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Failure to Prevent – The Future of Adviser Obligations

Failure to Prevent – The Future of Adviser Obligations

The concept of failure to prevent has grown from its roots in the U.S. Foreign Corrupt Practices Act and is making inroads into the responsibilities of tax advisers.  The recent trend begs the question, do advisors have a duty to prevent the evasion or improper reduction of tax or to report the activity in advance?  A team of international advisors looks at the evolution of obligations: Peter Utterström of Peter Utterström Advokat AB, Stockholm, looks at the origin of the concept.  Gary Ashford of Harbottle & Lewis, London, looks at recently adopted legislation in the U.K. imposing strict liability on advisers to naughty clients.  Lawrence Feld, Attorney at Law, New York, looks at its presence in the U.S. Swiss Bank Program of the Justice Department.  Dick Barmentlo of Jaegers & Soons, Amsterdam, addresses a recent case in the Netherlands that imposes civil liability on a Netherlands trust company and its employees for lost taxes suffered by the Dutch tax administration.

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Insights Vol. 5 No. 3: Updates & Other Tidbits

Insights Vol. 5 No. 3: Updates & Other Tidbits

This month, Tomi Oguntunde, Sheryl Shah, and Nina Krauthamer look briefly at four recent developments in international tax: (i) the E.U. counteroffensive to U.S. tax reform involving stricter tax rules, (ii) the amendment of Form 1023-EZ, which is a streamlined application for non-profit entities applying for tax exempt status, (iii) Spain’s crackdown on celebrities attempting to evade tax, and (iv) Luxembourg’s continued pushback against the Amazon State Aid case.

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E.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance

E.U. Data Protection and the Fight Against Tax Evasion: A Delicate Balance

The tax world has seen an important shift in global policies, with an emphasis on tax transparency and exchange of information.  The transparency measures are contained in tax-driven and non-tax-driven legislation, and while the goals of the legislation may be lofty, the policies may violate fundamental individual rights, including data protection.  Fanny Karaman and Astrid Champion examine the E.U.’s non-fiscally-driven approach to tax transparency and, more precisely, the legal limits of such transparency as evidenced in recent cases.

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Looking to the Future: European Efforts Against Tax Evasion Take Center Stage – Where Will It Take Us?

A globalized economy has been the driving force behind cross-border tax transparency and increased dissemination of tax information in recent years.  The importance of F.A.T.C.A. reporting has paled as the O.E.C.D. Common Reporting Standard has taken effect in the E.U., State Aid cases are progressing, and country-by-country reports may be publicly available.  Europe and the U.S. are moving in different directions.  Philip R. Hirschfeld and Stanley C. Ruchelman explain.

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U.K. Criminal Penalties for Improper Tax Planning – Could You Be Effected?

U.K. Criminal Penalties for Improper Tax Planning – Could You Be Effected?

New powers have been given to H.M.R.C. in recent legislation, and new criminal and civil penalties have been enacted as part of a massive legislative program designed to stop U.K. residents from participating in offshore tax avoidance and evasion schemes.  Several criminal penalties are directed to advisory firms that facilitated tax offenses.  In certain circumstances, advisory firms based outside the U.K. will be at risk of prosecution.  Gary Ashford of Harbottle and Lewis L.L.P., London, and Stanley C. Ruchelman examine the new provisions.

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Insights Vol. 3 No. 5: Updates & Other Tidbits

In this month’s update, Elizabeth V. Zanet and Nina Krauthamer report on (i) attacks on cash pooling arrangements as part of earnings-stripping rules under Code §385, (ii) the latest regulations aimed at increasing financial transparency, including adoption of a customer due diligence (“C.D.D.”) final rule, (iii) proposed beneficial ownership legislation, and (iv) new reporting rules for foreign-owned, single member L.L.C.’s that engage in business with the foreign owner; as well as a new wave hiring by the I.R.S. of enforcement officers.

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Insights Vol. 3 No. 4: Updates & Other Tidbits

In this month’s update, Sheryl Shah and Stanley C. Ruchelman look at the following recent developments: (i) one-time payments for off-the-shelf software are not considered to be royalties in India, (ii) offshore voluntary disclosure in Greece, (iii) the movement of Slovak companies to other jurisdictions, and (iv) the effect of the Panama Papers on CbC reporting in Europe.

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Insights Vol. 3 No. 1: Updates & Other Tidbits

This month, Insights discusses recent events including a Beanie Baby billionaire’s light sentence; a tax reform report by the European Parliament addressing tax rulings, a common consolidated corporate tax base, a crackdown on tax havens, whistle-blower protection, public access to country-by-country (CbC) reports, and a lower threshold to approve E.U. tax legislation; a House Ways and Means Committee action in regard to B.E.P.S., E.U. investigations on State Aid, patent box regimes, and inversions; identity theft risk in I.R.S. proposed regulations regarding charitable deductions; and allowance of accounting non-conformity for foreign-based groups that do not adopt L.I.F.O. accounting when that method is adopted by a U.S. member.

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An American Solution to Offshore Tax Evasion

Volume 2 No 5    /    Read Article

By Robert J. Alter (guest author)

The United States Department of Justice Tax Division and the I.R.S. have been ramping up an intense crackdown on offshore tax evasion, and while new budget cuts have vastly reduced I.R.S. resources, the cutbacks are having no effect on I.R.S. enforcement initiatives in this area. Robert J. Alter of McElroy, Deutsch, Mulvaney & Carpenter discusses the U.S. crackdown on offshore tax evasion and the various programs available to rectify noncompliance, including the Offshore Voluntary Disclosure Program, Streamlined Procedures, Delinquent International Information Return Submission Procedures, and Delinquent F.B.A.R. Submission Procedures.   See more →

The Italian Voluntary Disclosure

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INTRODUCTION

Italy has a long history of tax amnesty programs established under a broad variety of names and rules. Interestingly, every new program has been described as “the last chance” for tax evaders to comply with the Italian tax code. It is no wonder that, as in all prior cases, Italy’s most recent voluntary disclosure program (the “V.D.”) has been defined as the “last call.” Having said that, and sensitive to prior performance, we firmly believe that for a wide range of reasons the V.D. will truly be the last opportunity for Italian citizens and residents to get their tax matters in order.

One indicator is heightened criticism of the typical Italian de facto tolerance toward tax evasion, which is now being blamed for the country’s ongoing economic crisis. Accordingly, the war against tax havens, as initiated by the U.S. under F.A.T.C.A. and subsequent inter-governmental agreements, has changed the way the whole world approaches such matters. Today, there is a new sensitivity toward tax compliance and no discernable government or media tolerance towards tax avoidance.

In addition, a different approach is now being taken with respect to tax amnesty matters. In the past, there was a sort of “reward” for the penitent evaders. Such individuals were granted the opportunity to regularize their positions by paying a low flat-rate extraordinary tax. The V.D. is different. Under the new provisions of the Law n. 186, dated December 15, 2014, (the “V.D. Act”), a taxpayer who enters the V.D. procedure (“V.D. Applicant”) will be required to pay every single euro of unpaid tax; the only benefit lies in the reduction of penalties, which are less than those applicable in an ordinary tax audit procedure.

Insights Vol. 2 No. 2: Updates & Other Tidbits

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BUSINESSMAN PLEADS GUILTY TO CONCEALING $8.4 MILLION

A Connecticut business executive, George Landegger, pled guilty to willfully failing to report $8.4 million held in Swiss bank accounts to the I.R.S. During the early 2000’s until 2010, Landegger maintained undeclared accounts which reached a maximum value of over $8.4 million at an unidentified Swiss bank.

While Landegger’s defense attorney confirmed that Landegger has not been accepted to the Offshore Voluntary Disclosure Program (“O.V.D.P.”), Landegger, according to the prosecutors, repeatedly rejected the possibility of disclosing his undeclared accounts to the I.R.S. through the O.V.D.P. and instead proactively took steps to conceal his accounts. Landegger held his undeclared accounts in a sham entity formed by a Swiss lawyer under the laws of Liechtenstein. In August 2013, the Swiss lawyer pled guilty to tax fraud conspiracy charges and has been cooperating with prosecutors.

Landegger agreed to pay a civil penalty of over $4.2 million and more than $71,000 in back taxes as part of his plea, entered on January 15, 2015. Landegger’s sentencing will be held May 12. He faces a maximum sentence of five years in prison. In his statement, I.R.S. Acting Special Agent-in-Charge Thomas E. Bishop stressed that uncovering hidden offshore accounts and income is the Service’s top priority and that it will continue working with the Department of Justice to do so. This case illustrustrates the importance of a timely O.V.D.P. submission.

OBAMA PROPOSES INCREASE IN CAPITAL GAINS TAX, ELIMINATION OF STEPPED-UP BASIS ON INHERITED ASSETS

President Obama has proposed a 28% tax rate on capital gains for couples with $500,000 in annual income and eliminating the stepped-up basis on inherited investments. Obama believes that these tax increases will help to pay for expanded benefits for middle- and low-income households. Congressional Republicans have indicated that they would not support Obama’s proposal.

Insights Vol. 1 No. 11: Updates & Other Tidbits

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B.E.P.S. PROJECT FACES CHALLENGE IN ADDRESSING C.F.C. RULES

The O.E.C.D.’s pending base erosion and profit shifting action plan is due to face a significant challenge as to how to address controlled foreign corporations. Action 3, which strengthens C.F.C. rules, is set to be released in 2015. Currently, European case law restricts the scope of E.U. members establishing C.F.C. regimes.

Stephen E. Shay of Harvard Law School says the U.S. is encouraging the expansion of the C.F.C. rules as a way to solve several of the issues the B.E.P.S. action plan is trying to address, however, these new rules run the risk of being contrary to E.U. jurisprudence. The E.U.’s ability to adopt stringent C.F.C. rules is limited by the Cadbury Schweppes (C-196/04), a 2006 ruling from the Court of Justice of the European Union. The Court held that E.U. freedom of establishment provisions preclude the U.K. C.F.C. regime unless the regime “relates only to wholly artificial arrangements intended to escape the national tax normally payable.”

Without resolving the issue among E.U. countries, Action 3 may not be effective in appropriately addressing earnings stripping. However, Shay also added that Action 2, which neutralizes the effects of hybrid mismatch arrangements, so far appears to include an approach that works without C.F.C. rules.

CHARGES LAID AGAINST U.S. CITIZEN FOR MAINTAINING ALLEGED SECRET SWISS BANK ACCOUNTS

Department of Justice announced that charges have been laid against Peter Canale, a U.S. citizen and resident of Kentucky, for conspiring to defraud the I.R.S., evade taxes, and file a false individual income tax return. It is alleged that Canale conspired with his brother and two Swiss citizens to establish and maintain secret, undeclared bank accounts in Switzerland.

In approximately the year 2000, a relative of Canale died and left a substantial portion of assets which were held in an undeclared Swiss bank account to Canale and his brother, Michael. The brothers met with two Swiss citizens, who agreed to continue to maintain the assets in the undeclared account for the benefit of the Canales.

Insights Vol. 1 No. 10: Updates & Other Tidbits

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ISRAEL ANNOUNCES ADOPTION OF O.E.C.D.’S COMMON REPORTING STANDARD

Israel has announced that it will adopt the Standard for Automatic Exchange of Financial Account Information: Common Reporting Standard (“C.R.S.”) issued by the O.E.C.D. in February 2013.

The C.R.S. establishes a standardized form that banks and other financial institutions would be required to use in gathering account and transaction information for submission to domestic tax authorities. The information would be provided to domestic authorities on an annual basis for automatic exchange with other participating jurisdictions. The C.R.S. will focus on accounts and transactions of residents of a specific country, regardless of nationality. The C.R.S. also contains the due diligence and reporting procedures to be followed by financial institutions based on a Model 1 F.A.T.C.A. intergovernmental agreement (“I.G.A.”).

At the conclusion of the October 28-29 O.E.C.D. Forum on Transparency and Exchange of Information for Tax Purposes, about 50 jurisdictions had signed the document. The U.S. was notably absent as a signatory to the agreement. In addition to the C.R.S., the signed agreement contains a model competent authority agreement for jurisdictions that would like to participate at a later stage.