The Panama Papers allege that many high profile figures around the world, including current and former world leaders, government officials and celebrities, used the law firm Mossack Fonseca to hide assets and the identity of those who control the assets.
Two major actions must take place to tackle this issue, including:
1. Identifying where the money resides globally and who is the Ultimate Beneficial Owners (UBO) of the money.
2. Plugging legal loopholes that allow money to be moved off shore and sheltered in vehicles that hide the actual Owners of the money.
The Internal Revenue Service (IRS, the US tax authority), has already begun tackling the first of these issues with the introduction of the Foreign Accounts Tax Compliance Act (FATCA) which came into force in 2014. The aim is to deter tax evasion by identifying US individuals or entities with financial assets held abroad.
The OECD is hot on the heels with the Common Reporting Standard (CRS), a global reporting standard for the Automatic Exchange of Information (AEoI). The goal of CRS is to allow tax authorities to obtain a clearer understanding of financial assets held abroad by their residents, for tax purposes. More than 96 countries have agreed to share information on residents’ assets and incomes.
The first year of FATCA reporting is already behind us and the IRS has received vast numbers of reports from global financial institutions pertaining to US citizens’ assets held abroad. Several questions still remain however:
1. Are global tax authorities prepared to handle and process this volume of data?
2. Will the needles in the haystack be found?
3. Will relevant action be taken to recoup any taxes that may be owed?
Only time will tell.
Thomson Reuters is your foundation in a changing world. We stay one-step ahead of the regulations so you can future-proof your reporting strategy. With 25 years of experience in global tax reporting, we have the knowledge and expertise to assess and improve existing reporting solutions. To learn more visit tax.thomsonreuters.com/fatca-crs.