Sanctions for tax evasion

Canada: Minister announces consultations on changes to the Voluntary Disclosures Program

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The Canadians pay their tax shares and expect a responsive and fair tax system. Unfortunately, some rich Canadians continue to find ways to not pay what they owe, which places an unfair burden for this country.

The Canadian Government and the Canada Revenue Agency (CRA) have taken action by highlighting resources in the highest risky areas, both domestically and internationally. The Minister of National Revenue, Diane Lebouthillier, on 9th of June 2017, announced an online consultation to give Canadians a say about the CRA proposed changes to tighten its Voluntary Disclosures Program.

The proposed changes to the Voluntary Disclosures Program (VDP) follow an extensive review of the program that was completed over the past months in response to the recommendation by the Standing Finance Committee. The proposed changes to the Voluntary Disclosures Program contains:

  • narrowing the criteria of who is eligible;
  • confirming that severe cases of non-compliance do not benefit from the same level of penalty and interest relief;
  • ensuring that requests that reveal proceeds of crime are excluded from relief; and
  • requiring payment of the estimated taxes owing as a condition to qualify for the program.

Voluntary Disclosures Program applies to disclosures relating to income tax, excise tax, excise duties under the Excise Act, 2001, source deductions, GST/HST and charges under the Air Travelers Security Charge Act and the Softwood Lumber Products Export Charge Act, 2006. The CRA’s online consultations on the Voluntary Disclosures Program will be open for 60 days. The CRA will announce changes to the program in the fall of 2017. The Voluntary Disclosures Program gives taxpayers a chance to voluntarily come forward and correct preceding omissions in their dealings with the CRA.

A new guidelines was proposed by the Canada Revenue Agency (CRA) to limit voluntary disclosures program’s use. Large Canadian companies would no longer be allowed to qualify for the program regarding income tax matters according to these proposed changes. But, some relief remains present for GST/HST matters. Additionally, the CRA has proposed to give only reduced relief in some cases. To show the eligibility for the program, taxpayers would have to pay their estimated taxes at the time of submitting an application. The CRA is inviting public comments on its proposed changes on or before 8th of August 2017. The official announcement of the amendments to the voluntary disclosures program would be announced in the fall of 2017, with effect for 2018.

US: Interest rates on tax underpayments and overpayments for the third quarter of 2017

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The Internal Revenue Service on 9 June 2017 announced that interest rates for tax underpayments and overpayments will remain the same for the calendar quarter beginning July 1, 2017.

The rates will be:

  • four percent for overpayments (three percent in the case of a corporation);
  • one and one-half percent for the portion of a corporate overpayment exceeding $10,000;
  • four percent for underpayments; and
  • six percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest on tax underpayments and overpayments is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.

The interest rates are computed from the federal short-term rate determined during April 2017 to take effect May 1, 2017, based on daily compounding. Revenue Ruling 2017-13, announcing the rates of interest, will appear in Internal Revenue Bulletin 2017-26, dated June 26, 2017.

Malaysia: IRBM proposes to impose 100% penalty for undeclared income and incorrect information

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The Malaysian Inland Revenue Board (MIRB) published a media statement on 16 May 2017 regarding clarification of imposing 100% penalty for failure to declare income and correct information which will be implemented with effect from 1 January 2018.

Under the Income Tax Act 1967, the Director General of Inland Revenue is given the power to impose a penalty for the offence of default in declaring income or in declaring correct income which is subject to tax. The proposal to increase the rate of penalty to 100% of the tax payable on the undeclared or under declared income beginning 1 January 2018 is a step towards elevating the level of voluntary compliance among tax payers by dealing with tax payers who are hardcore tax law defaulters.

Examples of cases that would be subject to the 100% penalty are repeated offences of undeclared or incorrectly declared income received by way of a return form; refusal to give full co-operation during an audit or investigation process; failure to give information or documents requested to assist in an audit or investigation process; carrying out an organised tax evasion scheme or failure to comply with the tax law even though the tax payer has been audited or investigated before.

In preparation, tax payers are encouraged to come forward and declare their income and correct information within the required time.

Australia: Diverted profits tax begins from first July 2017

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The diverted profits tax (DPT) is one of many new measures introduced to tackle multinational tax avoidance. The DPT aims to ensure multinationals do not avoid their Australian tax obligations by entering into schemes to divert their Australian profits to offshore related parties. It imposes a 40% tax rate on the diverted profits (which is payable within 21 days of an assessment being made).

The DPT applies only to significant global entities, income years that start on or after 1 July 2017 and can apply to schemes entered into before 1 July 2017 which produce a tax benefit in an income year commencing on or after this date. The DPT also encourages multinationals to provide sufficient information to tax authority to allow for timely resolution of tax disputes.

Jersey: Tax disclosure opportunity for the year 2017 announces

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The Treasury and Resources Department offers and runs a tax disclosure opportunity from 3rd April 2017 up to the end of 2017. This describes Islanders will be able to tell the tax office if they’ve made a mistake or failed to declare accurate income on their tax return without having to pay any additional penalties. An online form will be open for people to correct any past mistakes with income tax or Goods and services tax (GST) returns. If the form is prepared, the tax owed will still need to be paid but the tax controller will not apply any penalties or interest, and his general position will not be prompt criminal proceedings. A 10% late payment surcharge may be charged if it is chargeable by law. The Minister of this department stated that this disclosure opportunity will allow both individuals and businesses to come forward and make a voluntary disclosure of any errors in their tax affairs. This contains someone who has intentionally omitted income from their tax returns, or who has made a claim for allowances they weren’t entitled to. The Minister will also be asking the States Assembly to announce stronger penalties in January 2018 for those who choose not to comply with their tax obligations.

Australia: DPT Bill includes updated transfer pricing guidelines

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On 9 February 2017, the Australian Government introduced legislation into the Parliament to implement the new Diverted Profits Tax (DPT), which will prevent multinationals shifting profits made in Australia offshore to avoid paying tax.

The Diverted Profits Tax (DPT) will commence on 1 July 2017, and is expected to raise $100 million in revenue a year from 2018-19. It provides a powerful new tool to the Australian Taxation Office to tackle contrived arrangements and uncooperative taxpayers, and will reinforce Australia’s position as having some of the toughest laws in the world to combat multinational tax avoidance.

The Diverted Profits Tax (DPT), announced in the 2016-17 Budget, targets multinationals that enters into arrangements to divert their Australian profits to offshore related parties in order to avoid paying Australian tax.

By making it easier to apply Australia’s anti‑avoidance provisions and applying a 40 per cent rate of tax, which will need to be paid immediately, the DPT will:

  • complement the application of the existing anti‑avoidance rules;
  • encourage greater compliance by large multinational enterprises with their tax obligations in Australia, including with Australia’s transfer pricing rules; and
  • encourage greater openness with the Commissioner, and allow for quicker resolution of disputes.

The Government has consulted extensively to ensure that the legislation appropriately targets multinational tax avoidance.

The Diverted Profits Tax will not apply to managed investment trusts or similar foreign entities, sovereign wealth funds and foreign pension funds. These entities have been excluded as they are low risk from an integrity perspective, are widely held and undertake passive activities. This exclusion also ensures that such entities do not face an unnecessary compliance burden as a result of the introduction of the Diverted Profits Tax.

Similarly, the DPT will only apply to multinationals that have global income of more than $1 billion and Australian income of more than $25 million.

In addition to the DPT, the Combating Multinational Tax Avoidance Bill 2017 introduced into Parliament includes two further measures to ensure that multinationals pay the right amount of Australian tax and comply with their tax disclosure obligations.

  • The first is to increase the maximum penalty 100-times for large multinationals where they fail to lodge tax documents on time. This means that the maximum administrative penalty for significant global entities that fail to comply with their tax reporting obligations will increase to $525,000. The Government is also doubling the penalties for large multinationals when they make false or misleading statements to the ATO.
  • The second is to amend Australia’s transfer pricing law to give effect to the 2015 OECD transfer pricing recommendations. These recommendations provide greater clarity on how intellectual property and other intangibles should be priced, and ensure the transfer pricing analysis reflects the economic substance of the transaction rather than just the contractual form.

Malaysia: Corporate tax proposals under the finance act 2016

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The Finance Act 2016, which was gazetted on 16 January 2017, introduces new corporate tax proposals to the Malaysian Income Tax Act (MITA). The highlighted area of the proposals is as given below;

Special classes of income are subject to withholding tax regardless of place of performance of service-It is proposed that Section 15A of the ITA be amended to provide that special classes of income under subsections 4A(i) and (ii) of the ITA shall be deemed to be derived from Malaysia regardless of whether the services were performed in Malaysia or outside Malaysia. Now services under Section 4A of the ITA provided offshore will be subject to withholding tax.

Revision to income exempted from tax under Schedule 6 of the ITA- The Government has proposed that some income including income derived by a non-resident from trading in Malaysia through consignees in any kind of commodity produced outside Malaysia, Income derived by non-resident in respect of interest derived from Malaysia on an approved loan, and Interest in respect of Sukuk originated from Malaysia will no longer be exempted from tax with effect from YA 2017.

Redefinition of “Royalty”- The definition of “royalty” has been expanded significantly to include items such as software and communications via satellite.

New Penalties– Under the proposed new Sections 113A and 119B of the MITA, it is an offence for any person to make an incorrect or false return, or fail to comply with any rules made to implement or facilitate any mutual administrative assistance arrangement (including the AEOI Rules). Any person who is convicted for an offence under these new provisions will be liable to a fine of not less than RM 20,000 and not more than RM 100,000 and / or imprisonment for a term not exceeding six months.

Introduction of fees for advance pricing arrangement-The change in Section 154(1)(ec) is to enable the Minister to prescribed rules to charge fees in relation to an application for advance pricing arrangement.