The international clampdown on tax compliance

clampdown on tax compliance

1st July 2021

As tax authorities around the world continue in their quest to stamp out tax evasion, businesses must tread very carefully when it comes to their corporate taxes. In our latest article looking at some of the most recent developments and moves being made by tax bodies globally, we are once again reminded of the perils of not adhering to local tax legislation. Recruitment agencies who are placing contractors in different countries must be aware of the tax implications or face paying the price.

Spain’s war on tax evasion

Spain is one of many countries looking to throw the book at tax offenders. As recorded in ‘Component 27’ and published in the annex of the European Commission’s ‘Recovery, Transformation and Resilience Plan of Spain’, the government is remaining steadfast in its battle against tax fraud and tax evasion, with an estimated 6,600 inspections in the pipeline for 2021. This commitment is further enhanced by plans to increase the headcount of its Tax Agency from over 26,000 and return it to the 27,000 to 28,000 strong organisation that it had been pre-pandemic.

This is a powerful signal of the government’s intention to probe real time tax filing and claw back some of the lost millions in euros from tax fraud. Also revealed in the document are plans to modernise and upgrade IT systems to aid international cooperation on all regulatory tax obligations, especially for foreign tax payers, in accordance with international standards. The two most important of which are the Foreign Account Tax Compliance Act (FATCA) – the US’s requirement to report on foreign assets – and the OECD approved Common Reporting Standard (CRS), which facilitates the exchange of information between jurisdictions.

With the tax data of at least 85% of registered foreign taxpayers being identified and verified for risk analysis purposes, the Spanish Tax Agency is also proposing a cooperative model. By strengthening its relationships with both large and small and medium sized companies (SMEs) as well other associations and individual taxpayers including the self-employed, it aims to improve compliance surrounding tax obligations. Twenty transparency reports are being produced in 2021, which means that “cooperation with judges, prosecutors and courts is expected to increase by increasing the investigations in the tax field”.

Global tax compliance crackdown

Already approved by the Congress of Deputies, the Tax Agency has also committed to producing a report evaluating the anti-fraud and tax avoidance law by the end of 2023, highlighting which measures – concerning direct, indirect and local administration taxes – ought to be kept, deleted or modified as the case may be. A provisional assessment will, however, also be carried out by the end of 2022. It also wants to provide more assistance and a better level of service to taxpayers, by investing in its digital platforms to simplify the submission of tax returns.

Pakistan has also had to count the cost of tax fraud, with the national exchequer losing out on a reported 2.7bn Pakistani rupees (Rs) – in excess of £12m – which is the sum total of the evasion carried out by 236 individuals in four districts of the Faisalabad Division. A report from the Departmental Audit Committee of the Regional Tax Office of the Federal Board of Revenue (FBR) found that the individuals from Pakistan’s third largest city hadn’t disclosed income or assets, including the purchase of commercial properties.

The FBR’s audit committee has recommended that the Faisalabad Regional Tax Office carry out a full enquiry into matters pertaining to tax evasion within its jurisdiction and report back to the federal authorities with details of any income recovery. The regional office has started to issue notices to those in question so that they can investigate the tax fraud and recoup the income that should have been paid. The evasion applies to both registered and non-registered individuals.

Tax compliance must be a priority for recruitment firms

Preventing and combating tax fraud is high on the agenda of authorities around the world. Gaining back tax control and ensuring that businesses and individuals meet their obligations is an ongoing battle for tax bodies who are relentless in their pursuit of offenders. If recruiters are not aware of their tax positions regarding contractor compliance and aren’t meeting their tax liabilities, they could face lengthy investigations and severe financial penalties.

Need advice on taxation and compliance in the country you’re operating in? Our 6CATSPRO experts are on hand to guide you through all the complexities and support you every step of the way.

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