The importance of international tax compliance

Importance of international tax compliance

14th July 2021

As governments and tax authorities continue to take strict action to tackle tax evasion and fraud, the importance of international tax compliance for global contractors cannot be underestimated. In order to avoid potential fines or even criminal charges, contractors need to be aware of all the latest international tax developments and any changes in local tax regimes that could impact them.

In this article, we bring you a digest of the latest international taxation news from around the world, which further reiterates the need for international contractors to meet tax compliance rules or risk running into problems with local tax administrations.

Record tax receipt in Kenya following reforms

In our first news item, we go to east Africa where the Kenyan Revenue Authority (KRA) achieved a record in terms of tax receipts for the 2020/21 tax year. The local tax authority managed to collect 1.669 trillion Kenyan Shillings (Ksh) – the equivalent of over £11 billion or $15 billion – compared to Ksh1.652 trillion in the previous year, beating its 2021 Budget Policy Statement target. The number of Kenyans filing their tax returns also rose sharply, up by 1.1 million to 5.5 million, a 19% increase, equating to a revenue increase of 3.9% for the KRA.

So how has the KRA achieved such a marked uplift in the number of citizens submitting their tax returns on time? As well as boosting taxpayer sensitisation when filing their returns, the KRA has supplemented the provision of its services through the KRA Contact Centre and Tax Service Offices across the country, by extending staff working hours. It has also improved its iTax online system to provide a better all-round experience for taxpayers with those whose income comes solely from employment finding their numbers auto-populated in a designated field.

The TaxBase Expansion (TBE) initiative from the 7th Corporate Plan was also a major contributing factor in the increase of online tax return submissions. “Through this initiative, KRA recruited more taxpayers through the newly implemented taxes including Digital Services Tax, Minimum Tax, and voluntary Tax Disclosure among others. Over the 7th Corporate Plan period, active taxpayers increased from 3.94 million to 6.1 million,” remarked Githii Mburu, Commissioner-General of the KRA.

The KRA is also active on social media, reminding taxpayers of their legal duty to file tax returns. The penalties for not doing so in time and not meeting the 30th June deadline are 5% of the tax due or Ksh20,000 (c. £134), whichever of the two is the highest. The number of projected taxpayers registered on the iTax system is expected to rise significantly to 8.2 million, an increase of 2.1 million, by the end of June 2023.

Why international tax compliance matters

Meanwhile across the Atlantic, the Internal Revenue Service (IRS) is embracing and leveraging the latest technology as part of its digital transformation programme. It has hired experts in data analytics, data science and artificial intelligence, to uncover transactions in virtual cryptocurrencies such as Bitcoin, in a bid to clamp down on tax evasion and money laundering. “It’s important to know that technology and data analytics and artificial intelligence play a large part in the future of the work that we’re going to be doing at the IRS,” commented Jeff Tribiano, deputy commissioner for operations support at the US’s tax authority.

With cryptocurrency being a focal point of the Biden administration’s American Families Plan, individuals are being warned that any tax wrongdoing will be caught and punished. The IRS has also been partnering with counterparts in the Netherlands, Canada, UK and Australia (known as the ‘J5’) to tackle blockchain transactions of digital currencies and cases of fraud and non-compliance, which have increased during the pandemic. Any virtual currency activity must be declared by US taxpayers when completing their tax return (Form 1040). The IRS has also put pressure on exchanges such as Coinbase and Kraken to disclose anonymous users and foreign users.

As for corporate taxation, the OECD has battled long and hard for its two pillar blueprint to be implemented globally, and the July 2021 agreement of 130 countries is a huge step forward. The jurisdictional change (‘Pillar One’) will put a stop to big companies, in particular the tech giants, shifting their profits to tax havens and avoiding paying tax where they earn their revenues. The global minimum tax rate will ensure that countries can apply a top up levy to the lower tax that local companies might enjoy in other jurisdictions, ensuring that they don’t miss out on tax revenues.

Remaining compliant in a complex world  

No matter where you are based in the world, one of your key responsibilities as a contractor is to ensure that you keep all your tax information up to date for tax purposes and pay the right amount of income tax. As we’ve seen with personal income tax, global corporate tax and foreign income, authorities in developed and developing countries alike are hot on the heels of tax offenders, and you don’t want to risk future opportunities through an administrative error or small mistake on your part.

As experts in international contractor management, we know how complex the global tax arena is. But at 6CATS International we have the experience in our team and on-the-ground connections globally to ensure contractors are operating compliantly. We know the importance of international tax compliance and we deliver the solutions contractor need across borders.

If you need any advice on your situation, contact 6CATS International’s specialists today.

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