30th May 2023
It has probably not escaped your attention that governments across the globe are seeking ways to close their revenue gaps and to increase the amount of money they can claim back through taxation, not least in the wake of the coronavirus pandemic and ensuing lockdowns. This is one of the reasons why new laws and regulations are being introduced on a near weekly basis in a variety of countries. However for agencies placing contractors overseas this creates numerous challenges, particularly when it comes to keeping up to date with new laws in jurisdictions in which they operate. We’ve highlighted some of the latest cases for your agency – and the contractors you work with – to be aware of in order to steer clear of major fines and even prison sentences.
France takes aim at multinationals’ tax evasion
The already complex French corporate taxation system is set for change as the Minister for Public Spending, Gabriel Attal, announced his plans to tighten controls on the “ultra-rich” and on multinationals to ease the pressure on the middle classes. Attal outlined government objectives for tackling this controversial issue by announcing a 25% increase in tax audits “on large estates” by the end of President Emmanuel Macron’s five-year term. He said, “My plan is to pile pressure on the ultra-rich and the multinationals but also to alleviate the pressure on the middle classes and small business owners, to give them a breather. There is an overwhelming majority of French people who work, who pay taxes and who are the victim of this fraud.”
It is estimated that the French government is missing out on revenue worth anywhere between €30bn to €100bn due to various forms of corporate tax fraud, however under the new system tax audits would be carried out for the 100 largest companies on the stock market every two years. For VAT fraud alone, a study estimated that €20 billion was being lost per year, with Attal also suggesting that he would introduce mandatory electronic invoices for transactions between companies.
In order to deliver these changes, the French tax authority will create over 1,500 new jobs by 2027, increasing the number of officials in the country by around 15%, while staff numbers at the judicial investigation service would double in that timeframe. This shift highlights the importance and weight that France is placing on corporate tax fraud on its shores and should serve as a warning for any organisation operating here that believes it may be able to sidestep regulations.
Russia’s energy sector hit as Kremlin forced to increase tax
While hiring activity in Russia has (understandably) probably dropped at the moment, it’s likely that the knock-on effects of the Kremlin increasing tax on the domestic energy sector could be significant. Energy firms in the country, that have already been battered by Western sanctions, may become even further impeded from long-term growth as the Kremlin tries to squeeze more tax revenue from the sector. The price of Russian crude has suffered since the G7 and European Union imposed a cap of $60 per barrel in December that coincided with the EU’s ban on seaborne Russian oil imports, and a European official has labelled the latest tax increases as “definitely destructive to their industry.”
The changes are designed to enable Russia to gain around $8 billion in revenue, making up for losses caused by Western sanctions that have helped keep Russian crude prices low. Nearly half of Russia’s budget depends on oil and gas revenue, which fell by 45% in the first quarter of this year. Any agencies that work with professionals in the oil and gas space should attempt to keep up to speed with these changes as it’s likely that neighbouring countries, and other energy producers, will also adapt their taxation systems in order to balance revenues.
Bill imposing stiffer penalties for tax fraud clears Philippines House panel hurdle
And finally, the government in the Philippines approved a new measure last month designed to impose stricter penalties on tax fraudsters, including those who provide counterfeit receipts to reduce income tax and VAT liabilities. The Bill aims to make coordinated tax fraud a separate crime and could lead to prison sentences ranging from 17-20 years for the worst offenders.
Government official Joey Salceda, commented on the new law; “When persons or corporations deliberately choose to employ illegal means and misrepresent expenses and records in order to avoid paying taxes, the government loses billions of revenue that could have funded much-needed public services for Filipinos.” He also suggested that, prior to the launch of the Bill, the systematic and fraudulent use of fake receipts has cost the country at least P100bn in lost government revenues.
This follows the launch of a campaign entitled Run After Fake Transactions (RAFT) and an associated task force, in April, with the Philippines clearly aiming to significantly crack down on all forms of tax evasion within the country. Commissioner Romeo Lumagui announced that the tax authority bureau has already filed complaints against at least four corporations in an “initial filing of cases” with the Department of Justice and added that they are also currently preparing to file complaints against the individuals who purchased the fraudulent receipts. He said the bureau is also intent on collecting the taxes the buyers did not pay in connection to their foiled attempt to pad their tax deductions.
Whether your firm places talent in France, The Philippines or even Russia, domestic tax authorities are clearly seeking ways to close down loopholes and to more broadly clamp down on anyone they suspect of non-compliance. We recognise that it can be extremely challenging to keep up to speed with these legal shifts so if your agency works with professionals in any of the aforementioned countries, or indeed other jurisdictions around the world, and wants to remain on the right side of the law, then ensure you partner with an expert firm. With ever increasing prison sentences and fines potentially on offer, it’s never been more important to stay up to speed with legal shifts both for your agency and the professionals that you work with.
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