Tracfin, tax treaties and other dissuasive sanctions against tax evasion
In history of tax havens, islands were often hubs. From 166 BC, Delos practiced free trade of taxes and customs duties becoming a nerve center in the exchange of spices, ivory, cloth and wine. But, what about today? Tax havens brew an important part of global capital. The temptation to evade taxes are strong, what are the risks?
There is no official definition of tax haven. Here are some examples :
- Countries which provides to non-residents who place capital tax benefits. (Synonym: tax shelter.)
- Tax havens, also known as secrecy havens or offshore financial centers are areas where capital flows circulate in a context made attractive by the tax system – which can even be non-existent for non-residents – and by bank secrecy, which makes them immune to international authorities.
These are countries where the financial system is hypertrophied.
A blacklist for tax havens
Some authorities have tried to point out uncooperative countries on tax purposes, and tried to marginalize them. OECD has identified several criteria:
- Insignificant or nonexistent taxes;
- Tax Systems lack of transparency;
- Lack on tax information exchange between different states;
- Facts which attracts companies with fictitious activities.
OECD regroups in a « black list », countries corresponding to those criterias.
In 2012, seven jurisdictions were on the table, including Andorra, Liechtenstein, Liberia, Monaco, the Republic of the Marshall Islands, Nauru and Vanuatu.
As today, no country is now listed.
A grey list
Furthermore, the OECD’s gray list includes states or territories that committed to respect international standards but have not yet done.
According to Finance for all (Finance pour tous), only 8 countries enters this category: Guatemala, Kazakhstan, Lebanon, Liberia, Micronesia, Nauru, Trinidad and Tobago and Vanuatu.
There would be no direct penalties against countries who figures on the gray list, if not the commitment to conclude at least 12 agreements on exchange information, what most would come to honor it by trading with other listed countries.
7 countries under France surveillance
Right now, EU countries have disparate lists and can impose at their convenience, any wanted sanctions. France, have been affected by certain business media , such as Jerome Cahuzac or Guy Wildenstein the art dealer scandals.
Currently, the presumption of fraud hangs over the following 7 countries:
- le Botswana ;
- le Brunei ;
- le Guatemala ;
- Marshall Islands;
- Nauru ;
- Niue ;
- Panama, which has just been added.
Europe targets 30 states
In 2013, the European Parliament has estimated that the cost of tax evasion to cost about 1,000 billion euro per year. In June 2015, the European Commission therefore decided to stigmatized uncooperative states. its list includes about thirty countries, often micro-states. Some tax shelters subsist in Europe (Andorra, Guernsey, Monaco, Lichtenstein).
The French anti-fraud device
Face against the disintegration of Swiss banking secrecy, amending statements Processing Service (PADS) has established in June 2013 to allow taxpayers who concealed to tax authorities a foreign account to be able to legalize that situation. It boasts 7 interregional centers.
In 2015, 8,900 new taxpayers filed a record of compliance:
- 44.894 taxpayers have knocked on the STDR door since its inception,
- 91% of reported assets were lodged in Switzerland,
- And 26.7 billion euros of assets have been released on December 31st 2015.
Over the year:
- 7,800 complete records have been processed.
- The collected revenues reached 2.65 billion euros, …
- of which € 900 million represented penalties and fines.
The French tax authorities remains rather discreet about their investigations.
Nevertheless, it is clear that investigators may be authorized to use techniques called “special” investigation (surveillance, infiltration, custody of four days, etc.).
End of 2013, a financial Republic Prosecutor position was created. It has own fully dedicated to the fight against tax fraud, tax evasion and to dishonesty. Eventually, it is expected to be able to count on at least fifty magistrates and specialized assistants.
Penalties are Dissuasive
The period of limitation for criminal offenses in tax matters extended from three to six years, 10 to 40% Increase applicable to failure to produce the ISF statement when assets have been hidden abroad and their statement led to make the taxpayer owing the ISF,
The penalty is increased to seven years in prison and € 2m fines, when the offense is committed by an organized gang.
Very effective, the automatic exchange of information allows the possibility to obtain information on an alleged fraudster abroad.
In 2014, 27 European countries promised to get ready for the automatic exchange of information by 2017. This decision means that European banks must collect information later this year, in order to send account balances foreign tax administrations of the countries concerned.
Tracfin has proven
Tracfin, FIU born 25 years ago, fight against money laundering in all its forms. It recorded sustained activity since 2008.
In 2015, Tracfin has collected nearly 45,200 information, primarily of “professional reporters” (banks, insurance, notary or other gaming circles).
Since January, all payments or cash withdrawals of more than 10,000 euros per month should be systematically reported to Tracfin, in context of the fight against terrorist financing.
Faced with these risks, it is better to avoid a recovery, especially if one is in good faith. To avoid double taxation of income, many tax treaties have been concluded between France and foreign countries. In this case, this tax agreement take precedence over the principle of French law.
An expatriate must know the tax treaty that applies to his case. It shall indicate the place of taxation of property and income, and the definition of tax residence to avoid any dispute with the French tax authorities.
A sword of Damocles
Uncooperative states such as Switzerland or Austria can toe the line.
Cash purchases in France are now capped at € 1,000.
It is difficult to carry around a credit card issued by an exotic bank.
Cybercriminals can force into your computer system of your bank or your lawyers. In Panama, the firm Mossack Fonseca has been hacked.
A whistleblower can transmit data to the press or to your government, as it has recently happened to UBS and HSBC in Switzerland or PwC Luxembourg.
In addition, it is difficult to repatriate funds hidden in France. If a tax evader has projects in France, in real estate, for example, it will have trouble finding a lending bank.
Moreover, it is a flip side, the funds placed abroad are often inefficient. They undergo many commissions incurred in capital; it is the price of silence.
Finally, many French taxpayers with hidden overseas assets sometimes die without ever enjoying. They then leave to their heirs a difficult situation to manage.
In the end, tax evasion has lost its luster. And, do not of course confuse tax evasion with tax optimization, which is legal.