When it comes up in conversation, I keep telling people one thing – forget FATCA, we are in the midst of a movement that is much bigger than just one law. The drive for international transparency and substance seems unstoppable at this point. It is not just happening at the individual level, it is happening at the level of MNCs as well
In March this year I wrote about an acquaintance of mine who was arrested for tax fraud and money laundering https://ecoteam.wpmudev.host/2014/03/rogue-traders.html
One of the things that jumped out at me is the extent to which undercover operatives are being used by the Federal government in general, and the IRSin particular. According to a November 15th article in the New York Times, at the Internal Revenue Service, dozens of undercover agents chase suspected tax evaders worldwide, by posing as tax preparers, accountants, drug dealers or yacht buyers and more, court records show. Interestingly, undercover agents at the I.R.S., appear to have far more latitude than do those at many other agencies. I.R.S. rules say that, with prior approval, “an undercover employee or cooperating private individual may pose as an attorney, physician, clergyman or member of the news media.”
José Marrero, a former I.R.S. supervisor in Miami, said he knew of situations in which tax investigators needed to assume the identity of doctors to gain the trust of a medical professional and develop evidence that is tightly held. “It’s very rare that you do that, but it does happen,” Mr. Marrero, who has a consulting firm in Fort Lauderdale, Fla., and continues to work with federal agents on undercover investigations, said in an interview. “These are very sensitive jobs, and they’re scrutinized more closely than others.”
Detailed reviews of the money spent in some of its undercover operations took as long as four and a half years to complete, according to a 2012 review by the Treasury Department’s inspector general.
We all know that MNCs drive the world economy. Despite this, there is unprecedented antagonism towards certain corporate tax planning. A November 14th article in the New York Times spoke about the laws in the Netherlands which shield a variety of profits from taxation, making it attractive for big multinational companies like Starbucks, Google and IBM to set up offices. Even rock stars like the Rolling Stones and U2 have taken advantage of Dutch tax shelters. Last Friday European Union authorities publicly accused the Netherlands of making a special deal with Starbucks that helped the coffee company lower its taxes, seeing it as potentially illegal state aid.
The same goes for Luxembourg, Bermuda, Ireland and the British Caribbean countries like the Cayman Islands. Along with the Netherlands, those places rank among the top destinations for foreign direct investment from the United States, according to a review of data collected by the Bureau of Economic Analysis that shows how entrenched tax avoidance strategies have become.
Last month, Ireland said it would phase out a loophole that Apple helped pioneer and is currently used by many other companies, known as the Double Irish. The maneuver allows companies to pay royalties from one Irish subsidiary to a second subsidiary incorporated in Ireland and domiciled in another country with low or no corporate tax. The strategy is often paired with a Netherlands subsidiary and known as Double Irish with a Dutch Sandwich.
But Ireland’s move seems intended to cushion the blow for multinationals. Not only will there be a long phase-out period, but the country is setting up a so-called patent box.
A similar mechanism in Britain allows a company to pay lower taxes for “its patented inventions and certain other innovations.” Here too, European regulators are taking a closer look, viewing it as a potentially unfair trade practice.
“It’s kind of a dance that’s going on,” said Sol Picciotto, a professor at Lancaster University Law School and a founder of the Tax Justice Network, which opposes tax avoidance strategies.
Let’s keep an eye on what comes out of the G20 meeting down under…