On June 1st the Government of Australia issued a media release urging tax payers with undeclared offshore incomes to utilize the current Voluntary Disclosure Initiative. Michael D’Ascenzo, Tax Commissioner of Australia, stated that the program will end on June 30th and concessional penalty arrangements will no longer be offered upon the initiative’s completion. No indication was given as to the possibility of another program in the near future.

According to the Australian Tax Office (ATO), under the conditions of the program, an individual disclosing additional undeclared incomes exceeding AUD 20 000 (approx. USD 16 735) for a given tax year, will only face a shortfall penalty of 10 percent. Australian nationals who reveal offshore incomes below the threshold will not face any shortfall penalty. Additionally, the general interest charge (GIC) on unpaid taxes will be reduced to nil for the years up to and including the 2002 tax year. For the 2003 and 2004 tax years, the GIC will be reduced to the base rate. The ATO has also stated that it is willing to offer anonymous indications of whether a potential volunteer could face criminal prosecution as a result of the source of their undeclared incomes.

The ATO emphasized that the Australian Government currently has 25 separate bilateral international tax information exchange agreements. Subsequently the ATO is experiencing a greater level of tax transparency and international taxation information cooperation, which makes discovering and prosecuting tax evaders easier than in previous years. Under typical ATO procedure, undeclared offshore incomes discovered through an audit can lead to penalties of 90 percent, along with interest charges, and repayment of unpaid taxes. Michael D’Ascenzo added to the statement, saying “The message we want to get across to people is come forward now, don’t wait for us to come to you.”

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Governments worldwide are becoming increasingly aware and focused on transfer pricing regulations. Several nations have recently announced that greater attention will be paid to the matter throughout tax audits conducted on multinational corporations throughout the 2010 and 2011 fiscal years.

In a recent press release, the Ho Chi Minh City Taxation Department revealed heavy tax revenue losses due to illicit transfer pricing practices. The Department announced that 60 percent of the 3,500 foreign-invested enterprises (FIEs) operating within the city had reported a loss in 2009. Nguyen Trong Hanh, Deputy Chief of Ho Chi Minh City Taxation Department, stated that many of these firms had been reporting losses for several years, while showing growth far outstripping local firms. In an audit of 20 such FIEs the tax department found that transfer pricing policies had a significant effect on the companies declared profits. A reported 17 of the audited firms posted positive profits as a result of the investigation.

To stem the occurrence of similar situations in other economies, Governments worldwide are beginning to instate tougher transfer pricing regulations. On April 1st the Japanese Government began to impose new guidelines which detail the documentation required for transfer pricing and the determination of transaction prices. Similarly, in April the Chinese Government has significantly increased its transfer pricing documentation requirements, mandating that an additional 6 new forms be submitted by firms undergoing an audit for the 2009 fiscal year. The General Inspector of Financial Information of Poland also issued warnings in April that the country’s tax authorities will be paying special scrutiny to related-party transactions throughout 2010 tax audits. The Government of Denmark, which has progressively tightened transfer pricing regulations since 2005, reported that audits of multinational companies in 2009 yielded an extra DKK 15.3 billion (approx. USD 2.8 billion) tax revenue. The significant revenue recovery was attributed to investigation of transfer pricing policies.

In line with international governments efforts to stem tax loses through transfer pricing and set appropriate legislations the Organization for Economic Cooperation and Development (OECD) has announced an update to their international transfer pricing guidelines. The OECD’s Working Party No.6 is expected to have a final report and new legislative suggestion for the treatment of transfer pricing published in 2011.

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In an assurance of the DOJ’s future success, John DiCicco, Acting Assistant Attorney General for the DOJ Tax Division, said, “The Department will continue to use all available law enforcement tools to recover tax revenue and to punish tax offenders.” In reply, Doug Shulman, IRS Commissioner, said, “The IRS appreciates the strong support of the Justice Department in our continuing work to enforce the nation’s tax laws.”

The US National Whistleblower Center (NWC) has already issued a counter-statement to the DOJ press release. Stephen Kohn, NWC Executive Director, has labeled the DOJ’s claim of higher compliance levels as “chutzpah”. Specifically, Stephen Kohn stated that the prosecution of Bradley Birkenfield will ultimately result in lower levels of whistleblowing and greater efforts by tax preparers who commit tax fraud to cover themselves, their clients, and evidence of any tax indiscretions.

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On April 6th the OECD and Council of Europe released a media statement announcing that the CMAAT will be updated in order to bring it up to currently agreed upon standards of international tax transparency. The Convention, opened for signing in 1988, is an international framework which provides facilitation of multinational exchange of fiscal information. The Convention will be updated to reflect modern internationally agreed upon standards in tax transparency and exchange of fiscal information. Under the update, domestic tax law limitations will be removed and exchange of bank information will be available.

The CMAAT update will open participation in the agreement to non-Council of Europe and non-OECD nations, and invitations will be extended for new signatories, especially among developing economies. Angel Gurría, OECD Secretary-General, explained the need for the change, saying that it “…provides for the opening of the convention to countries that are not members of the Council of Europe or the OECD, thereby transforming it into an instrument to fight tax evasion worldwide.”

The CMAAT, originally drawn up under the aegis of the OECD and the Council of Europe, is currently enforced by Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, Netherlands, Norway, Poland, Sweden, United Kingdom, United States, and Ukraine. Canada, Germany and Spain have signed the agreement, though have yet to ratify it.

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The European Parliament (EP) passed a tabled resolution on March 25th, which stated that it is the EU’s obligation to assist developing nations in recovering from the financial crisis. The resolution that received 283 in favor votes, 278 against, and 15 abstentions, forwarded several key suggestions for the aid of developing nations. Crucial among the proposals was the suggestion of implementing temporary debt repayment moratoriums and debt cancellation for the world’s least developed nations. The EP Committee on Development report accompanying the resolution stated that debt measures were necessary to allow nations to instate countercyclical fiscal policies to recover from the financial crisis. The EP took up the mantle of the widely discussed idea of a global financial transaction tax, and stated that it would be an appropriate concept to generate revenue for development projects.

Enrique Guerrero Salom, Member of the EP Committee on Development, justified the aid development intentions, saying: “…during the years running up to the current crises the developing countries already suffered from the food and energy crisis as well as from the impact of climate change…the initially economic crisis is becoming a development, social and humanitarian crisis.”

The EP also took the stance that tax evasion and undisclosed capital flows through tax haven jurisdictions are fundamentally detrimental to the economic growth of developing nations, and steps should be taken to lessen the occurrence of tax fraud. Suggestion for accomplishment of the goal included investigating the feasibility of a new internationally binding agreement which will require multinational firms to automatically disclose all profits made throughout its operational jurisdictions. The report suggested that global tax evasion through tax havens currently exceeds 10 times the monetary amount used for development aid of poorer countries. The resolution contained an accompanying section committing the EP to pressure the EU Member States and the European Commission to provide at least 25 percent of profits generated by the current EUETS for developing nations to deal with climate change.

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