Po­lit­i­cal will pushes en­ve­lope for tax scru­tiny

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - NAZRIEN KADER

GOV­ERN­MENTS’ con­cerns about tax leak­age and tax gaps has led to tax ju­ris­dic­tions across the world sign­ing a record 196 in­for­ma­tion ex­change agree­ments in 2010 alone, bring­ing the world to­tal to 440 tax agree­ments.

In their re­port “Har­ness­ing the forces of change: tax tac­tics for the global fi­nan­cial ser­vices in­dus­try”, De- loitte points out that fol­low­ing the re­cent global eco­nomic re­ces­sion, tax trans­parency and de­vel­op­ments to stop tax eva­sion are high on the po­lit­i­cal agenda.

Var­i­ous groups made up from tax au­thor­i­ties around the world are work­ing within groups to sign agree­ments to counter tax eva­sion and avoid­ance at its high­est level. Such has been the suc­cess of the group com­pos­ing the Joint In­ter­na­tional Tax Shel­ter In­for­ma­tion Sec­tion (JITSIC), for in­stance, that its cur­rent mem­ber­ship of five na­tions is due to in­crease to eight. It is likely as well, that this growth will con­tinue into the fore­see­able fu­ture.

As a re­sult of the in­creased co­op­er­a­tion be­tween var­i­ous tax ju­ris­dic­tions, joint au­dits are now be­ing ad­vo­cated by a Euro­pean Union body, the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and De­vel­op­ment (OECD), which says that au­dits should be the way to deal with cross-bor­der is­sues in­volv­ing multi­na­tional busi­nesses.

The joint au­dit teams, says the OECD, would be com­posed of rep­re­sen­ta­tives from var­i­ous tax au­thor­i­ties work­ing to­gether to re­solve is­sues with a multi­na­tional. The ob­jec­tive is to re­solve is­sues quicker and cre­ate a bet­ter ser­vice to the multi­na­tional. The de­vel­op­ments re­sult from tax havens and bank­ing se­crecy laws com­ing un­der in­creas­ing scru­tiny from or­gan­i­sa­tions and var­i­ous na­tional gov­ern­ments.

Var­i­ous gov­ern­ments have made it clear both to fi­nan­cial in­sti­tu­tions who over­see the per­ceived tax eva­sion, as well as to their cus­tomers, that fail­ure to abide with tax laws will not be dealt with lightly.

The public scru­tiny alone is not worth the risk to any fi­nan­cial in­sti­tu­tion. The de­vel­op­ment of sys­tems for cus­tomer iden­ti­fi­ca­tion and ver­i­fi­ca­tion be­ing put in place to drive com­pli­ance are costly, although they will un­doubt­edly out­weigh the ini­tial fees.

The mes­sage is un­equiv­o­cal: im­ple­ment de­vel­op­ment projects now.

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