The Panama Papers are news headlines everywhere: all media offer comments from various sources on this widespread international ‘tax scandal’. Tax professionals are doing their utmost to emphasize the difference between tax evasion and tax avoidance although, in the end, it all comes down to one and the same thing: paying no or lower taxes.
Tax avoidance, in endeavouring to mitigate tax costs by making use of possibilities to do so within the limits of the law, is legal; everyone has the right to choose the most favourable tax path available. Tax evasion, on the other hand, is illegal, as this involves a deliberate decision to omit to file a tax return, to file an incorrect tax return, or to omit to pay taxes due (tax fraud).
The distinction between these two ways of generating tax savings is often far from clear, as the interpretation of the law is also frequently debatable. Were no or lower taxes paid on the basis of sound arguments (‘arguable considerations’), or was the Treasury disadvantaged deliberately and in contravention of the law? A tax lawyers’ field day.
Individuals with accounts in countries such as Switzerland and Luxemburg at banks like UBS, Credit Suisse and Safra Sarasin with – last of the Mohicans – the now disappearing tradition of banking secrecy are just one example of taxpayers who are labelled tax evaders. While not the slightest tax obstacle has been placed in the way of multinationals as yet, State Secretary for Finance Mr Wiebes is rapidly increasing the pressure on these individual tax evaders.
For example, the punitive fine for those who have not owned up their undeclared assets to the Dutch Revenue by 1 July 2016 will be doubled from 60% of the amount in taxes evaded to 120%. Those who do not make use of the voluntary disclosure scheme before 1 July 2016 consequently risk losing all of their – undeclared – assets to income tax, interest and fines. In our view, there are two arguments for limiting the damage such taxpayers may incur.
In the first place, there is an ongoing discussion on whether or not the capital gains tax in Box 3 violates property rights, seeing as the law assumes an annual fixed notional return of 4%, a return not everyone achieves on their undisclosed assets. To pay taxes (after voluntary disclosure) on assets that generate no or only a small return would result in a violation of such property rights.
Secondly, the fine rates for tax disclosers used to be lower – even as low as 0% at one point – as a result of which those who make use of the voluntary disclosure scheme now should be able to benefit from such earlier, lower penalty rates pursuant to the principles of legality under criminal law.
So although Wiebes’ commitment to deal with non-disclosers more strictly is open to dispute, he is nevertheless correct in saying that the net is closing. The UBO register that the Netherlands is to set up by 26 June 2017 is one of the contributing factors. This public register will specify the ultimate beneficiaries of every entity (see our blog).
Although the question is whether the net will ultimately prove to be absolutely escape-proof, the game of hide-and-seek with the Dutch Revenue will definitely become trickier.