Drept administrativ și fiscal
Financial and banking crime is in correlation and interdependence with a series of destructive mechanisms and political, moral, normative and cultural deregulation, which are manifested at national level. The facilities provided by the political, social and economic structures of a country, coupled with the insufficiency and sometimes inefficiency of legitimate control, favor profit-oriented criminality that tends to, and in some places, succeeds in, gaining a global and organized character, aggrieving the economy as a whole, structuring and multiplying continuously, then materializing in a great diversity and complexity in terms of the number of participants, the methods used, the damage caused and the importance of the economic agents and institutions concerned.
Representing a complex social problem whose manifestation, social consequences and remedies are of interest to both the public and the institutionalized level of social control, financial banking crime is conceived by most social segments as a particularly serious and dangerous phenomenon, capable of undermining the structures of power, the hope of moving towards a solid legal system and ability to eliminate economic and social injustices.
Financial activities create an infrastructure that can be used by legitimate companies as well as criminals to hide illicit funds. Most tax havens follow a policy of encouraging non-residents' banking activity by introducing a distinction between the banking activity of the country's residents and those of foreign citizens. In general, the activity of foreign entities is not subject to requirements regarding the reserve of funds, nor on contracts for foreign exchange, or other controls. Compared to foreign trade, bank deposits abroad in the jurisdictions of tax havens are considerably higher than foreign bank accounts in banks that are not located in tax havens. The largest banks in the world (UBS, HSBC Holdings, Bank of America, Morgan Stanley, China Merchants Bank or Deutsche Bank) often have subsidiaries in tax havens. They set up these headquarters to participate in the increasingly aggressive and refined market of financial instruments, accepting deposits from foreign nationals and borrowing money to non-resident clients.
Most multinationals are involved in a cat-and-mouse game with origine state tax authorities, and use some very creative strategies to minimise income tax payments.
Much discussed is the criminal potential of the offshore world. Although the general impression is that tax havens primarily deal with money laundering of any origin, the reality is that even in some traditional offshore centers (Luxembourg or Switzerland, for example), the regulations are even more stringent than in developed countries. In this respect, it should be noted that the majority of governments in offshore states carefully supervise the activity of licensed banks in the territory and ensure appropriate regulation of new financial institutions.
However, the increase in interest in offshore companies was directly proportional to the acceleration of the economic crime rate.
One circumstance of excessive regulation that has political tones is where a nation imposes financial commitments of capital to the sole benefit of the country’s budget.
As an example, foreign capital in Romania achieves the highest outcomes with minimal spending from its angle of interest: 1) uses too little capital; 2) make their profits by exploiting small wages in Romania and by accessing resources and assets at low costs; 3) it increases its financial results by masking the real profitability achieved, especially by outsourcing the profits (even 80-90%) before taxing.
The example of Romania is not singular. The European Commission itself, in a press release to the European Parliament (COM / 2012/0351), states that tens of billions of euros, often undeclared and unimpaired, are still in offshore jurisdictions, reducing national tax revenues. In order to increase cooperation, measures have been taken to strengthen existing instruments to avoid the generalized practice of offshore structures, intensify the exchange of information, combat tax evasion and tax fraud patterns; strengthen fiscal governance.
It's thought the total sum hidden away in low-tax, low-regulation jurisdictions around the world could be $21tn - as much as the total annual economic output of the United States and Japan combined.
There are four primary uses for ‘tax haven’ locations:
- First, they are used by those wishing to avoid or evade their obligation to pay tax. Common tax avoidance strategies include assigning intellectual property rights to foreign subsidiaries, and then paying the subsidiaries to use a brand, trademark, patent or licence.
- Second, they are used to hide criminal activities from view. That criminal activity might be tax evasion itself, but might also be money-laundering or crimes generating cash that needs to be laundered.
- Third, they are used by those who want their activities to be anonymous, even if legal. Some people wish to hide wealth from their spouses, for example.
- Fourth, they are used by those seeking somewhere cheaper to do business, to avoid the costly obligation to comply with regulations.
Secrecy - The need for anonymity is common to all these activities, which take place in what one might call the ‘secrecy world’. Governments that choose to create laws allowing it to exist must have status as international jurisdictions (though not necessarily as countries, as the British Crown Dependencies demonstrate). Since no jurisdiction willingly undermines its own laws, the secrecy so created can be used only by people residing outside its own domain.
The regulations created by these ‘secrecy jurisdictions’ are designed to undermine the legislation or regulations of another jurisdiction. To facilitate matters, a legally backed veil of secrecy ensures that those making use of them cannot be identified as doing so.
Secrecy jurisdictions raise revenue by collecting fees from registering companies, or for regulating local financial services, and income tax on anyone working in that industry. All this is possible because secrecy jurisdictions create the structures that the financial services industry sells access to. Typical among these are tax haven companies.
The companies - The tax haven companies are almost invariably owned by trusts, which are also registered ‘offshore’ and are run by the local financial services industry. The trusts are completely anonymous: there is no record of them on any public register and local tax authorities know nothing about them.
An offshore company owned by an offshore trust presents an almost impenetrable barrier to inquiry: not least to law enforcement agencies and tax authorities. Tax havens may call themselves ‘offshore finance centers’ or ‘international finance centers’, but that is misleading. Secrecy is what they are selling.
The spurious argument - Secrecy jurisdictions argue that because the transactions take place ‘elsewhere’, they are not taxable within the secrecy jurisdiction: such places choose not to tax transactions happening outside their domain. They then insist that declaring these transactions is the responsibility of their clients. That way the secrecy providers are able to argue that they are fully tax compliant. But transactions undertaken ‘elsewhere’ will also escape regulation in the jurisdiction where the activity is actually taking place. That of course is the intention.
The truth is that multinational corporations do not really have what most think to be real offshore operations: they simply record some transactions in the secrecy space provided by tax havens.
The emergence of the so-called “Paradise Papers” has highlighted once again the conundrum faced by any world`s Parliament in legislating in response to the lawful avoidance of tax in offshore tax structures. The Paradise Papers are only slightly smaller in scale to that of the Mossack Fonseca “Panama Papers” in early 2016.
The outrage precipitated by this latest disclosure, which implicates Apple, Facebook and Bono as well as a myriad of other well-known companies and individuals, is largely the result of distrust of offshore tax havens. As many have struggled with austerity since the global financial crisis, the use of lucrative and opaque structures by the ultra-wealthy is not a welcome concept to the ordinary person on the street.
However, it is important to evaluate what exactly is the primary focus of the outcry. At the moment, it is apparent that most of the structures identified in the Paradise Papers are those which enable the legitimate avoidance of tax. This is to be contrasted with the unlawful evasion of tax. The difference between the two concepts continues to be a source of confusion even for those well-versed in the complexities of tax law. Essentially the difference is one of legality; tax evasion exists where there is a deliberate manipulation of the tax regime in order to gain an advantage which was never intended by government. The value of those who advise in relation to “tax-efficient investment structures” is their expertise in navigating the grey area in the financial benefit of their clients.
The reaction of European Commission to the Panama Papers scandal was, in part, to fast-track legislation designed to hold corporate bodies criminally liable for the facilitation of tax evasion by an associated person acting for or on its behalf. Simply put, a corporate body is now criminally liable if it fails to prevent such facilitation without having reasonable prevention procedures in place. The legislation is not retrospective, so cannot be used as the basis for any prosecutions which may be appropriate arising from the latest disclosure. In any event, on the basis of the information disclosed so far in the Paradise Papers, it does not appear as though any Directives and Regulations could have made it easier to prosecute wrongdoers even if it had been applicable. Why is that?
First, if the offshore tax structures exposed by the Paradise Papers were to be classed as “avoidance” rather than “evasion” (which certainly seems to be the case) then the first test of the new offence would not be satisfied. If there was evidence of criminal evasion, then the second question would be whether the evasion was criminally facilitated by a person acting on behalf of the corporate entity. This would require evidence of that person being knowingly concerned in the aiding, abetting, counseling or procuring of the tax evasion, as well as evidence of that person acting for or on behalf of, the company and not on a frolic of their own.
However, widening the scope of strict liability offences relating to individuals would be a bold legislative move given the inherent complexities of tax law. It would risk criminalizing negligent or reckless offending by those who do not have the benefit of sophisticated wealth managers or advisors. It is a natural reaction to perceived unfairness or inequality to look to the criminal law for remedy, but great care should be taken not to assume that further reactionary offences on the statute books would address the underlying problem. In fact, remedy is more likely to be found in reducing or eliminating the secrecy associated with offshore structures. Transparency in these regimes would give the uproar caused by the Paradise Papers, act as a direct deterrent to their use by any individual or company with a reputation to uphold.
The combination of these enhanced powers and information sharing may in the long-term result in a greater interrogation of high net worth individuals and their financial affairs. In the short-term, those individuals should expect greater reticence or introspection by those professionally engaged to advise them on their tax affairs. Given the apparent susceptibility of offshore firms to data leaks or hacking, tax advisers will need to be more confident than ever before that their advice will not expose their clients to investigation, either for criminal tax evasion or for “aggressive” tax avoidance which is capable of incurring financial penalties despite falling short of a criminal offence.
Sweeping changes in global tax law and more aggressive governments enforcement has made it more difficult than ever for the wealthy to stash their assets and income out of sight. Longtime tax resorts like Switzerland, Liechtenstein and the Bahamas that used to pride themselves on their secrecy are increasingly having to cooperate with other governments searching for tax fraud.
The OECD is in the process of coming up with rules designed to tackle "base erosion and profit shifting", which involves companies using mismatches in tax rules to make profits "disappear" legally.
However, these efforts may take many years to come to fruition. In the meantime, the cat-and-mouse game between multinationals and tax authorities continues.
[1] Doctor of Juridical Science at Romanian State Academy, Attorney-at-Law at Bucharest Bar