Cooperative Compliance Program for Individuals and Trusts: A Proposal for a Compliance Passport

Authors

  • Philip Marcovici Advises governments, financial institutions, and global families in relation to tax and wealth management matters. Former partner at Baker McKenzie, and the chair of the firm’s European tax practice and international wealth management practice
  • Noam Noked Assistant Professor, Faculty of Law, The Chinese University of Hong Kong, Hong Kong

Abstract

Ensuring tax compliance among business and wealth owners is an important policy goal for many tax authorities. This article develops a proposal for a voluntary program for individuals, family trusts, and private investment vehicles, which draws upon existing cooperative compliance programs for large corporations, such as the Organisation for Economic Co-operation and Development (OECD)’s International Compliance Assurance Programme (ICAP). Under the proposed program, the authorities of the relevant jurisdictions would determine, on a joint basis, whether the participant is in full compliance with their tax obligations and whether there are any money laundering concerns. The implementation of this proposal could enhance a culture of cooperative compliance and free up enforcement resources. For participants, it could improve privacy, increase certainty, and reduce compliance costs and distortions. As this proposal has the potential to ensure compliance while reducing costs and risks for both tax authorities and taxpayers, it deserves serious consideration.

References

Ahrens, L., & Bothner, F. (2019). The big bang: Tax evasion after automatic exchange of information under FATCA and CRS. New Political Economy, 24, 605-622.

The Australian Government the Treasury (2017, October). Black economy taskforce: Final report, October 2017. Retrieved from https://treasury.gov.au/sites/default/files/2019-03/Black-Economy-Taskforce_Final-Report.pdf

Avi-Yonah, R. S., & Siman, A. (2014). The one percent solution: Corporate tax returns should be public (and how to get there). Tax Notes International, 73(7), 627-628.

Björklund Larsen, L., & Oats, L. (2019). Taxing large businesses: Cooperative compliance in action. Intereconomics, 54(3), 165-170.

Blank, J. D. (2011). In defense of individual tax privacy. Emory Law Journal, 61(2), 265-348.

Blank, J. D. (2014). Reconsidering corporate tax privacy. New York University Journal of Law & Business, 11(1), 31-122.

Blum, C. (2004). Sharing bank deposit information with other countries: Should tax compliance or privacy claims prevail? Florida Tax Review, 6(6), 579-648.

Byrnes, W. H. (2020). LexisNexis guide to FATCA & CRS compliance. np: Matthew Bender Elite Products.

Buchanan, J., & McLaughlin, L. (2017). Revenue administration: Implementing a high-wealth individual compliance program. https://www.imf.org/~/media/Files/Publications/TNM/2017/tnm1707.ashx

Casi, E., Spengel, C., & Stage B. M. B. (2019). Cross-border tax evasion after the Common Reporting Standard: Game over? (ZEW - Centre for European Economic Research Discussion Paper No. 18-036). Mannheim, Germany: ZEW - Centre for European Economic Research.

Cayman Finance (2019, October 9). Statement by the Government of the Cayman Islands on a public beneficial ownership register for companies. https://www.cayman.finance/2019/10/statement-by-the-government-of-the-cayman-islands-on-a-public-beneficial-ownership-register-for-companies/

Cockfield, A. J. (2016). Big data and tax haven secrecy. Florida Tax Review, 18(8), 483-539.

Department of the Treasury, Financial Crimes Enforcement Network. (2016, May 11). 31 CFR Parts 1010, 1020, 1023, 1024, and 1026 — RIN 105-AB25 — Customer due diligence requirements for financial institutions, final rules, 29398. Federal Register, 81(91). https://www.govinfo.gov/content/pkg/FR-2016-05-11/pdf/2016-10567.pdf

De Simone, L., Lester, R., & Markle, K. (2020). Transparency and tax evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA). Journal of Accounting Research, 58(1), 105-153. https://doi.org/10.1111/1475-679X.12293

De Simone, L., Sansing, R. C., & Seidman, J. K. (2013). When are enhanced relationship tax compliance programs mutually beneficial? American Accounting Review, 88(6), 1971-1991. https://doi.org/10.2308/accr-50525

de Widt, D., Mulligan, E., & Oats, L. (2019). The US Compliance Assurance Process: A relational signalling perspective. Journal of Tax Administration, 5(1), 145-161.

de Widt, D., & Oats, L. (2017). Risk assessment in a cooperative compliance context: a Dutch UK comparison, British Tax Review, 2017(2), 230-248.

Dolan, M. P., & McCormally, T. J. (2018, September 10). IRS extends CAP Program, modifying some rules and signaling more significant changes may lie ahead. https://home.kpmg/content/dam/kpmg/us/pdf/2018/09/tnf-wnit-cap-program-sep10-2018.pdf

The European Parliament and the Council of the European Union. (2018, 30 May). Directive (EU) 2018/843 of the European Parliament and of the council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (Text with EEA relevance). In Official Journal of the European Union, 19.6.2018:(L156/43). https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0843&from=EN

Financial Action Task Force (2019, June). International standards on combating money laundering and the financing of terrorism & proliferation: The FATF recommendations. http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf

The Financial Services Authority (2007, July). Review of private banks’ anti-money laundering systems and controls. https://www.fca.org.uk/publication/archive/fsa-systems-review.pdf

Foo, K. (2019). Does tax evasion generate criminal proceeds? Singapore Academy of Law Journal, 31(2), 845-874.

Fox, G. G., & DePasquale, P. (2016). U.S. international trust reporting and planning. NYSBA International Law Practicum, 29(1), 33-51.

Gangl, K., & Torgler, B. (2020). How to achieve tax compliance by the wealthy: A review of the literature and agenda for policy. Social Issues and Policy Review, 14(1), 108-151. https://doi.org/10.1111/sipr.12065

G20 (2014). High-level principles on beneficial ownership and transparency. https://www.mofa.go.jp/files/000059869.pdf

Hanlon, M. (2018). Country by country reporting and the international allocation of taxing rights. Bulletin for International Taxation, 72(4/5).

Hatfield, M. (2018a). Cybersecurity and tax reform. Indiana Law Journal, 93(4), 1161-1209.

Hatfield M. (2018b). Privacy in taxation. Florida State University Law Review, 44(2), 579-633.

Hein, R., & Russo, R. (Eds.) (2020). Co-operative compliance and the OECD’s International Compliance Assurance Programme. Alphen aan den Rijn, the Netherlands: Kluwer Law International B.V.

HM Revenue & Customs & HM Treasury. (2020, January 24). Fifth Money Laundering Directive and Trust Registration Service: Technical consultation document. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/860269/Technical_consultation_document_Fifth_Money_Laundering_Directive_and_Trust_Registration_Service.pdf

Hong Kong Monetary Authority. (2016, September 8). De-risking and financial inclusion. https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2016/20160908e1.pdf

Huiskers-Stoop, E., & Gribnau, H. (2019). Cooperative compliance and the Dutch horizontal monitoring model. Journal of Tax Administration, 5(1), 66-110.

IFF Research (2019, January). Researching the drivers of tax compliance behaviour among the wealthy and ways to improve it (HM Revenue & Customs Research Report 537). https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/797390/Research_report_537_tax_compliance_behaviour_among_the_wealthy.pdf

Internal Revenue Service. (2020a, March 20). Compliance Assurance Process (CAP) – Frequently Asked Questions (FAQs). https://www.irs.gov/businesses/corporations/compliance-assurance-process-cap-frequently-asked-questions-faqs

Internal Revenue Service. (2020b, August 27). Compliance Assurance Process. https://www.irs.gov/businesses/corporations/compliance-assurance-process

Jemson, N. (2019, November). Trusted taxpayer regime. https://taxpolicycharitabletrust.org.nz/wp-content/uploads/2019/11/Tax-policy-scholarship-proposal-trusted-taxpayer-regime-Nigel-Jemson.pdf

Joint Money Laundering Steering Group. (2020, July). Prevention of money laundering/ Combating terrorist financing: 2020 revised version - Guidance for the UK financial sector, Part II: Sectorial guidance. https://secureservercdn.net/160.153.138.163/a3a.8f7.myftpupload.com/wp-content/uploads/2020/07/JMLSG-Guidance_Part-II_-July-2020.pdf

Knobel, A. (2016, November 3). The case for registering trusts - and how to do it. https://www.taxjustice.net/wp-content/uploads/2013/04/Registration-of-Trusts_AK.pdf

Kornhauser, M. E. (2005). Doing the full monty: Will publicizing tax information increase compliance? The Canadian Journal of Law & Jurisprudence, 18(1), 95-117. https://doi.org/10.1017/S0841820900005518

Lenter, D., Slemrod, J., & Shackelford, D. A. (2003). Public disclosure of corporate tax return information: Accounting, economics, and legal perspectives. National Tax Journal, 56(4), 803-830. https://doi.org/10.17310/ntj.2003.4.06

Marcovici, P. (2016). The destructive power of family wealth: A guide to succession planning, asset protection, taxation and wealth management. Chichester, England: John Wiley & Sons Ltd.

Martini, M. (2019). Who is behind the wheel? Fixing the global standards on company ownership. https://images.transparencycdn.org/images/2019_Who_is_behind_the_wheel_EN.pdf

Mor, F. (2019, August 7). Registers of beneficial ownership (House of Commons Library Briefing Paper No. 8259). http://researchbriefings.files.parliament.uk/documents/CBP-8259/CBP-8259.pdf

Noked, N. (2018a). FATCA, CRS, and the wrong choice of who to regulate. Florida Tax Review, 22(1), 77-119.

Noked, N. (2018b). Tax evasion and incomplete tax transparency. Laws, 7(3), 31. https://doi.org/10.3390/laws7030031

Noked, N. (2018c). Public country-by-country reporting: The shareholders’ case for mandatory disclosure. Tax Notes International, 90(14), 1,501-1,511.

Noked, N. (2019). Should the United States adopt CRS? Michigan Law Review Online, 118, 118-133.

Oei, S.-Y., & Ring, D. (2018). Leak-driven law. UCLA Law Review, 65, 532-618.

Organisation for Economic Co-operation and Development. (2008). Study into the role of tax intermediaries. http://www.oecd.org/tax/administration/39882938.pdf

Organisation for Economic Co-operation and Development. (2009). Engaging with high net worth individuals on tax compliance. http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=CTPA/CFA(2009)28/REV1&docLanguage=En

Organisation for Economic Co-operation and Development. (2013). Co-operative compliance: A framework – From enhanced relationship to co-operative compliance. https://doi.org/10.1787/9789264200852-en

Organisation for Economic Co-operation and Development. (2015). Transfer pricing documentation and country-by-country reporting, Action 13: 2015 final report. https://doi.org/10.1787/9789264241480-en

Organisation for Economic Co-operation and Development. (2017a). Tax administration 2017: Comparative information on OECD and other advanced and emerging economies. https://doi.org/10.1787/tax_admin-2017-en

Organisation for Economic Co-operation and Development. (2017b, March). IMF/OECD report for the G20 finance ministers. http://www.oecd.org/tax/tax-policy/tax-certainty-report-oecd-imf-report-g20-finance-ministers-march-2017.pdf

Organisation for Economic Co-operation and Development. (2018a). Model mandatory disclosure rules for CRS avoidance arrangements and opaque offshore structures. www.oecd.org/tax/exchange-of-tax-information/model-mandatory-disclosure-rules-for-crs-avoidance-arrangements-and-opaque-offshore-structures.pdf

Organisation for Economic Co-operation and Development. (2018b). International Compliance Assurance Programme: Pilot handbook, working document. https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/international-compliance-assurance-programme-pilot-handbook.pdf

Organisation for Economic Co-operation and Development. (2019a, June 7). Implementation of tax transparency initiative delivering concrete and impressive results [Press release]. https://www.oecd.org/tax/exchange-of-tax-information/implementation-of-tax-transparency-initiative-delivering-concrete-and-impressive-results.htm

Organisation for Economic Co-operation and Development. (2019b, August 30). Statement on the data breach in the National Revenue Agency of Bulgaria [Press release]. https://www.oecd.org/tax/transparency/statement-on-the-data-breach-in-the-national-revenue-agency-of-bulgaria.htm

Organisation for Economic Co-operation and Development. (2019c). Tax administration 2019: Comparative information on OECD and other advanced and emerging economies. https://doi.org/10.1787/74d162b6-en

Organisation for Economic Co-operation and Development. (2019d). International Compliance Assurance Programme pilot handbook 2.0. https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/international-compliance-assurance-programme-pilot-handbook-2.0.pdf

Organisation for Economic Co-operation and Development. (2021). International Compliance Assurance Programme – Handbook for tax administrations and MNE groups. https://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/international-compliance-assurance-programme-handbook-for-tax-administrations-and-mne-groups.pdf

O'Reilly, P., Parra Ramirez K., & Stemmer, M. A. (2019). Exchange of information and bank deposits in international financial centres (OECD Taxation Working Papers, No. 46). https://doi.org/10.1787/025bfebe-en

Pagliery, J. (2016, February 26). IRS taxpayer data theft seven times larger than originally thought. CNN. https://money.cnn.com/2016/02/26/technology/irs-data-theft/

Pomp, R. D. (1993). The disclosure of state corporate income tax data: Turning the clock back to the future. Capital University Law Review, 22, 373-464.

Russo, R., & Martini, M. H. (2019). The International Compliance Assurance Programme reviewed: The future of cooperative tax compliance? Bulletin for International Taxation, 73(9), 452.

Stanley-Smith, J. (2019a, July 10). Case study: Shell’s participation in ICAP. International Tax Review.

Stanley-Smith, J. (2019b, July 10). The negative aspects of ICAP. International Tax Review.

Stanley-Smith, J. (2019c, July 10). OECD won’t rush ICAP expansion despite scheme’s popularity. International Tax Review.

Stanley-Smith, J. (2019d, July 29). Case study: Repsol's participation in ICAP. International Tax Review.

Storm, A. (2013). Establishing the link between money laundering and tax evasion. International Business & Economic Research Journal, 12(11), 1437-1450. https://doi.org/10.19030/iber.v12i11.8181

Suh, J.-W., Lee, H.-Y., Kuk, A. E., & Ryu, H. (2019). Effect of the trusted taxpayer designation on corporate tax avoidance behavior: Evidence from Korea. Asian Journal of Business & Accounting, 12(2), 121-146. https://doi.org/10.22452/ajba.vol12no2.5

Szudoczky, R., & Majdańska, A. (2017). Designing co-operative compliance programmes: Lessons from the EU state aid rules for tax administrations. British Tax Review, 2017(2), 204-229.

Thorndike, J. (2002, July 15). Promoting honesty by releasing corporate tax returns. Tax Notes, 96, 324-325.

U.S. Government Accountability Office. (2019). Foreign asset reporting: Actions needed to enhance compliance efforts, Eliminate overlapping requirements, and mitigate burdens on U.S. persons abroad (GAO-19-180). https://www.gao.gov/assets/700/698133.pdf

Winn, H. (2015, March 26). Bank account difficulties turning business away from Hong Kong. South China Morning Post. https://www.scmp.com/business/banking-finance/article/1747963/bank-account-difficulties-turning-business-away-hong-kong

Wrappe, S. C., & Kramer, M. (2020, June 9). INSIGHT: Seriously, should I renew my Advance Pricing Agreement? Bloomberg Tax. https://news.bloombergtax.com/transfer-pricing/insight-seriously-should-i-renew-my-advance-pricing-agreement

Zucman, G. (2013). The hidden wealth of nations: The scourge of tax havens. Chicago, IL: University of Chicago Press.

Volume 6.2 of JOTA - Marcovici and Noked Cover

Downloads

Published

04-06-2021

How to Cite

Marcovici, P., & Noked, N. (2021). Cooperative Compliance Program for Individuals and Trusts: A Proposal for a Compliance Passport. Journal of Tax Administration, 6(2), 33–59. Retrieved from https://journals.docuracy.co.uk/jota/article/view/2