“INTERNATIONAL AND DOMESTIC ASPECTS OF TAX FRAUD

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					          1ST MEETING OF THE ATAF
             GENERAL ASSEMBLY



Marcio F. Verdi
Executive Secretary, CIAT


“INTERNATIONAL AND DOMESTIC ASPECTS OF
TAX FRAUD, EVASION AND AVOIDANCE”

Issues with Transfer Pricing
                    DEFINE IT

• Tax Fraud
   • The willful and intentional criminal act by an
     individual or business entity falsifying information
     on a tax return in order to limit the amount of tax
     liability.
                TAX EVASION

• Several countries have passed laws distinguishing
  tax fraud as a criminal act, but tax evasion as a civil
  offense
• Most countries are moving toward tightening that
  definition and making tax evasion a criminal
  offence
             TAX AVOIDANCE

• The use of legal methods to modify an individual's or
  business entities financial situation in order to lower
  the amount of income tax owed.
• The legal utilization of the tax regime to one's own
  advantage, to reduce the amount of tax that is
  payable by means that are within the law.
• Aggressive tax planning
• Mitigation
                       IN SUMMARY

•   Evasion
•     - illegal,
•     - possibly criminal
•   Avoidance
•    - legal, though possible exposure to penalties
•    - exploiting loopholes
•    - exploiting domestic or international mismatches
•    - often some form of artificiality or circularity
•    - primarily tax-driven transactions
•    - not within intention of the law
•   Planning
•    - legal
•    - no culpability
•    - within spirit of the law
            TAX PROTESTORS

• Believe that they have discovered interpretations of
  the law that show that they are not subject to being
  taxed
• An unsuccessful tax protestor has been attempting
  openly to evade tax, while a successful one avoids
  tax.
             TAX RESISTORS

• Wont’ pay because government is corrupt
• Won’t pay because taxes are too high
• Won’t pay because they’re against a particular
  government program
      CRIMES AGAINST HUMANITY

• Committed by large multinational enterprises
  • As alleged by several international organizations


• The major problem is in the area of Transfer Pricing
  • When is an transaction “Arm’s Length” and when does it
    border on tax fraud?
  • When does aggressive tax planning border on evasions?
 CHALLENGES ARE INDUSTRY WIDE

• Technology adds a greater degree of difficulty
 • Telecommunications
   • Are SKYPE services taxed locally?
 • Financial transactions
 • Commodities
           THE DARK SIDE OF TP


• The Dark Side of Transfer Pricing: Its Role in Tax
  Avoidance and Wealth Retentiveness
  • Prem Sikka, University of Essex, UK
  • Hugh Willmott, University of Cardiff, UK


• Tax Avoidance by Multinational Enterprises Through
  Transfer Pricing
  • DR. MUHAMMAD KHALID MALIK
COMPANIES FACING ISSUES
       SABMILLER
INTEL ACCUSED OF MASSIVE TAX EVASION

SOMETHING ROTTEN IN THE STATE OF DENMARK
BY SYLVIE BARAK


INTEL HAS ALLEGEDLY BEEN INDULGING IN SOME
SCANDINAVIAN NAUGHTINESS, WITH DANISH TAX
AUTHORITIES CLAIMING THE FIRM HAS TRIED TO SLIP BILLIONS
OF KRONER PAST THEIR BEADY EYES.

DANISH NEWS SITE POLITIKEN SAYS CHIPZILLA IS ACCUSED OF
MASSIVE TAX EVASION TO THE TUNE OF DKK 2.5 BILLION ($452,33
MILLION) FOR TRANSFER PRICING – THE
UNDERVALUATION OF EXPORTS BETWEEN AFFILIATED FIRMS TO
SIPHON PROFITS OUT OF A TERRITORY AND NEFARIOUSLY
AVOID TAXES.
SHIFTING PROFITS ACROSS BORDERS

'TRANSFER PRICING' IS THE BIGGEST TAX AVOIDANCE
SCHEME OF ALL. THE GOVERNMENT MUST INSIST ON
COMPANIES BEING MORE TRANSPARENT.

PREM SIKKA
GUARDIAN.CO.UK, THURSDAY 12 FEBRUARY 2009 09.30 GMT
• Google 2.4% Rate Shows How $60 Billion Lost to Tax
  Loopholes
• Google Inc. cut its taxes by $3.1 billion in the last
  three years using a technique that moves most of its
  foreign profits through Ireland and the Netherlands
  to Bermuda.
• Google’s income shifting -- involving strategies
  known to lawyers as the “Double Irish” and the
  “Dutch Sandwich” -- helped reduce its overseas tax
  rate to 2.4 percent, the lowest of the top five U.S.
  technology companies by market capitalization,
  according to regulatory filings in six countries.
                                        (CONT.)


• The tactics of Google depend on “transfer pricing,”
  paper transactions among corporate subsidiaries
  that allow for allocating income to tax havens while
  attributing expenses to higher-tax countries.
• Google’s transfer pricing contributed to
  international tax benefits that boosted its earnings
  by 26 percent last year, company filings show.
         TYPES OF RELATED-PARTY
             TRANSACTIONS

•   Sales of products
•   Provision of services
•   Licensing
•   Lending and borrowing
•   Leasing
•   Guarantees of indebtedness
    POTENTIAL TRANSFER PRICING
           VIOLATIONS
• A corporation transacts business with one or more foreign
  subsidiaries or affiliates
• A multinational corporation has losses, which may result from
  transfer pricing violations
• The books of a corporation indicate that the corporation’s
  payments to a foreign subsidiary for goods, services, or
  intangibles seem excessive
• The books of a corporation indicate that the corporation sold
  goods, services, or intangibles to a foreign subsidiary for a
  below-market-value price
• A corporation and a related foreign company have a cost
  sharing agreement to develop an intangible asset, and the
  corporation has not allocated development costs in
  accordance with the agreement
• A corporation guarantees the debt of a subsidiary
 ACTIONS TO PREVENT AVOIDANCE

• Frame tax rules so that there is no scope for
  avoidance
  • Possibly unrealistic
• Enact full disclosure laws
• Simplify transfer pricing rules
  • Brazil’s model
    SOURCES OF INFORMATION

• OECD Transfer Pricing Guidelines for Multinational
  Enterprises and Tax Administrations
• Read online: http://www.keepeek.com/Digital-
  Asset-Management/oecd/taxation/oecd-transfer-
  pricing-guidelines-for-multinational-enterprises-and-
  tax-administrations-2010_tpg-2010-en
           SEMINARS, COURSES

• CIAT online course on transfer pricing
• Technical assistance on the audit on MNE,
  specifically dealing with transfer pricing issues
• Seminars and workshops offered by OECD
  • CIAT participates in those in Latin America

				
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posted:10/29/2012
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