The tax environment is getting tougher for wealthy individuals, such as entrepreneurs. Here are five questions to consider:
- When did you last assess the risk of your global tax compliance position?
- Are you in danger of exposing yourself or your business to tax liabilities that are beyond your risk tolerance?
- How well do you monitor and assess potential changes to tax law or tax administration "hot issues" in the countries where you live or do business?
- How quickly can you gain a clear view of your total global tax position — from both a personal and business perspective — in order to minimize your obligations and reduce the scope for double taxation?
- Do your tax advisors have the knowledge and geographic reach to match your personal and business tax compliance and reporting needs?
Wealthy people are in the tax spotlight as never before.
Tax authorities around the world are getting much tougher with wealthy individuals, many of whom may be entrepreneurs.
And you don’t have to be near the aggressive end of the tax planning spectrum to attract their attention nowadays.
National tax agencies are questioning arrangements that may once have gone unchallenged, and they are working more closely with their counterparts in other countries, sharing taxpayer information as never before. This new environment can be threatening for wealthy entrepreneurs if managed incorrectly.
But there are opportunities too. We’ve created this guide to give you a brief introduction to the way tax enforcement is changing. It provides a broad overview of the core issues and a series of key questions to help you identify your priority actions.
The time to act is now
Making wealthy people pay more tax can be a politically expedient way for recession-struck governments to rebuild their public finances. The world’s richest individuals already pay the largest proportion of tax, but they are a lucrative target nonetheless.
The argument that the rich should be made to pay their “fair share” can be used to justify both new tax policies and tougher enforcement of existing rules. Hence, tax compliance — across multiple borders — is becoming a more pressing issue for entrepreneurs.
Here are some points to consider:
- If you bend or break the rules, you are much more likely to be challenged.
Many tax authorities now have specialist teams focused on the wealthy and their businesses. The risks of noncompliance — and of ensuing investigations, penalties or even legal action — have never been greater.
- There are many more rules.
Governments are creating new tax legislation aimed at wealthy individuals with unprecedented speed. They are also getting much tougher in their application and enforcement of both new and existing rules.
- Out of sight, but not out of mind.
Many offshore and onshore financial centers are now committed to international standards of transparency and information exchange and governments have been forcing banks to disclose information about accounts that are held offshore.
Playing by the rules?
The new tax environment can be a daunting one for wealthy entrepreneurs.
But there are positives too. Tax efficiency is an admirable goal, and the majority of entrepreneurs want to achieve this while “doing the right thing” with their tax affairs.
Often, they simply want a clear and effective relationship with the tax authorities — one based upon commercial realism — and a degree of certainty over how much tax they will need to pay and when.
This ought to be easier to achieve in the future, as the changes taking place around the world offer several benefits:
- Save time, save money.
Increased cooperation and information sharing between international tax authorities may actually save time for the busy entrepreneur, reducing compliance costs and uncertainty and increasing the timeliness of resolution.
- Tax authorities improve customer service.
More countries are creating dedicated tax teams to deal with their wealthiest individuals. That means there is more scope to build a good working relationship with someone who understands what life is like for an entrepreneur. This should save time and reduce compliance costs.
- Avoid repetition.
With many tax authorities working together more closely — particularly in the OECD countries — it may become easier for you to deal with your tax affairs in a coordinated way.
- A chance to come clean.
Many countries are taking a carrot and stick approach to tax compliance. There are more opportunities to disclose undeclared assets in return for reduced penalties or an exemption from legal action. But these disclosure periods are time limited and the window of opportunity is short.
Four reasons why the tax spotlight might start shining on you
- The wealthiest people already pay a relatively large proportion of income tax, so tax authorities have an ongoing interest in their affairs.
- Clamping down on the wealthy is often a politically expedient way of increasing the overall revenues from income taxes.
- Wealthy people generally have more complex financial affairs that require more attention.
- Wealthy people are more likely than others to engage in aggressive tax planning, simply because they have more complex financial affairs.
For a more detailed report on these trends, read Wealth under the spotlight: tax administration without borders.