[International Tax Compliance]

Detecting, Deterring, and Responding to International Noncompliance

Detecting, deterring, and responding to international noncompliance are key challenges facing tax authorities around the world. International tax non-compliance is a significant problem acknowledged by global tax authorities. Tax advisors and financial institutions play a major role with deterring, implementing and monitoring global tax compliance.

International tax compliance enforcement is a priority effort for the IRS. Tax avoidance schemes, cross-border transactions and complex “hard to understand” business structures have heightened IRS tax compliance concerns. The prevention of tax schemes, money laundering, and the flow of narcotics and terrorist funding is a coordinated effort IRS-Criminal Investigation (IRS-CI) undertakes with other countries. IRS-CI has special agents that are forensic accountants trained to follow the money. IRS-CI has expanded its overseas presence by assigning attachés to key foreign embassies and consulates.

IRS-CI conducts criminal investigations regarding alleged violations of the Internal Revenue Code, the Bank Secrecy Act and various money laundering statutes. The findings of these investigations are referred to the Department of Justice for prosecution consideration.

The Panama Papers uncovered the tip of an iceberg for misunderstood offshore structures that could actually be legal in multiple jurisdictions. That said, the U.S. and other jurisdictions have provided a number of public announcements and warnings regarding the non-compliant uses of what could otherwise be legitimate business structures. From the U.S. perspective, FATCA has enlisted banks around the world to report on reportable U.S. taxpayer owned and controlled bank accounts. FATCA requires Non–US Financial Institutions around the world to disclose their U.S. account holders, or risk being blocked out of the U.S. financial system, and pay penalties. IRS has been emphatic in its warnings to offshore account holders to disclose their reportable controlled accounts before it is too late. Based on its IRS provided information under Internal Revenue Code section 7345, the U.S. State Department is now required under certain circumstances to revoke or deny a passport to a U.S. taxpayer that has a IRS tax lien in excess of $50 thousand. While it is not illegal to have offshore accounts or use offshore business structures, not reporting their existence and earnings is illegal under U.S. tax law.

In a globalized economy cross-border transactions become the norm. Tax authorities will be working together to ensure that taxpayers pay the right amount of tax to the right jurisdiction. In 2014 the Organization for Economic Co-operation and Development (OECD) developed the Common Reporting Standard (CRS). CRS is an information gathering and reporting requirement for Financial Institutions to ensure compliance by tax jurisdiction - as opposed to FATCA that ensures compliance by US immigration status. CRS jurisdictions will automatically exchange tax information on an annual basis. Over 50 jurisdictions have adopted CRS and will automatically exchange information between tax authorities starting in September, 2017.

The game is almost over for those who are non-compliant regarding reportable income and reportable accounts. The moment to comply is now.

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