Tax fraud news alert for recruitment agencies

tax fraud news recruitment agencies

19th January 2023

In our latest article, we round up some of the most recent global examples which once again illustrate the perils of tax fraud and the high risks for those involved in the facilitation of tax evasion. Recruitment and employment agencies placing temporary workers such as contractors must be vigilant when it comes to their own taxes in the countries in which they operate. Let’s take a closer look at some of the key developments around the world to prevent large scale tax evasion.

Tax fraud news

The biggest news concerns the global minimum corporation tax of 15%, which the EU has finally agreed to adopt to prevent the practice of ‘profit shifting’, whereby organisations pay less tax by moving their profits from the jurisdiction where the money is made to an offshore tax haven. An agreement had already been reached in 2021 with almost 140 countries signing up to the proposals tabled by the Organisation for Economic Cooperation and Development (OECD). Former US Treasury Secretary Janet Yellen had famously referred to this as halting “the race to the bottom”.

Months of objections from members had delayed the implementation of the new landmark deal – ‘Pillar Two’ of the OECD proposals – in the 27 nation bloc. The tax will now be applied at the end of 2023. Paolo Gentiloni, the European Commissioner for Economy, welcomed the move which will level the corporate taxation playing fields, stating, “Today, the European Union has taken a crucial step towards fairness and social justice. Minimum taxation is key to addressing the challenges a globalised economy creates.” ‘Pillar One’ focuses on the reallocation of profits (including digital) to jurisdictions.

The €118bn estimated to be redistributed under ‘Pillar One’ could easily be eclipsed by ‘Pillar Two’ and the global minimum corporate tax rate, which could generate €141bn, according to OECD estimates. Together, that equates to €259bn in extra tax revenue for global tax authorities. The minimum rate applies to those companies with turnover greater than €750m. Unsurprisingly, the four countries with corporation tax rates lower than 15% – Ireland and Cyprus (12%), Bulgaria (9%) and Hungary (8%) – were opposed to the deal. Where rates are below the minimum, a ‘top up’ payment will have to make up the 15%.

Global companies investigated for tax fraud

In other news, the European Public Prosecutors Office (EPPO) in conjunction with Italy’s Finance Police (‘Guardia di Finanza’) have seized assets of more than €24m from eight companies, two entrepreneurs and 13 suspects. Two suspected criminal groups were believed to be involved in evading tax and VAT on illegally imported petroleum products, which they then sold on at a lower cost. The investigation was conducted by Catania’s Finance Police with the EPPO assisted by the countries where the energy products originated from, namely Austria, Germany, Czech Republic, Romania and Slovenia.

Meanwhile, French prosecutors raided General Electric’s site at Belfort in north eastern France as part of an ongoing probe into tax evasion. According to the AFP news agency, the US multinational, in a tax avoidance move, is alleged to have transferred €555m in profits from the site to Switzerland or America. The initial inquiry into the company’s tax dealings dates back to 2019 when Fabien Roussel, head of France’s Communist Party (PCF), alerted authorities of his suspicions. GE said that it would cooperate and had always complied “with laws in every country in which it operates”.

Our final story takes us to Germany where the US Bank of New York Mellon, is the latest bank to have become embroiled in the notorious ‘Cum-Ex’ scandal with Cologne prosecutors searching its Frankfurt offices. Oddo BHF, a Franco-German financial services group, which in 2010 sold a unit to BNY Mellon, is also under investigation as other Wall Street behemoths such as Bank of America’s Merrill Lynch, Morgan Stanley and JPMorgan Chase. Barclays’s Frankfurt office was also raided.

Global tax authorities across the world are cooperating to bring perpetrators of tax evasion to justice. The sterling work of the OECD and the adoption by the EU and the agreed adoption of its Pillar 2 directive is yet further indication that tax bodies want to create a fairer and more transparent tax framework. Global recruitment agencies placing international contractors must heed the warnings and ensure they don’t fall foul of local regulations or they could face stiff penalties.

If you need advice about any tax matters in your jurisdiction, our 6CATSPRO experts can help.

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