MINISTRY OF FINANCE
FRAUD INVESTIGATION UNIT
website: www.mof.gov.cy/mof/taxdep TAX DEPARTMENT
FRAUD INVESTIGATION UNIT
COLLABORATIONS AND PROGRAMS DEVELOPED BY THE TAX DEPARTMENT FOR COMBATING TAX FRAUD IN CYPRUS 08/12/2016
George Georgiou VAT Officer Α’
2 TAX FRAUD 1
• DEFINITION: – Tax fraud occurs when a taxpayer willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability. – Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the tax obligation or overstating deductions
3 TAX FRAUD 2
• CHARACTERISTICS: – Organized – Complex – Global – Difficult to detect – Difficult to procecute
4 ORGANISED,COMPLEX and DIFFICULThe to DETECT files 1 ORGANISED,COMPLEX and DIFFICULT to DETECT 2 DARKNET
6 TAX GAP 1
• DEFINITION: – Is the difference between the amount of tax that should, in theory, be collected, against what is actually collected. POTENTIAL COLLECTIONS
TAX GAP
ACTUAL COLLECTIONS
7 TAX GAP 2 • WHY A TAX GAP EXISTS? – It reflects tax loss for a variety of reasons, • FROM taxpayer's undue care in filling their tax returns, • TO criminal attacks on the tax system – Without ignoring that this could also happen when Tax Authorities do not work efficiently.
• WHY MEASURE IT? – To help us to understand the reasons for losses in the tax system, • THUS, taking the APPROPRIATE Measures.
8 TAX GAP MEASUREMENT 1 (recent study by HM Revenue & Customs UK) • [A] BY CUSTOMER GROUP: – 51% SMEs – 26% Large Businesses – 13% Criminals – 10% Individuals
9 TAX GAP MEASUREMENT 2
• [B] BY TYPE OF TAX: – 43% I.T, N.I.Cs, C.G.T – 35% VAT – 10% CT – 8% EXCISE DUTIES – 3% OTHER TAXES » Stamp Duties, Inheritance Tax, Petroleum Revenue Tax
10 TAX GAP MEASUREMENT 3 • [C] BY BEHAVIOUR: – 18% Hidden Economy – 15% Failure to take reasonable care – 15% Legal Interpretation – 14% Evasion – 13% Criminal Attracts – 10% Non Payment AVOIDANCE: – 9% Error -Is the bending of the rules of the tax system to – 6% Avoidance gain a tax advantage. -It often involves contrived, artificial transactions • 59% IT, NICs, CGT that serve little or no purpose other than to • 32% CT produce a tax advantage. • 5% VAT -It involves operation within the letter but not the spirit of the law! 4% Other Taxes • 11 VAT GAP MEASUREMENT (recent study by EU)
YEAR VAT GAP %
2010 13.5% [ as a share of VTTL 2011 14.4% 2012 15.0% (Vat Total Tax Liability)] 2013 14.7% 2014 14.0% Absolute No: €160 billions
The VAT TAX lost in Europe is MORE than the total health care spending in the EU countries.
12 TAX GAP • Share of VAT Revenue in Total Tax Revenues in the EU MS is approximately 21% • VAT Gap is approximately €160 Billions in the EU MS • €760 Billions???? • LOW RISK – HIGH BENEFIT – Diversification of Crime • From High Risk, To Low Risk Businesses
Crime Gangs Narcotics Fire Arms Smuggling 13 IMPACT OF TAX GAP – LOSSES 1 • [A] FOR THE STATE – Significant Revenue Losses – Luck of trust by civilians – Substantial costs in the fight against fraudsters
• [B] FOR THE TAXPAYER – Indirect Victim from State’s Revenue Losses – Increased taxes to cover losses – Actually, the taxpayer pays taxes to the fraudsters
14 IMPACT OF TAX GAP – LOSSES 2 • [C] FOR THE HONEST TRADERS – Tax Fraud creates unfair competition • Low values Vs Healthy Market / competition Rules – Loses control of the market / industry • Is a threat to the internal market – Harms legitimate businesses – Substantial losses from unfair competition • Dilemma: CLOSURE Vs PARTICIPATION IN FRAUD?
• [D] FOR THE TERTIARY SECTOR (Banks, Auditors, Lawyers) – Negative Business Image if cooperate with Fraudsters – Could be considered accomplices in organized tax crime, with the resulting consequences
15 • Tax fraud and tax evasion affects us all. • It occurs within a country and across countries both within the EU and globally. • That is why a single country cannot solve the problem on its own. • The EU and Member States need to work more together and internationally to combat the problem at home and abroad.
16 COLLABORATIONS and PROGRAMS Developed by the TAX DEPARTMENT for COMBATING TAX FRAUD
17 TAX DEPARTMENT
INLAND VAT REVENUE
FRAUD INTERNATIONAL RISK ANALYSIS VIMA UNIT INESTIGATION TAX AFFAIRS UNIT UNIT UNIT
18 INLAND REVENUE
INTERNATIONAL TAX AFFAIRS UNIT
1. MLCs 4. CRS – DAC - FATCA 3. Double Tax Treaties 2. Requests 5. C by C Reporting
19 COLLABORATIONS and PROGRAMS INLAND REVENUE 1 1. MLCs [Multilateral Controls] • Is the coordinated control of the tax affairs of 1 or more taxpayers, which is organized by 2 or more Member States with common interests. • They are carried out simultaneously in all Member States OBJECTIVES: • Ensure that tax is paid according to EU and local Legislation • Support MS to collect the correct tax • Identify and disseminate good practice e.g – better project management techniques – improved communication – enhanced use of risk criteria and success indicator
20 COLLABORATIONS and PROGRAMS INLAND REVENUE 2 2. REQUESTS • Ask for and Answer Requests concerning specific taxpayer and for specific information • Can exchange spontaneous information when considered necessary for the other MS OBJECTIVES: • Ensure that tax is paid according to EU and local Legislation • Support MS to collect the correct tax • Increase intelligence data in a MS
21 COLLABORATIONS and PROGRAMS INLAND REVENUE 3
3. DOUBLE TAX TREATIES – Tax Treaties legally supersede local tax legislation – protect businesses and individuals against double taxation of income earned in other countries.
OBJECTIVE: • Avoid double taxation of income earned
22 Cyprus has concluded double tax treaties with the following countries:
Armenia France Lebanon Singapore
Austria Georgia Lithuania Slovakia
Azerbaijan Germany Malta Slovenia
Belarus Greece Mauritius South Africa
Belgium Hungary Moldova Spain
Bosnia Iceland Montenegro Sweden
Bulgaria India Norway Swiss Confederation
Canada Iran Poland Syria
China Ireland Portugal Thailand
Czech Republic Italy Quatar The States of Guernsey
Denmark Jersey Romania Ukraine
Egypt Kingsdom of Bahrain Russia United Arab Emirates
Estonia Kuwait San Marino United Kingdom
Ethiopia Kyrgyzstan Serbia USA
Finland Latvia Seychelles Uzbekistan
23 COLLABORATIONS and PROGRAMS INLAND REVENUE 4
4. CRS – DAC – FATCA CRS : Common Reporting System DAC : Directive on Administrative Cooperation FATCA: Foreign Account Tax Compliance Act
Is the Automatic Exchange of Financial Information and Accounts – CRS : Globally – DAC: Within EU – FATCA: For US 24 COLLABORATIONS and PROGRAMS INLAND REVENUE 5
4. CRS – DAC – FATCA (cont)
Local Financial Institutions (e.g Banks, Financial Institutions, Insurance Companies ) report CRS specific information to their Competent Tax Authority, who in turn exchange this information with the respective Competent Authorities of the Participating Jurisdictions with which they have an agreement in place. OBJECTIVES: • Improve International Tax Compliance • Combat Tax Evasion • Increase Efficiency and Decrease Costs (through standardized forms of information to be exchanged) IT ACTUALLY ELIMINATES THE BANK PRIVACY 25 CRS by jurisdiction
26 COLLABORATIONS and PROGRAMS INLAND REVENUE 6
5. COUNTRY BY COUNTRY REPORTING • It provides for the automatic exchange of Country-by-Country Reports • Requires, among other things, the following: – will be submitted by the parent company of a multinational group – to the tax authority of the jurisdiction where it is resident for tax purposes – and will be required in case of multinational entities with consolidated turnover in excess of €750m in the preceding year. • The information to be included will provide an overview of – income, – taxes and – business activities by tax jurisdiction.
27 VAT
VIMA UNIT RISK ANALYSIS UNIT FRAUD INESTIGATION UNIT
7. EU MTIC FRAUD 8. EMPACT MTIC 3.EUROFISC 9. EU Direct Contact Officer 1. EU Sales Data 4.EUROPOL 10. UK Liaison Officer 2. Requests 5.MLCs 11. EUROJUST 6. EXCHANGE VISITS 12. JUDICIAL Assistance 13. CEPOL
28 COLLABORATIONS and PROGRAMS 1 VAT 1 1. MLCs [Multilateral Controls] • Is the coordinated control of the tax affairs of 1 or more taxpayers, which is organized by 2 or more Member States with common interests. • They are carried out simultaneously in all Member States OBJECTIVES: • Ensure that tax is paid according to EU and local Legislation • Support MS to collect the correct tax • Identify and disseminate good practice e.g – better project management techniques – improved communication – enhanced use of risk criteria and success indicator
29 COLLABORATIONS and PROGRAMS VAT 2 2. REQUESTS • Ask for and Answer Requests concerning specific taxpayer and for specific information • Can exchange spontaneous information when considered necessary for the other MS OBJECTIVES: • Ensure that tax is paid according to EU and local Legislation • Support MS to collect the correct tax • Increase intelligence data in a MS
30 COLLABORATIONS and PROGRAMS VAT 3 3. EUROFISC • Is a multilateral early warning system of the Member States for combating VAT fraud and especially carousel fraud. • Is a mechanism to enhance administrative cooperation. • It allows for quick and targeted sharing of information between all Member States on fraudulent activities
31 COLLABORATIONS and PROGRAMS VAT 4 4. EUROPOL AWF & FC • AWF: Analytical Working File – Is an information processing system for the purpose of crime analysis, processing or use of data with the aim of assisting in criminal investigations. • FP: Focal Point – Is an area within an AWF which focuses on a certain phenomenon from a commodity based, thematic or regional angle.
32 COLLABORATIONS and PROGRAMS VAT 5 5. MLCs [Multilateral Controls] • Is the coordinated control of the tax affairs of 1 or more taxpayers, which is organized by 2 or more Member States with common interests. • They are carried out simultaneously in all Member States OBJECTIVES: • Ensure that tax is paid according to EU and local Legislation • Support MS to collect the correct tax • Identify and disseminate good practice e.g – better project management techniques – improved communication – enhanced use of risk criteria and success indicator
33 COLLABORATIONS and PROGRAMS VAT 6 6. EXCHANGE VISITS • Is the exchange visit of tax officers from one Member State to another.
OBJECTIVES: • Exchange good practices e.g – improved communication and cooperation – enhanced use best practices on various issues – Exploit legislation opportunities and threats
34 COLLABORATIONS and PROGRAMS VAT 7 7. EU CAROUSEL FRAUD This is an ongoing close cooperation and collaboration process in the fight of VAT Fraud, commonly known as Carousel Fraud or MTIC Fraud [ MTIC: Missing Trader Intra Community ] There has been established a group of experts in the field, where we meet periodically i.o.t evaluate the existing situation concerning the VAT Fraud, new trends and commodities, problems arising and determining our next steps, including suggestions to the EU. (Eurofisc was a result of this)
35 COLLABORATIONS and PROGRAMS VAT 8
8. EMPACT MTIC This program has been created within the framework of the EU Policy Cycle for organized and serious international crime and is monitored by EUROPOL.
It’s main priority, is to “Disrupt the capacity of OCGs and specialists involved in MTIC Fraud. [ OCGS: Organized Crime Gangs, MTIC: Missing Trader Intra Community ]
In this program, we set some Strategic Goals, as well as Operational Actions i.o.t achieve these goals. (restreint-restricted documents)
We can ask for JIT [Joint Investigation Teams] ,as well as use EUROPOL’s Mobile Office (to facilitate real-time information exchange and cross-match analysis of the data collected).
36 COLLABORATIONS and PROGRAMS VAT 9
9. EU DIRECT CONTACT OFFICER This is a system - group of Officers, among the MS where there is a dedicated officer [Direct Contact] whom anybody (from this group) can contact directly for instant information concerning taxpayers.
10. UK LIAISON OFFICER There is a dedicated officer [Liaison Officer] whom the UK Authorities (through the British High Commission in Cyprus) can contact directly for any issue concerning taxpayers. • Could be a request for information, • Exchange of information / intelligence
37 COLLABORATIONS and PROGRAMS VAT 9
11. EUROJUST This the Judicial Authority of the EU. It provides expertise, support, coordination and funding to MS whenever requested, for investigations carried within the EU. It helps forming JITs and also helps competed authorities to identify key players and carries out effective targeted measures across national borders.
12. JUDICIAL ASSISTANCE There is a close cooperation with all the Judicial Authorities of the MS. We carry out any investigation requested and give any judicial assistance need or requested (with witness statements etc).
38 COLLABORATIONS and PROGRAMS VAT 9
13. CEPOL This is the European Union Agency for Law Enforcement Training. Once a year, its organizes and we participate, a training program for MTIC FRAUD. Participants are from Tax Law Enforcement Agencies, where we exchange experiences in the fight of Tax fraud.
39 THANK YOU FOR YOUR ATTENTION
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