Political will pushes envelope for tax scrutiny
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.