Global guide for fighting tax crimes

One of the key indicators of how progressive a tax system is in any jurisdiction is its ability to address and prosecute tax crimes. Fighting tax crimes, including financial ones, is a global concern since it is increasingly becoming complex and sophisticated. At the Fifth Organization for Economic Cooperation and Development (OECD) Forum on Tax and Crime held in London last November 2017, the Ten Global Principles for Fighting Tax Crimes was launched. The formulated principles marked a milestone as the first global reference guide for tackling and fighting tax crimes. In brief, they are as follows:
PRINCIPLE 1: ENSURE TAX OFFENSES ARE CRIMINALIZED
The OECD acknowledges that each jurisdiction has a different legal system; thus, handling tax violations is expected to vary from one jurisdiction to the other. Regardless of the policy framework per jurisdiction, however, the guide advocates that jurisdictions should have an effective legal framework in place, with the following elements:

• The law clearly defines the tax offenses that are criminalized.

• A criminal sanction applies if the offense is proven.

• More serious offenses are punishable by more serious criminal sanctions; and

• Criminal sanctions are applied in practice.

PRINCIPLE 2: DEVISE AN EFFECTIVE STRATEGY FOR ADDRESSING TAX CRIMES
The guide recommends that each jurisdiction should have a tactical approach for addressing tax crimes. Generally, there should be an overall tax compliance strategy that covers the full range of compliance, from encouraging voluntary compliance, dealing with inadvertent noncompliance, avoidance, evasion and serious crime. However, the specific strategy would be based on each jurisdiction’s legal system, policy, legislative environment and general structure of law enforcement. Moreover, it underlines the value of identifying risks and threats and the need to monitor and regularly review it.
PRINCIPLE 3: HAVE ADEQUATE INVESTIGATIVE POWERS
In order to prosecute tax crimes successfully, agencies responsible for investigating tax offenses should have investigative powers necessary and effective in the context of their own mandate, taking into account the ability to work with other law enforcement agencies which may have additional powers. The guide identified and discussed investigative powers such as search powers; the power to obtain third-party documentary information; powers to interview, to conduct covert surveillance and undercover operations; the power to intercept mail and telecommunications, to search and seize computer hardware, software, cellphones and digital media; and the power to arrest a person.
According to the guide, the investigative powers should allow access to information and evidence in the digital world in addition to the more traditional sources of information. Moreover, the investigative powers of any law enforcement agency must be accompanied by safeguards, oversight, and authorization to avoid abuses and to ensure that a person’s rights are adequately protected.
PRINCIPLE 4: HAVE EFFECTIVE POWERS TO FREEZE, SEIZE, AND CONFISCATE ASSETS
In addition to the investigative powers, the guide stressed that each jurisdiction should have the ability to freeze/seize and confiscate assets in the course of a crime investigation. These are necessary in order to prevent the proceeds of a crime from being disposed of or from being enjoyed by a suspect, and to preserve physical evidence of a crime. It is also a deterrent as it can reduce the profitability of committing tax crimes. The guide also states that jurisdictions should ensure that the freezing, seizing and confiscating of assets are possible for both domestic and foreign tax investigations and judgments. The legal power to do so should be provided by domestic law, or for international cases, may be undertaken in response to a request for mutual legal assistance in accordance with international agreements.
PRINCIPLE 5: PUT IN PLACE AN ORGANIZATIONAL STRUCTURE WITH DEFINED RESPONSIBILITIES
To reduce the risk of duplication of efforts and gaps in law enforcement, the guide suggests the formulation of a clear organizational model that allows for efficient allocation of responsibilities. A clear organizational structure is also important as it allows for greater transparency and accountability in the use of resources and deployment of strategies. Moreover, it should ensure that the agency responsible for the investigation and prosecution of tax crimes is independent of personal or political interests, and is also held accountable for exercising its functions with fairness and integrity.
PRINCIPLE 6: PROVIDE ADEQUATE RESOURCES FOR TAX CRIME INVESTIGATION
There should be adequate resources for tax crime investigation. The guide states that, whatever organizational model is adopted, sufficient resources should be allocated for the investigation and enforcement action of tax crimes. Understandably, the level and type of resources will vary in accordance with the overall budgetary constraints and other priorities of the jurisdiction. In particular, the type of resources needed may vary depending on the nature, scale and developmental stage of the economy. Nonetheless, the guide specified the important resources that agencies must have in fighting tax crimes, namely: Financial Resources, Human Resources, Training, Infrastructure Resources, Organizational Resources, and Data and Technology Resources.
PRINCIPLE 7: MAKE TAX CRIMES A PREDICATE OFFENSE FOR MONEY LAUNDERING
The guide recommends that jurisdictions should designate tax crimes as one of the predicate offenses for money laundering. This implies that tax crimes will be considered as a component of money laundering; hence, anyone caught laundering money will also be prosecuted for violation of tax laws.
PRINCIPLE 8: HAVE AN EFFECTIVE FRAMEWORK FOR DOMESTIC INTERAGENCY COOPERATION
According to the guide, there are different forms of cooperation that may be utilized by each jurisdiction, subject to their domestic laws. To prevent abuse of powers, measures that ensure check-and-balance of authority must likewise be incorporated. Some forms of interagency cooperation mentioned in the report include: information sharing, joint investigation teams, interagency centers of intelligence, and secondments and co-location of personnel.
PRINCIPLE 9: ENSURE INTERNATIONAL COOPERATION MECHANISMS ARE AVAILABLE
Considering that tax crimes may necessarily involve foreign jurisdictions, the guide emphasized the importance of international cooperation. According to the guide, criminal activity can cross international borders, but investigation agencies have powers which are limited by jurisdictional boundaries; hence, cooperation amongst investigation agencies is necessary. International cooperation can take a number of forms, such as information sharing, servicing of documents, obtaining evidence, taking of testimony from witnesses, transferring persons for questioning, executing order to freeze and seize assets, and conducting joint investigations. However, there should be a legal agreement between jurisdictions, setting out the terms and procedural requirements for enforcement of these mechanisms.
PRINCIPLE 10: PROTECT SUSPECTS’ RIGHTS
The guide acknowledged the importance of protecting the rights of the taxpayer. Taxpayers suspected or accused of committing a tax crime must be able to rely on basic procedural and fundamental rights. In particular, according to the guide, taxpayers suspected or accused of committing a tax crime should be able to rely on the following basic rights, namely: the right to a presumption of innocence; to be advised of their rights and of the particulars of what one is accused of; to remain silent; to access and consult a lawyer and entitlement to free legal advice; to interpretation and translation; to access documents and case material, also known as a right to full disclosure; to a speedy trial; and to protection from double jeopardy.
The Ten Global Principles is envisioned to empower tax administrators to increase overall tax compliance and effectively promote a tax system, drawing from the experience of other jurisdictions and considering the best practices to combat tax crimes.
In the Philippines, we can use the guide to benchmark our current system in fighting tax crimes. In fact, the guide encourages developing jurisdictions, such as ours, to use the principles as a diagnostic tool to identify policies/measures which are not yet in place, taking into account local laws and regulations. This comes at an opportune time when tax reform is under way to plug leakages in the country’s tax system. But more than enshrined principles, the greater challenge to attaining positive reforms is a firm political will to see thru its efficient implementation and a well-oiled moral torch to do what’s right.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
 
GLacy S. tabirara is a manager at the Tax Services group of Isla Lipana & Co., the Philippine member firm of the PwC global network.
glacy.s.tabirara@ph.pwc.com
(02)845-2728.