tax officials

G-20 Pushes for Measures to End Tax Evasion

The Group of 20 countries called Friday for a coordinated effort to stop international tax evasion, urging governments to systematically share bank data.

Finance ministers and central bankers of the G-20, meeting in Washington, said in a communiqué that automatic exchange of tax-relevant bank information should be adopted as the global standard.

The officials, who were meeting in Washington, also noted the problems of economic weakness and high unemployment in many countries, and called for more action “to make growth strong, sustainable and balanced.” They acknowledged Japan’s recent decision to sharply increase the supply of money to end deflation, but did not criticize the move for driving down the value of the yen, saying only that they would “refrain from competitive devaluation and will not target our exchange rates for competitive purposes.”

The automatic exchange of tax data, an approach the United States has pushed for, would represent a major change from the current procedures, in which countries are expected to provide such information only on request — as when tax officials seek to track payments across national borders during an audit.

Under automatic exchange, governments would routinely transfer all foreign taxpayers’ data to their home governments, making it far more difficult to hide assets from the taxman.

The impetus for the new approach is a U.S. law, the Foreign Account Tax Compliance Act, or Fatca, requiring Americans with overseas accounts and non-U.S. financial firms to meet tough financial disclosure requirements. Because Fatca, in practice, conflicts with privacy laws in many countries, Washington has been working out bilateral deals in which overseas financial institutions share that data first with their own governments for transmission to the U.S. Internal Revenue Service.

European governments, initially skeptical about the idea, have become more enthusiastic amid public outrage over the secret offshore finance records recently unearthed by the International Consortium of Investigative Journalists. In France, President François Hollande’s government has championed the more aggressive hunt for tax dodgers since his government was rocked by the disclosure that the recently ousted budget minister, Jérôme Cahuzac, was squirreling money away in a Swiss account.

“Fatca has been a game changer,” Pascal Saint-Amans, director of the Center for Tax Policy at the Organization for Economic Cooperation and Development, said Friday.

Mr. Saint-Amans noted that in the past week Luxembourg, long one of Europe’s most opaque financial centers, had agreed to begin automatically sharing data in the face of pressure from its E.U. partners and the United States.

The challenge, Mr. Saint-Amans said, is to make sure the right information technology is in place to allow for secure account data transfer on a global scale. That is something the O.E.C.D. is now working on, he said.

The G-20 issued its statement Friday after the O.E.C.D. earlier in the day issued a progress report that showed Switzerland — which is not a G-20 member — was still struggling to get off a so-called “blacklist” of nations cited for a lack of cooperation on tax data.

An additional 13 jurisdictions that are not in the G-20 — including Guatemala, Lebanon, Liberia and Panama — have not made the necessary legal and regulatory changes to be removed from the blacklist, according to the report, compiled by the O.E.C.D’s Global Forum on Transparency and Exchange of Information for Tax Purposes.

The other blacklisted nations are Botswana, Brunei, Dominica, Marshall Islands, Nauru, Niue, Trinidad and Tobago, United Arab Emirates and Vanuatu.

The Global Forum is now moving toward the adoption of a rating system, under which it will grade nations’ compliance with transparency agreements, and expects to roll that system out in November.

The United States’ push for access to overseas account data began after UBS, the biggest Swiss bank, was found several years ago to have been encouraging Americans to hide assets abroad. UBS in 2009 paid $780 million and turned over details about thousands of client accounts to end prosecution.

While Switzerland has met most of the requirements for being removed from the O.E.C.D. blacklist, its status, the report noted, “is still subject to conditions.” Swiss officials are currently trying to negotiate their way out of an international assault on their banking secrecy, led by the United States, Germany and France. Recent media reports have said a deal to open American clients’ Swiss banking data to the I.R.S. may be near.

Mario Tuor, a spokesman in Bern for the Federal Finance Ministry, said Friday that the Swiss government was working to meet the conditions for being removed from the list, and he said that it was unfair to lump Switzerland with truly uncooperative nations. Mr. Tuor said he could not comment about the ongoing negotiations with Washington.

In Washington, Dena W. Iverson, a Justice Department spokeswoman, declined to comment.

Switzerland has been locked in a dispute with the United States over its banking secrecy since 2009, when UBS, the giant Zurich-based bank, entered into a deferred prosecution agreement with the U.S. Justice Department, agreeing to pay $780 million and hand over data on thousands of clients to avoid criminal charges that it sought to defraud the Internal Revenue Service.

Since that time, the Swiss have taken a number of steps to accommodate American demands, including agreeing to more information sharing, but banks have shown dogged determination to maintain the privacy law, which makes it a crime to divulge some client information. Washington continues to apply pressure. Last year, U.S. prosecutors indicted Wegelin Company, Switzerland’s oldest bank, effectively putting it out of business.

In the latest salvo, two Swiss men — including Stefan Buck, a member of the executive board of the Zurich lender Bank Frey, and Edgar Paltzer, a partner at a Swiss law firm — were indicted this week by New York prosecutors on conspiracy charges.

Article source: http://www.nytimes.com/2013/04/20/business/global/g-20-pushes-for-measures-to-end-tax-evasion.html?partner=rss&emc=rss

Political Economy: Staying in Tune With the Tax Spirit of the Times

When is it acceptable to avoid taxes? And when should taxpayers refrain from actions that will cut their bills, even if their actions are legal?

With the European economy sluggish, the public mood has turned against those who are not seen to be paying their fair share of taxes. Last week, for example, Goldman Sachs abandoned an idea for switching British bonus dates to cut its employees’ tax bills, and there was also an intensification in the battle over Greek tax cheating.

The cases are, of course, very different. In Greece, tax evasion — which is against the law — is rife. The International Monetary Fund’s latest review on the country, published Friday, says that the “losses to the state from tax evasion are enormous.” It estimates the black economy is 25 percent of gross domestic product.

Three years after its financial crisis began, Greece has made little progress in cracking down on tax cheats. Although Athens did adopt a strategy of focusing on priority areas, the I.M.F. says implementation has been stalled in part because the tax administration has not been shaken up: “Anti-corruption efforts have been minimal, and efforts to remove underperforming staff have met stiff resistance.”

But the rot extends beyond corrupt tax officials.

In recent months, Greek politics has been transfixed by the scandal over the so-called Lagarde list, which contains the names of more than 2,000 Greek citizens who had bank accounts at a Swiss branch of HSBC. Christine Lagarde, then the finance minister of France and now head of the I.M.F., passed the list to George Papaconstantinou, her Greek counterpart, in 2010.

Insufficient effort was made to investigate whether taxes had been paid on the money in these Swiss bank accounts. At some point, the original list was even lost. Further fuel was added to the fire when it emerged that three of Mr. Papaconstantinou’s relatives did not appear on a copy of the list that survives. Parliament voted last week to investigate him. He says that he did not remove his relative’s names and that he is the victim of “a crass and blatant attempt at incrimination.”

Whatever actually happened to the Lagarde list, Greece is at the extreme end of the spectrum of tax cheating in Europe. But even in Britain, where tax evasion is less common, the zeitgeist has changed. Individuals and companies have come under attack by politicians and officials and in the news media for tax-reduction programs that are either in the gray zone or are legal.

One practice is the habit of people’s providing their services through companies they own, rather than being classified as employees, which incurs higher tax. Last year the government discovered that 2,400 civil servants were being engaged in this way and tightened the rules.

There has also been a fight over how Starbucks cut its British corporation tax by paying large sums of money to an overseas sister company to use the Starbucks brand. After a torrent of criticism, the coffee chain agreed to pay more British tax.

Now Goldman has buckled to pressure after it emerged it was considering shifting the date that it was to pay some bonuses to take advantage of an expected drop in the top rate of income tax to 45 percent from 50 percent. Mervyn A. King, governor of the Bank of England, described the idea that Goldman would do this as “depressing.”

Goldman misjudged the public mood and made a hasty U-turn. That was clearly the right thing to do to protect its reputation, given the hostility toward the banking industry and the fact that banks were all directly or indirectly bailed out by taxpayers during the financial crisis.

But what Goldman had been considering was not illegal.

Under British tax law, bonuses that are part of a contractual entitlement have to be paid on the due date. But companies are free to pay discretionary bonuses whenever they wish. Indeed, many businesses will be delaying their bonuses this year to take advantage of the lower tax rate.

Taxpayers should, of course, abide by the spirit as well as the letter of the law. Indeed, there is even a British code of practice for the banking industry that says precisely this.

But it is hard to argue that “bonus-shifting” even contravenes the spirit of the law. The government, after all, knew that this was likely to happen. When the top tax rate of 50 percent was introduced in 2010, many companies accelerated their bonuses to avoid the higher rate.

Last year, the government estimated that £16 billion to £18 billion, or about $25 billion to $28 billion, in income, not all of it bonuses, had been brought forward in this way. It also factored such income-shifting into its estimate of what would happen when the tax rate was cut.

If Parliament had wanted companies not to engage in such behavior, it should have said so. But it did not. George Osborne, the chancellor of the Exchequer, even took apparent pleasure in the previous Labour government’s having gotten the math wrong on the 50 percent tax rate, which it had introduced.

The important ethical principle that taxpayers should adopt is that they will abide by both the spirit and the letter of the law. But, as the Goldman case shows, this does not necessarily protect one from being pilloried. Public attitudes about what is fair when it comes to avoiding taxes are hardening. Companies in the public eye should therefore add a further practical principle: abide by the spirit of the times.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/01/21/business/global/21iht-dixon21.html?partner=rss&emc=rss

G-20 Pushes for Measures to End Tax Evasion

Political Economy: Staying in Tune With the Tax Spirit of the Times

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