear legitimate to a business’ employees, and accompanied emails with telephone calls intended to further legitimize the emails. Once a file attached to a fraudulent email was opened and activated, FIN7 would use an adapted version of the Carbanak malware, in addition to an arsenal of other tools, to access and steal payment card data for the business’s customers. Since 2015, many of the stolen payment card numbers have been offered for sale through online underground marketplaces.

In the United States alone, FIN7 successfully breached the computer networks of businesses in all 50 states and the District of Columbia, stealing more than 20 million customer card records from over 6,500 individual point-of-sale terminals at more than 3,600 separate business locations.  According to court documents, victims incurred enormous costs that, according to some estimates, totaled billions of dollars. Additional intrusions occurred abroad, including in the United Kingdom, Australia, and France. Companies that have publicly disclosed hacks attributable to FIN7 include such chains as Chipotle Mexican Grill, Chili’s, Arby’s, Red Robin, and Jason’s Deli.  

Hladyr originally joined FIN7 via a front company called Combi Security – a fake cyber security company that had a phony website and no legitimate customers. Hladyr admitted in his plea agreement that he soon realized that, rather than a legitimate company, Combi was part of a criminal enterprise. Hladyr served as FIN7’s systems administrator who, among other things, played a central role in aggregating stolen payment card information, supervising FIN7’s hackers, and maintaining the elaborate network of servers that FIN7 used to attack and control victims’ computers. Hladyr also controlled the organization’s encrypted channels of communication.

This case is the result of an investigation conducted by the Seattle Cyber Task Force of the FBI and the U.S. Department of Justice. The Justice Department’s Office of International Affairs, the National Cyber-Forensics and Training Alliance, numerous computer security firms and financial institutions, FBI offices across the nation and globe, as well as a number of international agencies provided significant assistance. German law enforcement authorities provided significant assistance by arresting Hladyr.

Tax Attorney Indicted for Facilitating $225 Million in Capital Gains Fraud for Robert E Smith

A federal grand jury in San Francisco returned an indictment today charging a Houston-based tax attorney of conspiring with the Chairman and Chief Executive Officer of a private equity firm to defraud the IRS. The grand jury further charged him with three counts of aiding and assisting in the preparation of the CEO’s false tax returns for the 2012 to 2014 tax years. The billionaire Robert F. Smith who has a non-prosecution agreement with the Department of Justice has provided evidence against his former tax attorney.

According to the indictment, from 1999 to 2014, Carlos E. Kepke helped Robert F. Smith create and maintain offshore entities that were used to conceal from the IRS approximately $225,000,000 of capital gains income that Smith had earned. In approximately March 2000, Kepke allegedly created a Nevisian limited liability company (Flash Holdings) and a Belizean trust (Excelsior Trust) to serve as the tax evasion vehicles. When Smith earned capital gains income from his private equity funds, a portion was allegedly deposited into Flash’s bank accounts in the British Virgin Islands and Switzerland. As alleged, Smith was able to hide this income because Excelsior, and not Smith, was the nominal owner of Flash. Smith then allegedly failed to timely and fully report his income to the IRS. Kepke allegedly assisted in the preparation of Smith’s false 2012 to 2014 returns.  

For his services, Smith has allegedly paid Kepke nearly $1,000,000 since 2007. These fees, as charged, included an annual payment for Kepke to purge or “securitize” his records related to Smith, Excelsior, and Flash.