11th January 2023
Last year was another seismic year for tax evasion with authorities around the world counting the cost of fraud and millions of pounds in taxes being lost in revenue – as individuals and businesses continue to avoid paying the correct amount of taxes. Meeting tax obligations is an absolute priority for recruiters placing international contractors. As the global stories below demonstrate, the penalties can go beyond financial sums and can even lead to prison terms.
German ‘Cum-Ex’ scandal latest
We start with an update on perhaps the biggest scandal of all from the last year, concerning the notorious German ‘Cum-Ex’ scandal, in which multiple share owners would fraudulently claim back dividend tax rebates. The magnitude was such that it cost the German state and other European countries an estimated €55bn between 2002 and 2012 (the loophole was subsequently closed by German authorities in 2012). The chief protagonist and orchestrator of the scheme was a former German tax inspector turned lawyer, Hanno Berger, who personally made €27.3 million.
Following eight years of investigations, which involved 1,500 suspects and 100 banks around the world, Berger was handed an eight year prison sentence in December by a court in the German capital, Bonn. So pivotal was he in promoting the fraud that presiding judge Roland Zickler referred to him as “the inventor of Cum-Ex 2.0”. The 72-year-old Berger had been living in exile in Switzerland but was later extradited back to his home country early in 2022. It was revealed that a former colleague, who cannot be named for legal reasons, is due to pay back half of the balance.
Such are the ramifications of the scandal that in another high-profile case, the Danish tax authorities have been pursuing Dubai-based Sanjay Shah’s Solo Capital Partners for their alleged involvement in conning the Danish Customs and Tax Authority, ‘Skatteforvaltningen’ (SKAT). The case is heading for the UK Supreme Court as SKAT seeks to recoup £1.44bn from 79 defendants (initially this number was 114). Interestingly, The Court of Appeal overturned London’s High Court Ruling of 2021, which had stated that Denmark could not enforce its tax laws in an English court.
Former US president, Donald Trump and his family’s tax dealings have also been brought into the spotlight. A Manhattan jury found the Trump Corp. and Trump Payroll Corp., two Trump Organisation companies, guilty of multiple counts of tax fraud for their involvement in a 15-year-scheme to defraud tax authorities. The accusations involved falsifying records and a failure to report and pay taxes on the remuneration of top executives. Although not at risk of being dismantled, the company faces a $1.61 million tax bill when sentencing takes place in January.
Manhattan’s District Attorney, Alvin Bragg, explained, “This was a case about greed and cheating. The Trump Corporation and Trump Payroll Corporation got away with a scheme that awarded high-level executives lavish perks and compensation while intentionally concealing the benefits from the taxing authorities to avoid paying taxes. Today’s verdict holds these Trump companies accountable for their long-running criminal scheme”. Trump and his family also face a civil lawsuit of $250 million from the New York Attorney General concerning financial records.
Tax evasion controversies in 2022
President Emmanuel Macron of France, who was in Qatar to support his countrymen in the World Cup final, is also under the spotlight given an ongoing investigation into alleged financial irregularities of his Renaissance party during the last two presidential elections (2017 and 2022). The matter centres around money spent on the government’s use of multinational consulting firms and potential tax fraud, notably by McKinsey. The US company, whose Paris offices have been searched, denies any wrongdoing on the alleged ‘tax optimisation’ scheme operated by its Delaware parent company.
And last, but by no means least, perhaps the biggest scandal, or the one that has attracted the most media interest of late has been the sudden demise of crypto golden boy, Sam Bankman-Fried, widely known as ‘SBF’. The American founder and CEO of now collapsed exchange, FTX, was arrested in Nassau, Bahamas, where he lives, accused of wire fraud and conspiracy to commit wire fraud against lenders and customers as well as securities fraud and money laundering. He has agreed to be extradited to the US.
Even the great and the good, including presidents and former presidents are not exempt from tax laws. Global tax authorities are not relenting in their pursuit of tax fraud and evasion as they seek to claw back millions of pounds in lost taxes. Recruitment agencies working with international contractors must ensure that they pay the correct amount of taxes in their local countries or risk severe penalties. If unsure about any tax matters, our 6CATSPRO specialists can help.
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