21st October 2021
With 136 countries signed up to the global 15% minimum corporation tax reform, the right amount of tax from the income derived by global companies from their client base in other territories must be paid. The agreement, instigated by the Organisation for Economic Cooperation and Development (OECD), is set to raise $150bn in annual tax revenues, and sends out a clear message that corporate tax is a major inter-governmental priority. Global recruiters must therefore remain tax compliant and ensure that they don’t get involved in any kind of tax fraud.
The extra income from both corporate and personal tax can make a real difference to government spending. The sums can be significant. The Brussels Times quoted an interview on the Flemish VRT channel in which Paul Magnette, the president of Belgium’s socialist party said, “If we apply ourselves to fighting tax fraud, we can find two, three, four billion euros” while adding in reference to the Pandora Papers that “there is a lot of money that we can find among Belgian families that lodge their money in tax havens, without making ordinary citizens pay”. He stressed that Belgium’s budgetary issues could be resolved and some of the brutal expenditure cuts avoided.
Oleg Tinkoff, the founder of Tinkoff Credit Services (TCS) and who became a naturalised US citizen in 1996, has been accused of concealing more than $1bn from the US’s Inland Revenue Service (IRS) to evade taxes. He has now been hit with a whopping $500+m tax bill. The enormity of the financial punishment is a reminder to business owners that tax evasion carries huge penalties. As explained by Stuart M. Goldberg, Acting Deputy Assistant Attorney General of the Justice Department’s Tax Division, the total fine adds up to “more than double the amount of money he [Tinkoff] sought to escape paying to the US Treasury through this fraudulent scheme”.
Another case in the US, this time lodged in the northern district of Texas, revolves around the founders of Bitqyck, a crypto ICO (initial coin offering), who concealed around $24m raised from more than 13,000 investors who they then proceeded to defraud. Virtual currency dealings must be reported on US tax returns. Acting US Attorney Chad Meacham reiterated the point that tax obligations still apply to digital currencies, “Transacting in virtual currencies does not exempt business people from paying income taxes…the Department of Justice is committed to ensuring that every taxpayer pays his or her fair share – and to protect the crypto space from bad actors.”
Recruitment agencies need to be tax compliant
On a positive note, the fight against fraud is making headway according to the annual report on the protection of the EU’s financial interests 2020 report. The financial impact of fraud cases fell in 2020 year on year by 20%, as reported by EUobserver, the Brussels based European online newspaper. Over a thousand irregularities were registered amounting to €371m and this continues the decreasing trend seen in the past five years. Austrian Budget and Administration Commissioner Johannes Hahn said, “The EU’s unprecedented response to the pandemic makes more than €2 trillion available to help member states recover from the impact of the Coronavirus. Working together at the EU and member state levels to keep this money safe from fraud has never been more important.”
According to an article on the website of Kathimerini, the Greek daily, political and financial newspaper, the EU Commission found that VAT indirect tax evasion is costing the Greek state a massive €6bn, the difference between the €15bn received and the €21bn potential sum due – making Greece the worst performing EU country. Customs fraud accounts for around half of the losses. The shortfall is more than double the amount of tax the government gets from its single property tax (ENFIA), which brings in €2.5bn. VAT evasion costs EU governments more than €140bn every year.
As these cases against companies and individuals show, state authorities are clamping down on those who seek to commit tax evasion via all schemes, including the use of digital currencies to avoid paying the right amount of tax. While much progress has been made globally in the war on corporate tax, governments are steadfast in their mission to bring wrongdoers to task. Remaining tax compliant must remain a business imperative for recruitment companies and their owners who place contractors abroad. If you need any advice, our 6CATSPRO tax specialists can assist you with all your compliance legislation requirements globally.