Here's a question i've not been able to find answer for.
Bob is European. Let's say Belgian, or German. In fact it doesn't even have to be european, as long as his citizenship belongs to a country currently member of the CRS.
Bob opened a bank account in 2002 in this country. 5 years after bob moved, to another country member of the CRS, and registered as expat in his home country, meaning that Bob now works, resides, pays taxes and gets healthcare and other services in his country of residence. However, Bob never bothered to update the residence address for his bank account in his home country. He also never really used it much. Maybe had a few thousand bucks in there, perhaps in stocks, that he did not want to sell just yet, but not much more than that.
What happens if now Bob starts to get legit wire transfers to this account? for example payments for invoices he emits as part of a business he has in his country of residence?
I found the example to be too obscure. So Bob is Belgian, opened an account in Belgium in 2002. He moves to Ireland and In 2007 is a resident there.
CRS right now has a s**t ton of loopholes. However, as I have been reading up on CFC, and BEPS, the OECD nations are basically trying to not only plug all the loopholes in CRS, they are also aggressively pushing the goal of trying to black list (and they plan to eventually sanction) financially nations who have low taxes, privacy, or anything that basically makes it harder for them to tax the hell out of you and me.
In fact, as I understand it now, if you use one of those small independent financial brokers, as in a non-bank broker, but like the single office single person broker (think like old school stock broker types or "financial advisors") they technically do not report to CRS. So if Bob was sufficiently rich that he had such a broker Ireland might not find out...
FOR NOW.
The problem is OECD keeps pushing for more rules, more disclosure and he can find himself in a spot where even if the current rules don't expose him and he could successfully get away NOW, he could get exposed in the future. This precise situation occurred to a bunch of Americans and Canadians with not only information leaks from Switzerland but also from Tax Information Exchange Agreements and other Tax Treaties. Hiding your money in a Caymanian or Panamanian account as a Canadian seemed like a great idea in 1979 when you could fly in with 2 suitcases full of millions in cash and report it to no one, deposit it, and money laundering was not even illegal under Noriega. However, what happens now in 2020 when those treaties saying that Cayman and Panama got to turn over all the information on Canadian accounts to Canadian authorities and they find out you've been evading taxes for 40 years?
Bob could also receive payments for invoices to that account, depending on the size, how the cheques were cashed, etc. it could theoretically alert Irish tax authorities or cue them off something was amiss. Mainly in that they'll see an Irish firm claiming expenses to a Belgian company who isn't trying to recover any of the taxes they paid into the Irish zone. That could be a red flag audit, especially if this Belgian firm is doing like 100k euros a month and has dozens of firms claiming deduction expenses to this 1 place, yet hasn't filed any Irish taxes.
Bob would likely experience further problems on the Belgian side as well. He has money flowing into a Belgian account that the Belgian banks and tax authorities can clearly see, so he'd be an idiot to not pay taxes on it.
In the best case scenario, Bob pays taxes just in Belgium and due to double tax treaty he pays nothing in Ireland. In the worse case scenario, he doesn't report nothing and tax man sees everything in both nations and he gets hit with all kinds of fines and back taxes.
As for your additional scenario. Because of KYC and AML rules, if the customers send significant amounts of money through their banks or to your banks in Belgium, both the Irish and Belgian banks will want to see invoices from your customer/explanation of source of the funds. On a small enough scale like maybe 5k a month for 12 months, I can see maybe slipping through the cracks, but much more than that, its going to get flagged eventually.
Lets even presume Bob is successful in all this. He lives in Ireland, his Irish customers pay him $1.2 million a year, he doesn't get flagged or audited in either country, the customers send the checks to his Belgian accounts, none of his customers writing off $100ks in expenses get audited or flagged, despite writing off expenses to the SAME company supposedly earnings 100ks euros in Ireland, who oddly reports no taxes. And the Belgian tax authorities see nothing suspicious in him receiving massive wires from a foreign nation or for whatever reason don't bother to look into it. Oh, and the Irish authorities don't bother to look into how it is the owner of this company reports no taxes but lives a posh lifestyle. Even if all that goes in his favor, he has a s**t ton massive paper trail of what looks like tax evasion big enough to drown a hippo. His big risk is that the Belgian authorities or those at his bank see all these wires and file a SAR suspicious activities report on him, and basically rat him out to Ireland and share info via CRS. He is always just one wave of a pen of a lazy government administrator, who has nothing to do but harass people all day long from having his life ruined.
I'm not sure if there is a statute of limitations on tax evasion in those countries or not, but if someone is going to do that, they better find a country with a short statute of limitations, because they'd only get away with that for a short amount of time.
I could think of much better legal ways to pretty much avoid ~90-95%+ of your taxes through proper structuring of your business. A simplistic example would be something like this.
Bob runs a design firm doing interior design lets say. He makes $1.2 million a year. His cost/expenses of the goods and labour and all that are maybe $300k in reality. He nets $900k as EBITDA and would be made to pay taxes of 50% or whatever the Belgian rate really is. What Bob is going want to do, is take all the cost centers of his business, and outsource them to offshore/onshore providers through holding companies and/or subsidiaries depending on his local laws. He is then going to want to jack up the cost of all of these services. So maybe that table cloth you sourced for $100 is now bought by your Bermuda holding firm who sells it your Cypriot holding firm that then sells it to your Bulgarian or Hungarian branch and then your Belgian firm for $600. Maybe you develop your designs in Sark and sells it to your Luxembourg branch who holds the patent distribution rights to the designs and the Belgian company pays royalties of 15-20% of the sale value of the project is. Luxembourg has a very low tax rate on royalties like this of around 5.6%, Cyprus even lower. Now obviously you have to make sure the country is not in a blacklist location or else the tax office will reject it. But you get the idea. The point is to shop around until you can find the lowest tax rate on an income source your tax office will accept. You can do the same for your HR/staffing, for your finance department, for your admin and secretarial services, for your marketing department, treasury, etc. Outsource costs centers to a lower tax location, jack up the price, get the profits into a low tax location to declare profit. Get the expenses into a high tax location to declare loss. Through this method he can avoid 90-95% or more of his taxes. I skipped a few steps in the process but you get the gist.
The main problem with Bob's thinking is that he is only looking at one side of the equation. He is thinking how can I hide my income, how can I reduce my income, how can I make my income look less than it truly is. I won't judge Bob on the morality of those thoughts but rather the likelihood of legal success. The chance of Bob successfully hiding his income unless his customers are paying him in cash or he is mining gold or silver or diamonds out the ground or somehow has some type of access to a "special" banking service
, who is basically prepared to hide transactions for him in sock puppet accounts, is very low. He is FAR more likely to be caught in this age of computers and CRS and automatic reporting and advanced computers.
Revenue - Expenses = profit, you only pay taxes on profit. Messing with your revenue number is so hard to get away with that not even the most blatantly dishonest accountant/tax lawyer /large firms even attempt to try cheat this way. Bob will want to declare a tiny profit like 60k, because it will look suspicious if he is living beyond his means too much or if he is running a growing company that never seems to turn a profit.
He can also overcome this with loans from his foreign businesses to himself, through an intermediary, like a bank in Luxembourg who gives him a low rate. Also beware thin capitalization rules apply, so you cannot just charge yourself some ridiculous interest rate like 100% then write it off as an expense. Generally you are going to want to keep it a high but believable number (basically near or under credit card rates).
Bob has pretty much reduced his taxes down to a level of 5% or less. Which I think is pretty fair. He lives in a modern developed country with internet and no gangs or militias or terrorist roaming the street that are going to blow his head off, there are modern roads and electricity and heating and some things the government does provide, so it might not be entirely fair he pay nothing (think schools, hospitals, police, fireman etc). I too agree the taxes are far too high and there is far too much corruption in western government and the money of taxpayers is spent on completely stupid things and political payoffs to elite special interests. But you are going to have to pay some tax to live in a modern country for the most part.
Further, even if Bob could get away with paying zero, what we generally see is governments move in quickly to close any loophole they perceive that permits a large section of taxpayers to legally pay zero. What we seen is not only will they fight you in tax court for it, even if they lose, they'll just plug the hole to block your efforts afterwards.
