Tax officials on trail of hidden wealth
By Vanessa Houlder
Financial Times, May 29 2009
A worldwide crackdown on avoidance and evasion by the wealthy was launched on Friday by more than 30 countries, which promised a joint pursuit of individuals hiding money offshore.
Describing some rich individuals as posing “a major risk” to revenue bodies, the tax authorities said that greater opportunities for aggressive tax planning were available to the wealthy. In a report published on Friday, they cited estimates that 70 per cent of the 500,000-odd Britons in the very wealthy bracket received advice from a financial expert.
Some hedge fund managers and private equity executives posed particular risks, according to the study published by the Paris-based Organisation for Economic Co-operation and Development. “By the very nature of their business activities, these individuals are often well versed in finance and tax matters and tend to deploy relatively aggressive strategies.”
The report also highlighted sports stars and entertainers as posing challenges because of their international mobility, along with entrepreneurs who “are by their nature risk takers and may therefore have an increased appetite for tax risk”.
At a meeting in Paris on Friday, tax officials heaped further pressure on tax havens by promising greater scrutiny of individuals using offshore arrangements.
Recent moves to increase transparency in offshore centres was “helping revenue bodies unravel more quickly the use of international tax shelters for aggressive tax planning and tax evasion, reinforcing the integrity of tax systems as well as helping revenue bodies unlock substantial sums of money that will be of help to governments in reviving the global economy”, the officials said in a statement.
But the report distanced itself from the suggestion that the wealthy as a group are less compliant than other tax payers. The public expect rich people to come under enhanced scrutiny from tax authorities because of a common perception that they pay the least tax, it said. But it added this was “not necessarily the case”, citing data showing that the richest 0.5 per cent of taxpayers in the UK pay 17 per cent of total income tax.
It also said the development of a closer, more co-operative approach to dealing with the tax affairs of the wealthy should be considered. It urged tax authorities to “explore strategies which rely on the co-operation of the taxpayer to volunteer relevant information and that aim to influence his or her behaviour to reduce the prevalence of aggressive tax planning arrangements”.
The report also highlighted the risk that the wealthy, especially those who are internationally mobile, might leave the jurisdiction.
Douglas Shulman, commissioner of the Internal Revenue Service in the US, said: “Individuals, particularly those hiding assets overseas can expect to see a continuation and ramped-up co-ordination of information sharing among revenue bodies to ensure, worldwide, individuals are contributing their fair share of funding to governments.”
Pravin Gordhan, the South African finance minister who chaired the Paris meeting of tax authorities, said: “Aggressive tax avoidance is a serious cancer eating into the fiscal base of many countries.”
Copyright The Financial Times Limited 2009