4th November 2021
Getting caught up in tax evasion and tax fraud is one of the biggest nightmares that any recruitment agency placing international contractors abroad could face. Given the complexities of local employment and tax legislation, recruiters need to ensure that their house is in order for tax purposes, but it’s a very delicate area that can often require specialist advice to avoid falling foul of local authorities.
Pandora Papers
As the recent Pandora Papers leak reminds us, with many rich and famous people exposed for their use of shell companies and tax havens, no-one is above the law and authorities will investigate any indication of tax wrongdoing. From prominent politicians to global pop stars and sporting icons, the extent of the tax evasion laid bare by the International Consortium of Investigative Journalists (ICIJ) leak on 3rd October wreaked havoc around the world. Those implicated have had to defend themselves and comment on their tax affairs, as authorities begin their judicial processes to uncover fraud.
One of the high profile politicians to become embroiled in the affair is Ecuador’s president, Guillermo Lasso after an opposition leader called for his affairs to be scrutinised, as reported by the Reuters news agency. A former banker who came into power in May 2021, the documents reveal that Mr. Lasso transferred two Panamanian foundations (that would pay his family an income after his death) to trusts in the midwestern US state of South Dakota. Although Ecuador passed a law in 2017 to prevent public officials from carrying out offshore transaction, the US was not included in the list of countries.
The Ecuadorean legislature is set to determine whether or not the 65-year-old is guilty of having breached the law that “prohibits candidates and public officials from having their resources or assets in tax havens”. He is alleged to have owned 14 mostly Panama based offshore companies, which he referred to as “legitimate investments” but had ultimately disposed of when embarking on his political career, Lasso having been a presidential candidate in the 2013, 2017 and 2021 elections for the centre right ‘Creando Oportunidades’ (‘CREO’) party. The probe will be conducted within 30 days.
Among other high profile Latin American politicians to be named were Chile’s Sebastián Piñera and Dominican Republic president Luis Abinader. The former faces impeachment charges for the 2010 sale of a stake in the Dominga copper and iron mining project in which offshore companies in the British Virgin Islands were used. Abinader has also been linked with offshore companies in Panama, with the documents revealing that two companies were set up before he became president in August 2020.
Contractor tax and recruitment agencies
In other news, as reported by South African news and information website IOL, the banking and wealth management group, Investec, has been implicated in the notorious ‘Cum-Ex’ scandal in leaked German documents seen by amaBhungane, the independent South African newsroom. The trading scheme tax fraud is associated with Germany, with around 100 banks and financial institutions involved in deals that were carried out between 2001 and 2011. Although the dividend payments loophole was closed in 2012, the transactions had cost the German government around €12bn in lost tax revenue.
Explaining the nature of the tax fraud, the article explains that “it involves multiple role players who rapidly buy and sell shares among each other immediately before and after the declaration of dividends by a company listed on a stock exchange. The point is to claim back a withholding tax on the dividend that got paid out – but to claim the reimbursement twice”. Senior executives at the bank, including Michael Cullen, the current chief executive of Investec Europe, have been named for their alleged involvement in the affair.
Irish-based funds and banks, including The Bank of Ireland’s Securities Services (BOISS) fund administration unit were also used by hedge funds and traders to carry out the Cum-Ex trades. An investigation by The Irish Times in partnership with German newsroom CORRECTIV and 15 other media organisations found that Ireland had played a key role in the setting up of funds to facilitate the financial fraudulent scheme and the claiming back of tax refunds.
As these leaks reveal, organisations and individuals deemed to have concealed assets and income via offshore companies or illegal trading schemes, will be investigated if any evidence of tax fraud or tax evasion is found. Clearly, small, medium and large recruitment agencies placing independent contractors must be extremely careful in ensuring these individuals pay the right amount of tax in the locations where they operate. If you need specialist tax or employment compliance advice, call our 6CATS International experts.