01/02/17

No More Tax Secrets as Authorities Share Panama Papers’ Data

A meeting of 30 tax administrators to share information on the Panama Papers tax evasion scandal shows taxpayers can no longer expect to keep their tax planning secret, according to a former delegate to the alliance of tax agencies, reports Bloomberg.

Commenting Jan. 24 on a Paris meeting of the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC), Paul McCartin, a former Australian Taxation Office JITSIC delegate, said the exchange of information between revenue authorities had “shifted to the next level” in terms of both scale and coordination.

“This new environment means that taxpayers should never assume their tax planning methods will never been seen by a tax administrator,” McCartin told Bloomberg BNA in Jan. 24 e-mailed comments.

“Those days are long gone and usually, with tax evasion, countries have an unlimited period of review,” he said. “This means voluntary disclosures should be actively considered where taxpayers have entered into arrangements to hide transactions from a tax administrator.”

A JITSIC statement on the Jan. 16 meeting, at which tax administrators shared the findings of their investigations into the Panama Papers, described it as “historic.”

Significant achievements included developing a uniform approach for tax agencies to request information from each other, reaching a clearer understanding of the evasion tactics adapted by intermediaries, and establishing new techniques for collating intelligence, the statement said.

“Important progress has also been made in domestic compliance activity, with more than 1,700 reviews and audits initiated on taxpayers, more than 2,550 requests of information, and the identification of a target list of 100 intermediaries,” it said.

“We have also seen a large number of taxpayers coming forward to disclose their offshore operations.”

The Next Level

McCartin, now a Melbourne-based PwC tax controversy and dispute resolution partner, said that tax administrators potentially have access to considerable amounts of data, “either through e-mail or system hacking"—alleged to have occurred in the Mossack Fonseca situation—"or other means.”

Some 11.5 million documents, leaked from Panamanian law firm Mossack Fonseca to a German newspaper, were given to at least one tax administration and subsequently shared with other revenue authorities under exchange of information provisions. The documents revealed more than 200,000 offshore entities held by wealthy individuals and companies from around the world. The whistleblower who leaked the Panama Papers remains unidentified.

McCartin added that tax administrators were becoming “far more public about their activities, perhaps because tax has captured the public’s attention.”

Information Trail

It was increasingly likely, he added, that revenue authorities would “follow the trail” when investigating tax evasion.

“For instance, if they identify one advisory firm that has contributed to a tax evasion activity, it’s certainly possible that they have provided similar advice to other clients and involved another firm with a similarly aggressive mindset.

“Tax authorities conduct a lot of interviews and this can result in more leads,” he said.

McCartin said the JITSIC meeting’s focus on intermediaries reflected long-standing practice, noting that the Organization for Economic Cooperation and Development had highlighted their role in aggressive tax planning in a 2008 report.

“In Australia, the ATO frequently adopted an approach of targeting intermediaries to influence behavior and this was an effective means of ensuring compliance,” he noted.

McCartin added that the ATO’s data analytics were extremely sophisticated.

“The sources of data the ATO is now able to call upon is extraordinary. The challenge for the ATO and no doubt other revenue authorities, is to effectively utilize these vast amounts of data. Not surprisingly, the ATO are investing heavily in ways to interpret ‘big data’ to allocate their compliance resources.”

‘Unique’ Information-sharing Exercise

Irish Tax and Customs described the latest JITSIC meeting as “the largest ever simultaneous exchange of information, based on legal instruments under the OECD and Council of Europe Multilateral Convention and tax treaties,” in a Jan. 19 statement.

“The sharing of this information within a group of this size is unique, and sets the basis for greater cooperation among tax administrations,” it said.

Meanwhile, New Zealand’s head of international tax said JITSIC had been a very useful mechanism for sharing information and strategies.

“New Zealand has been actively participating in the JITSIC Network, leading to greater sharing of know-how and experience in tackling common international problems, enabling us to consider alternative approaches and all possible angles, as well as expanding our exchanges of information with treaty partners,” said John Nash, Inland Revenue New Zealand’s manager of international revenue strategy.

“These features are exemplified in the collective work being carried out on the Panama Papers, where intermediaries operating across many jurisdictions are particularly in focus,” he said in comments e-mailed Jan. 24.

In a Jan. 20 statement, India’s Ministry of Finance commented on the “significant achievements” that have been made since the last JITSIC meeting in April 2016, which included development of uniform approaches to requesting information between treaty partners, clearer understanding of the evasion typologies adapted by intermediaries, and new techniques for collating intelligence.

“JITSIC will continue to draw on the best intelligence capabilities from tax authorities around the world and share best practices for data analysis and collaboration on intelligence,” the Ministry of Finance said in its statement.

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