Tax authorities urged to be more vigilant over the super-rich
Revenue authorities need to be “vigilant” in monitoring the super-rich, according to research that called on many of them to improve their scrutiny of their richest taxpayers, reports the Financial Times.
The study by the Paris-based OECD is a further sign of the pressure on tax departments to squeeze more revenue out of wealthy individuals.
Cash-strapped governments are already clamping down on evasion and avoidance to shore up their public finances and respond to public anger over widening economic inequality and alleged tax dodging.
But the OECD said less than a third of the 56 tax authorities it surveyed had set up a dedicated unit to oversee the tax affairs of the wealthy, which it described as “a surprising outcome given the very significant growth in the estimated numbers and wealth of these taxpayers.”
It urged tax departments to consider overhauling their organisational structure “to ensure that this segment of taxpayers receives the appropriate level of scrutiny to detect and deter non-compliance”.
Tax advisers have warned their wealthy clients that they are in the sights of tax authorities. EY, the professional services firm, recently urged them to adopt a “sense of urgency” over structures that might have been tolerated five years ago but were now potentially unacceptable. It said “the risks of non-compliance — and of ensuing penalties, investigations or legal action — have never been greater.”
Wealthy citizens are increasingly being singled out for special treatment because of the complexity of their tax affairs and their scope for aggressive tax planning. The crackdown on the wealthiest taxpayers also reflects their growing importance to the public finances.
Research published by Capgemini, the consulting firm, and RBC Wealth Management found that the wealth of people with more than $1m to invest had grown by nearly $20tn over five years to more than $50tn in 2013. The rich account for a disproportionate share of income tax revenues. In the UK, for example, about half of income tax revenues come from just 3 per cent of adults.
The OECD highlighted Australia, Greece, Indonesia, the UK and United States as having relatively large units devoted to wealthy taxpayers. Greece set up an audit centre to deal exclusively with wealthy taxpayers in mid-2013 and its staff of 125 brought in €73m that year. The UK, which had the largest unit, brought in £222m of extra revenue in 2013 as a result of 375 staff looking at the tax affairs of 6,200 people with assets of more than £20m.
EY said wealthy individuals could actually benefit if tax authorities put more resources into managing their tax affairs. By showing they were willing to build a more constructive, open relationship, wealthy taxpayers could benefit from a reduced risk of tax controversy, lower compliance costs and a better understanding of the fast-changing legislative environment, it said.
George Hodgson, deputy chief executive of the Society of Trust and Estate Practitioners, a professional body for advisers to wealthy families, said the UK’s high net worth unit had got off to a good start “both in terms of raising revenues but also offering a good service to taxpayers whose affairs are often complex”.
Tax rates have also gone up for many wealthy people. From 2010 to 2013 six or seven EU member states raised their top rates each year, although the pace of change slackened in 2004 with only Finland and Sweden increasing their rates, according to official statistics.