Compliance update for international recruitment agencies

compliance for recruitment agencies

3rd June 2023

Recruitment agencies placing talent overseas face a difficult environment and it appears that this is only going to become more challenging as more and more changes are made to international tax and regulatory systems. This is hardly surprising; governments are looking to reclaim revenue lost through tax evasion and fraud and are targeting organisations of all shapes and sizes that they suspect of breaching regulations. No firm, regardless of size, is safe from the clutches of global tax authorities and we’ve provided an overview of some of the major stories from the past few weeks that highlight that very point.

French authorities seek €2.5bn from banks over tax fraud probe

Authorities in France are looking to recover €2.5bn in back taxes from several banks, including some of the country’s largest lenders, over a scheme they are alleged to have used to avoid taxes linked to dividend payments. Minister for the budget Gabriel Attal gave an extensive speech in a public Senate hearing earlier this month but did not name the banks that have been alleged to have broken tax laws. This speech marked the first time that the French government has provided a figure for the potential losses to public coffers from the so-called ‘Cum-Cum’ trades, or transactions designed to seek tax advantages tied to the payment of dividends. As outlined in some of our previous blogs, banks in other European countries – most notably Germany – have already been targeted by investigations related to the ongoing ‘Cum-Ex’ scandal where governments reimbursed taxes on dividends that were never paid. French banks allegedly helped their foreign clients by temporarily taking the shares they held in French companies around the time dividends were paid in order to avoid tax being levied on them, according to prosecutors. Attal declined to say whether the banks had already paid back the €2.5bn that the tax authorities had demanded, however, two people close to the discussions said the banks had pushed back against the demands and were disputing the charges. This case, that’s now been running for a number of years, highlights the extent to which authorities are willing to go to chase down even the most powerful organisations if they are linked in any way to potential cases of tax evasion.

Major Indonesian lender under scrutiny over alleged tax evasion

A troubled Indonesian online lender, UangTeman is under scrutiny in its home country for alleged tax evasion with the domestic tax authorities reaching out to its shareholders for information to support the investigation, according to a report by Tech in Asia. One of the shareholders, Alpha JWC Ventures, confirmed that the company had been updated about the ongoing enquiry in recent weeks, saying “We are currently in talks with tax authorities to gain more clarity.” They also confirmed that they were conducting their own investigations regarding the company that they invested in a number of years ago. According to sources, UangTeman has failed to pay the right levels of income tax since 2020 despite having provided evidence to employees that taxes had been deducted from their pay. In addition, since December 2020 the company has failed to pay around 100 former workers their salaries, with the owed sum totalling around 5 billion rupiah ($330,000). The company had its lending license revoked in March 2022 however this, and the fact that CEO Aidil Zulkifli has gone into hiding, has not prevented the Indonesian authorities from closing in on the firm.

How PwC became mired in a tax scandal

And finally, one of the world’s largest accountancy and financial services firms, PwC, has become mired in an ongoing tax scandal that started back in 2015. The firm has been accused of using a former adviser, who also worked with the Australian government, to provide secret information about upcoming tax changes for multinational firms in the country. Peter Collins, who had signed confidentiality agreements with the Australian government and agreed to keep the information secret, fed intelligence to his colleagues at PwC so they could prepare clients for what was coming. In addition, he frequently urged colleagues not to share the information widely, or to treat it as merely rumour or expectation.

Collins provided information about multiple tax initiatives, meeting agendas, expected timings and government thinking, as well as a confidential copy of an OECD draft paper on “mandatory disclosure of tax planning schemes”, which outlined possible measures to reduce tax avoidance globally. The emails were uncovered following a parliamentary enquiry and have led to a series of investigations which have also revealed that PwC partners began working on “our first North America project” and used the information to give 14 US companies, primarily in the tech sector, a head start on compliance with Australia’s new laws.

PwC has been criticised by Labor senator, Deborah O’Neill who said, “the emails demonstrate international collaboration on this issue among PwC staff across the jurisdictions of Singapore, the United Kingdom, Ireland, the United States and Europe. This is a disgraceful breach of trust, a sickening example of a lack of integrity, and reveals a toxic culture of unprofessional practice at PwC that stretches across the globe.” While punishments are still being discussed, it’s highly likely that the firm will be required to repay the sums it won from clients for providing the confidential information and it is believed that the Australian Treasury is now considering whether a criminal investigation should be pursued against Collins and potentially other PwC directors. The organisation employs over 300,000 staff across 152 countries and the case highlights that businesses, regardless of their international reach and power, will struggle to operate under the radar of tax authorities around the world if they’ve been acting illegally.

While it’s unlikely that any recruiters will have led a scandal quite as large as PwC has, it’s clear that tax authorities and regulatory bodies are closing in on any firm suspected of operating illegally. Placing talent internationally can be highly complex with numerous legislative hurdles to overcome; if your firm is unsure of its status or that of the professionals it places overseas then make sure to partner with an expert firm before it’s too late.

6CATSPRO is part of WorkwellTM Group

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