2022 tax compliance: what to know about the latest in international tax

11th January 2022

In recent months we have witnessed an increase in both contractors and recruitment agencies exploring overseas opportunities. However, while looking beyond these shores can offer businesses and individuals a chance to discover new and exciting markets, there are always tax laws you need to get to grips with to ensure your recruitment agency is operating compliantly.

Here’s what you need to know about 2022 tax compliance.

Pandora’s Box

Europol’s long-awaited Pandora Papers report was finally published at the end of 2021, revealing that €7.5 trillion is held in offshore accounts globally, with some €1.5 trillion of that figure belonging to EU interests.

Orchestrated by the International Consortium of Investigative Journalists (ICIJ), the release of the Pandora Papers was the result of the largest investigation in journalism history, exposing the intricate financial transactions carried out by some of the planet’s most powerful and wealthy people. The investigation involved almost 12 million financial records and other documents associated with high-profile individuals including politicians, celebrities and royalty.

According to the new report’s findings, more than 80% of the criminal networks implicated in it are active within the legality of the EU’s business framework, while they were responsible for siphoning off around €45.9 billion in tax revenues in 2016 alone. As much as 98% of criminal assets are never recovered.

A spotlight on 2022 tax compliance

Against this backdrop, local governments across the globe are shining a spotlight on tax compliance, leaving no stone unturned in an effort to demonstrate they are coming down hard on those who try to beat the system.

Since the explosive leak, G20 counties are said to be backing global tax reform which could potentially mean a global tax minimum of 15% for corporations. In Europe, Brussels has sought to step up the fight against financial crime such as tax evasion, money laundering and investor fraud, all of which are aided by the kind of mechanisms detailed in the infamous documents.

The European Commission recently proposed a new directive to target shell companies, less than three months after the Pandora Papers laid bare the large-scale use of anonymous vehicles to hide money, avoid taxes and disguise asset ownership. The proposal, nicknamed Unshell, would seek to ensure that letter-box companies that have ‘no or minimal economic activity’ in the EU cannot benefit from any tax advantages.

Three criteria will determine whether an entity exists only on paper and, consequently, is deemed unable to obtain tax relief and tax benefits, according to the new directive proposed by the commission. These are: the nature of the company’s income, the proportion of cross-border transactions for the company’s business, and whether the company’s management is outsourced or performed in-house.

As the EU’s Economy Commissioner, Paolo Gentiloni, told journalists at a recent press conference, “The new rules will establish transparency standards around the use of shell entities, so that their abuse can more easily be detected by tax authorities”.

Meanwhile, in France, the Assemblée Nationale recently added an Article to the 2022 French Budget, aimed at securing the application of anti-tax avoidance Article 123, in the context of certain French-connected trusts established in low-tax jurisdictions and which mainly hold financial assets. The changes mark a different approach from the French tax authorities following past unsuccessful attempts to apply this taxation in the context of trusts, with the burden of proof now shifting to the taxpayer.

Further afield, in Pakistan, the Prime Minister’s Inspection Commission (PMIC) has almost completed its own investigations into the revelations, after the names of high-ranking individuals including the country’s Finance Minister, Shaukat Tarin, appeared on the list. Elsewhere, authorities in countries including India and Albania are also in the process of officially examining the report.

A shift in the balance

While many of the suggestions and directives mentioned above are not yet set in stone, there is no doubt that change is afoot when it comes to 2022 tax compliance globally. The publication of the Pandora Papers undoubtedly helped contribute to a global shift in the balance against the global offshore industry, and governments are focusing on tax avoidance and evasion like never before.

If you want to know more about international tax compliance requirements, no matter where in the world you’re operating, speak to our 6CATS International specialists for advice today.

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