Tax evasion risks for recruiters

tax evasion risks recruiters

5th July 2021

With yet further high-profile cases hitting the headlines of a clampdown on tax evasion and the failure to prevent the facilitation of tax fraud, recruitment agencies must be on their guard and not fall foul of local tax authorities. Failing to prevent tax evasion is a criminal offence, so recruitment businesses can face very stiff penalties if they don’t follow the correct procedures when placing international contractors abroad. As we continue to see across the EU, any form of tax malpractice will be targeted and offenders charged accordingly – and no one can hide from the law.

In fact, to avoid criminal tax evasion charges, UBS recently had to pay the princely sum of €50m to Belgian tax authorities following accusations that the Swiss multinational investment bank and financial services company was using bank accounts in Switzerland to help Belgian nationals avoid tax, thereby facilitating tax evasion. The illegal manoeuvres in its role as a financial intermediary were first brought to the Brussel prosecutor’s attention by the country’s National Bank in 2014.

Former compliance officers revealed how wealthy Belgian citizens were contacted directly by employees of the Swiss bank and persuaded to open accounts in Switzerland. As the accounts were registered to a fencing company based in a tax haven, the money was effectively hidden from Belgium’s tax authorities and could not be traced back to the individual. Interestingly, the bank had been implicated in similar practices that had been exercised as far back as 2007 in the US, with both Germany and France also launching investigations in 2012.

With the help of French authorities, legal action started in 2016 which resulted in the bank’s Belgium CEO, Marcel Brühwiler, being charged with a number of criminal offences, including money laundering and organised tax fraud. However, lengthy and complex court trials can be avoided in Belgium by allowing parties to reach a settlement, albeit this must be decided in court. The largest banking institution in Switzerland, with joint headquarters in Basle and Zurich, has also had to pay a whopping minimum €3.7bn fine as well as damages of €800m to the French government.

From finance to football and daily newspaper El Mundo revealed that former Chelsea and Everton manager, Carlo Ancelotti, is also in trouble with Spanish tax authorities (Ancelotti recently swapped Liverpool for Madrid) who want to freeze his salary as a result of €1.42m in unpaid back taxes. The tax offences were alleged to have been committed during Ancelotti’s first spell at the legendary Real Madrid football club, which he managed from 2013 to 2015.

The Italian is accused of two tax offences, the first for not having paid the right amount of tax on his income and the second in regards to income earnt on his image rights. Ancelotti is accused of siphoning his income to a company he set up while based in England so that he would pay 10% tax instead of the 45% rate imposed by Spanish law. He is due to appear in a Madrid court on 23rd July.

Recruiters risk tax evasion charges

Remaining compliant when placing contractors globally and ensuring that due diligence is carried out thoroughly is now an even bigger priority for recruitment agencies, especially since the passing by the UK government of the Criminal Finances Act 2017. According to the GOV.UK website, this “gives law enforcement agencies and partners, further capabilities and powers to recover the proceeds of crime, tackle money laundering, tax evasion and corruption, and combat the financing of terrorism”.

For recruiters, this means taking precautions to ensure that they – and the contractors they place – adhere to the rules so that they’re not caught up in any kind of tax evasion or fraud when it comes to paying their contractors. Any non-compliant activities in respect to both UK and foreign owed taxes carried out by companies in the recruitment industry could lead to legal action and prosecutions. Liability will be incurred by the business where it fails to prevent the facilitation of tax evasion by a ‘representative’, which could be an agent or employee, third party supply chain provider or contractor.

With global authorities continuing to take steps to prevent tax fraud and collaborate on cross-border income and tax reporting, it is imperative that recruiters placing contractors globally maintain detailed documentation and financial records. As we continue to see, failure to do so can result in big fines and criminal proceedings.

If you’re concerned about tax avoidance and tax evasion and would like advice on all compliance and tax related matters relating to your global contractors, talk to our 6CATS International experts.

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