On November 8, 2017, the OECD issued important guidance on how governments can catch tax evaders and, significantly, what rights taxpayers have. (“Fighting Tax Crime: The Ten Global Principles”).
OECD guidance is back-door law in OECD member countries. Article 6 of the OECD Convention, 1960, prescribes that decisions and recommendations of the OECD are “applicable” to Member countries unless a country formally abstains. In practice, abstentions are rare.
The Ten Global Principles are issued by the OECD’s Task Force on Tax Crimes and Other Crimes (TFTC) which is chaired by Eric Hylton, of the US IRS. The purposes of the Ten Global Principles are to allow countries to identify successful practices to fight tax crimes, measure their progress, and allow countries to articulate their training needs. In some countries, the return on investment from the criminal tax investigation teams ranges from 150% to 1500% return on investment.
Tax crime means intentional conduct that violates a tax law - both income tax law obligations and indirect tax obligations (such as VAT). In other words, serious stuff, not tax returns filed a week late.
The first nine Global Tax Principles favor the tax authorities, the last one favors the taxpayer.
Global Tax Principles Favoring Tax Authorities:
These are as follows:
- Principle 1. Ensure Tax Offenses are Criminalized e.g. deliberate failure to correctly file a tax return, aiding and abetting this, more serious criminal sanctions for more serious offenses.
- Principle 2. Devise an Effective Strategy for Addressing Tax Crimes – identify risks, assess and prioritize them. analyze compliance behavior, determine treatment strategies, implement them.
- Principle 3. Have Adequate Investigative Powers - obtain third party documentary information, intercept mail and telecommunications, search and seize computer hardware and software, cell phones and digital media. Australia, South Africa, the US and UK all have this. The OECD even recommends covert surveillance of suspects and undercover operations by infiltrating people in serious cases.
- Principle 4. Have Effective Powers to Freeze, Seize and Confiscate Assets.
- Principle 5. Put in Place an Organisational Structure with Defined Responsibilities.
- Principle 6. Provide Adequate Resources for Tax Crime Investigation.
- Principle 7. Make Tax Crimes a Predicate Offence for Money Laundering. A person that has committed money laundering (concealment etc) can be charged with that as well as the underling predicate offence (tax evasion). This may allow the authorities greater scope to secure a conviction and / or to impose greater penalties. Financial institutions help monitor and report suspected tax crimes.
- Principle 8. Have an Effective Framework for Domestic Inter-Agency Co-operation. This can involve the tax administration, the customs administration, financial regulators, anti-money laundering authorities, the police, anti-corruption authorities and the public prosecutor’s office.
- Principle 9. Ensure International Co-operation Mechanisms are Available. These include information sharing; service of documents; obtaining evidence; facilitating the taking of testimony from witnesses; transferring persons for questioning; executing freezing and seizing orders; and joint investigation.
Global Tax Principle Favoring Taxpayers:
OECD Global Principle 10 deals with protecting suspects’ rights. Taxpayers suspected or accused of committing a tax crime must be able to rely on basic procedural and fundamental rights.
In particular, the OECD says that taxpayers suspected or accused of committing a tax crime should be able to rely on the following nine rights:
- (1) The right to a presumption of innocence: The presumption of innocence means the burden of proof is on the prosecution and not on the accused. Comment: The Israeli Tax Authority has been known to put the onus on taxpayers to prove they don’t owe tax. Maybe this OECD Global Principle will remedy this…;
- (2) The right to be advised of their rights;
- (3) The right to be advised of the particulars of what one is accused of: This would generally include the elements of the offence, such as the essential aspects of the offence, details of the alleged conduct which led to the charge and in the case of a tax crime, the alleged damage to the state;
- (4) The right to remain silent. This right usually applies both prior and during a trial;
- (5) The right to access and consult a lawyer and entitlement to free legal advice;
- (6) The right to interpretation and translation;
- (7) The right to access documents and case material, also known as a right to full disclosure: This means that the accused has the right to know the details of the case which is argued against them, including the evidence held by the prosecutor.;
- (8) The right to a speedy trial; and
- (9) The right to protection from double jeopardy – only one trial unless new evidence is found.
To Sum Up:
The OECD is to be commended for laying down principles of criminal tax law that OECD member countries are supposed to apply. Even in less serious civil cases, these principles will now be in the background and may help deter over-aggressive tactics by both taxpayers and tax officials. Quite a get-out-of-jail card….
Consult experienced INAA advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd