21st August 2023
A raft of new reforms are being introduced and passed by tax authorities around the world as they continue in their mission to improve international tax compliance and clamp down on individuals who commit tax fraud. As you’ll discover from the stories we have picked out for our latest blog, there is plenty of progress being made to bring those caught in the mire of tax evasion to account. For contractors working abroad and recruitment agencies placing them, the need to be vigilant and remain tax compliant remains urgent. Here’s the news in our most recent round-up…
First we go to the world’s largest economy and the latest tax measures being implemented by the government. The big tax topic dominating the headlines in the United States concerns the enforcement of cryptocurrency tax reporting guidelines for brokers and exchanges, which have yet to be published by the Internal Revenue Service (IRS) and the Treasury. Indeed, a number of senators, including Elizabeth Warren, Bob Casey, Richard Blumenthal and Bernie Sanders have all signed a letter urging the authorities to waste no further time and take action.
Much to the annoyance and frustration of the group of US senators, and despite the $1.2tn infrastructure bill being made law in August 2021, the Treasury and IRS have still not published the new rules. The letter highlighted the pressing need to act swiftly given that billions of dollars are lost in tax revenue due to crypto tax evasion – at least $50bn every year according to estimates. “Nearly two years have passed since the law was enacted, and the implementation deadline is less than six months away but Treasury has yet to publish proposed rules,” read the letter.
Fiscal reform is also high on the agenda for Giorgia Meloni’s right-wing coalition government in Italy, which will grant authorities greater powers to tackle both individual and corporate tax evasion. Despite the fact that tax evasion cost the country around $90bn in 2020 according to treasury estimates, Meloni’s government has taken a less draconian approach to that of her predecessor and former European Central Bank president, Mario Draghi. Thirteen tax amnesties have been introduced since October with tax evasion reduction targets also expected to decrease.
As reported by the Reuters news agency, the aim of the Italian tax reforms is to target wealthy individuals as well as to foster cooperation between businesses and authorities to ensure they pay the right taxes. The reforms, which were adopted by the Senate in August, are awaiting sign-off from the lower parliamentary house. Once all the various approval stages have been completed, Meloni’s government will then have two years to implement the measures. The Italian government also plans to reduce the number of tax bands, from four to three.
The financial and social costs of tax evasion
Meanwhile, in the Middle East, Lebanon is in the middle of a crisis with deep mistrust building among its citizens who feel that they are not getting adequate levels of public services. This cycle of mistrust and perceived state corruption has led to widespread tax evasion, as citizens look to avoid paying taxes. At the heart of the issues is an inequitable tax system where a uniform, flat rate of tax applies to all with complete disregard to the earnings of the individual. This has led to a vicious circle of non-compliance, which has hit public services hard.
A lack of tax inspectors and investigators and an ineffective court process is only making the situation worse, making tax collection and monitoring harder, perpetuating higher levels of tax evasion. Lebanon also desperately needs to upgrade the technologies being used to track and allocate tax revenues. The Port of Beirut blast of 2020, which killed more than 230 people and injured 7,000 causing so much damage to local infrastructure, is still an open wound. No one has been held to account for the explosion, which has enraged families.
Our final story takes us to Denmark and the case of a British citizen who has been held in custody, accused of perpetrating a fraudulent ‘cum-ex’ tax evasion scheme where tax dividend refunds were illicitly claimed twice. According to Reuters, the hedge fund trader in question, Anthony Mark Patterson, has been charged with attempted fraud of Danish Krone (DKK) 500m (almost £58m), which was part of the scandal that has resulted in losses of over DKK 9bn (£1.05bn) for the Danish government. Another Briton, Sanjay Shah, is awaiting extradition from Dubai to Denmark.
The damage caused by the so-called German ‘cum-ex’ scandal cost the German and other governments an estimated €1.5bn in lost tax revenues. Such was the widespread impact that some of the world’s largest banks were implicated in the affair. German lawyer, Hanno Berger, the man accused of masterminding the fraudulent scheme, exploiting a then tax loophole, was sentenced to eight years and three months by a court in Wiesbaden in 2023.
These stories serve as yet another timely reminder that authorities around the world are hunting down tax criminals and those suspected of tax evasion and fraud. International contractors working abroad must always remain tax compliant, or as we have seen, they could face financial penalties or even prosecution and imprisonment. If you’re unsure about any tax compliance, legal, immigration or other contracting-related matters, please talk to our 6CATS International experts.
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