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Tax Evaders Face Greater Scrutiny as National Debts Pile Up


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But there is at least one thing on which global leaders seem to agree: cracking down on tax havens and tax evasion would help.
Some economists warn, however, that governments are being too optimistic about how much they can raise and say that many of their methods, like tax amnesties, are counterproductive.

Tax evasion and compliance is on the agenda of the forthcoming meeting of the Group of 20 countries in Cannes amid hope that the economic crisis has given policy makers new impetus to push for a coordinated attempt to hunt for some of that offshore wealth.

“The crisis focused our minds and made everybody understand that it is simply and completely intolerable to have people put their money abroad when you ask the population to tighten the belt,” said Ángel Gurría, secretary general of the Organization for Economic Cooperation and Development, the Paris-based group that represents 34 economies.

Assets held offshore by individuals worldwide have probably almost doubled from $11.5 trillion six years ago, according to the Tax Justice Network, a nongovernmental organization.

Friedrich Schneider, a professor at Johannes Kepler University in Austria, said the shadow economy in 31 European countries was equivalent to 19.3 percent of gross domestic product. Bulgaria ranks at the top, with unregistered economic activity at 32.3 percent of G.D.P., while countries known for a higher degree of banking secrecy, like Switzerland and Austria, rank at the bottom. Greece’s shadow economy was 24.3 percent of G.D.P., compared with 11 percent in France and 7 percent in the United States.

Domenico Lombardi, president of the Oxford Institute for Economic Policy, a research body, said reining in tax evasion was a popular option for governments seeking a less painful fix for their public finances. “It’s what you do when you don’t want to increase taxes more or cut spending further,” he said.

Efforts to go after tax evaders range from investing in technology and hiring tax officers to working with the O.E.C.D. to reach agreements governing tax havens. The O.E.C.D. said last month that its efforts through its global forum on taxation, which publishes a blacklist of countries that aid and abet tax evasion, helped collect almost €14 billion, or $19 billion, in additional tax revenue in 20 countries over the past two years.

Nicholas Shaxson, author of “Treasure Islands,” a book about tax havens, said that even though the O.E.C.D. had made some progress, tax loopholes could not be patched up with bilateral agreements alone. “It’s a bit like the O.E.C.D. was asked to drain a swamp and instead it handed out straws,” he said.

Some European countries continue to resist efforts to require them to scale back on banking secrecy; economists say the practice has helped attract a lucrative client base but can also act as a shield for tax evasion.

Greece, where improving tax collection is a condition for aid from its E.U. partners and the International Monetary Fund, has started to publicize the names of companies that owe taxes, hoping that will shame them into paying. It recently released a list of 6,000 enterprises owing a total of more than €30 billion in taxes, including the state-owned railway operator.

Italy has introduced a law stipulating that payments of more than €2,500 must be made with a bank card or other bank-related service to create a paper trail. Britain is spending £900 million, or $1.4 billion, on new computer systems and other tools that it expects will raise £1 billion a year in additional tax revenue. The British tax authority has formed an “Affluence Team” of 200 agents to comb through data and find wealthy Britons who are not reporting all their income.

“While clients might not have seen a letter from the tax authorities for months, now I hear of two to three letters per week,” said Gary Ashford, head of tax investigations and dispute resolution at RSM Tenon, an accounting firm in London.

Germany and Britain signed a tax-enforcement accord with Switzerland this year that includes a payment from banks to the governments that would later be reimbursed from any delinquent taxes collected from individuals. The agreement was heavily criticized by German lawmakers, who said it sent the wrong signal — suggesting that the wealthy could “buy themselves free from punishment” because it would allow client identities to remain secret.

Switzerland is trying to negotiate a similar agreement with the United States, but the United States is generally more demanding than Europe in seeking data on account holders. Eight offshore banks are now under investigation, and prosecutors have settled a tax evasion case with the Swiss bank UBS, gaining information on thousands of bank accounts.

The methods employed by the United States are effective because banks “are now scared to take on U.S. clients,” said Mr. Shaxson. U.S. assets in Swiss private banks fell to 2 percent of the total last year from 18 percent four years earlier, according to the Boston Consulting Group.

The United States was also among governments to opt for a tax amnesty, trying to increase tax revenue by temporarily allowing funds to be repatriated either at a lower tax rate or without a penalty fee. The step is controversial and, some lawmakers and economists argue, counterproductive. “It’s an invitation to tax evasion, as people will just wait for the next amnesty to come along,” said Javier Díaz-Giménez, a professor of economics at IESE, a business school in Madrid.

There are data to support that view: a report by the U.S. Senate Permanent Subcommittee on Investigations last month found that companies that made use of a tax holiday subsequently moved money offshore at a faster pace than those that did not.

Some economists said changes to the tax system would be a better way to repatriate offshore funds and help the economic recovery. David Bowers, co-founder of Absolute Strategy Research in London, said many companies kept funds offshore because it did not pay to invest them onshore. “Policy makers need to think much more carefully about how to incentivize corporates to spend,” Mr. Bowers said.

Whatever steps are taken, policy makers agree that it takes international cooperation and initiatives by individual countries to reduce tax evasion. “The G-20 is definitely the right forum to discuss these issues,” Mr. Díaz-Giménez said. “It should be on their agenda from now until kingdom come. Or at least until the issues are resolved.”
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