Revenues surge as global crackdown on tax evasion gathers pace
Hundreds of millions of tax dollars are flooding into exchequers across the world, as governments offer evaders a last chance to own up to undeclared accounts, reports the Financial Times.
Taxpayers with funds stashed offshore are coming forward voluntarily in their tens of thousands ahead of new transparency rules that will allow tax authorities to probe secret foreign accounts.
The Paris-based OECD said last week that many transgressors were facing “the last window of opportunity” to disclose such information. Dozens of countries will begin to exchange tax files automatically in 2017 as part of a co-ordinated global crackdown on evasion, exposing non-compliant taxpayers to an unprecedented risk of prosecution.
Pressure has mounted since several countries announced that partial amnesty programmes offering reduced penalties for evaders who come clean — known as ‘voluntary disclosure facilities’ — are being tightened up or are closing early.
South Africa is set to close its voluntary disclosure facility on August 12 after announcing last month that it planned to send out audit letters to clients of HSBC in Switzerland, which was at the centre of a political storm over tax evasion in February. The UK will close its schemes by the start of next year.
The new transparency rules were triggered by evasion scandals in the US, which prompted Washington to force overseas banks to hand over information on possible offenders under the 2010 Foreign Account Tax Compliance Act. As governments across the world responded to public anger over evasion in their own jurisdictions, they pressed for similar measures, leading to 93 countries signing a deal last year to share details on individuals’ bank accounts.
Ahead of receiving the bank data, many governments have been successfully pressing citizens to repatriate offshore funds.
Among the most recent moves is a law passed in June by the Russian Duma for a voluntary disclosure programme for all Russian citizens, irrespective of their tax residency.
The French finance ministry in March said it expected its crackdown on offshore income to raise €2bn euros, similar to the amount raised in 2014. Germany’s voluntary disclosure programme was used by almost 40,000 taxpayers in 2014, raising an additional tax revenue of €1.3bn. Belgium levied €1.9bn from 22,000 people in 2013.
A UK scheme had raised just under £1.1bn from 5,819 disclosures by the end of March, while in the five years since 2009 US authorities collected about $6.5bn in taxes, interest and penalties from 45,000 voluntary disclosures.
But despite the large sums collected from voluntary disclosure initiatives — which totalled €37bn in the five years to 2014, according to OECD estimates — some critics argue that the amounts have not justified the costs of implementing the new rules on automatic information exchange.
Mark Matthews of law firm Caplin & Drysdale, a former deputy Commissioner of the Internal Revenue Service in the US, was sceptical about the returns from the offshore crackdown. “You would think there’s a pot of gold and everyone’s budget would be balanced if we just went after global tax cheats. I don’t think there’s a pot of gold.”
Achim Pross of the OECD said it advised countries not to take too hardline an approach that would expose taxpayers who voluntarily came forward to the threat of going to prison. The club of rich nations also discouraged action that would result in individuals being liable for tax bills in excess of the total value of assets they disclosed. “By taking a more pragmatic approach, countries can build bridges back into compliance,” he added.
Campaign groups have supported the new rules but noted some potential loopholes, such as the exclusion of safe deposit boxes, and raised fears that developing countries would not be able to participate because of the cost of implementing the regime.
However, the crackdown on evasion has not stopped the growth of private wealth booked in offshore centres, which grew by seven per cent in 2014 to reach some US$10 trillion, according to Boston Consulting Group, the consultancy. But the growth — fuelled in part by a search for security in regions gripped by political and economic tensions — was slower than the expansion in overall private wealth.
BCG said the proportion of private wealth held offshore had declined slightly from 6.1 per cent in 2013 to 5.8 per cent in 2014, noting that increased amounts of offshore assets had been “flowing back onshore, particularly in the old world”.
