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Fighting Tax Crime: 10 Global Principles by OECD

CA Pradeep Kumar Rajput 
on 29 August 2018

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The OEDC in its guide to fighting tax crimes sets out ten global principles, covering the legal, strategic, administrative and operational aspects of addressing tax crimes. It draws on the experience of the member countries as well as additional survey data provided by 31 jurisdictions

Increasingly, countries are taking a strategic approach to addressing tax offences, which includes targeting key risks and leveraging the tools for co-operation with other law enforcement agencies, both domestically and internationally. At the same time, tax crime investigations increasingly need to be undertaken with greater efficiency and fewer resources. However, data shows that the investment is worthwhile, with some countries.

The role played by criminal tax investigators thus contributes significantly to countries overall tax compliance efforts. The implementation of the below 10 global principles around the world is critical in addressing the tax gap and supporting domestic resource mobilization.

  • Principle 1. Ensure Tax Offences are Criminalised
  • Principle 2. Devise an Effective Strategy for Addressing Tax Crimes
  • Principle 3. Have Adequate Investigative Powers
  • Principle 4. Have Effective Powers to Freeze, Seize and Confiscate Assets
  • Principle 5. Put in Place an Organisational Structure with Defined Responsibilities
  • Principle 6. Provide Adequate Resources for Tax Crime Investigation
  • Principle 7. Make Tax Crimes a Predicate Offence for Money Laundering
  • Principle 8. Have an Effective Framework for Domestic Inter-agency Co-operation
  • Principle 9. Ensure International Co-operation Mechanisms are Available
  • Principle 10. Protect Suspects’ Rights

Principle 1. Ensure Tax Offences are Criminalised

Wherever possible divide the line between non-compliance and criminal behaviour, it is important that country should have the possibility of applying criminal sanctions in respect of violations of the tax law. From a preventive point of view, this is for several reasons: (i) to send a message about the integrity, neutrality and fairness of the law (that is, that nobody is above the law); (ii) to act as a general deterrent for those people that could be tempted to evade their tax obligations if the opportunity arose, by providing serious reputational and punitive consequences of criminal activity; (iii) to act as a specific deterrent for an individual that has been convicted and sanctioned in the past, so that they might be discouraged from doing so again. Actual enforcement of penal provisions for the purposes of punishment for those that have decided not to comply is essential for both doing justice and strengthening the credibility of the penal provisions and the legal system itself.

Principle 2. Devise an Effective Strategy for Addressing Tax Crimes

There should be an overall tax compliance strategy that covers the full range of compliance, from encouraging voluntary compliance, dealing with inadvertent non-compliance, to avoidance, evasion and serious crime. However, the specific strategy would be based on each countries legal system, policy, legislative environment and general structure of law enforcement.

Principle 3. Have Adequate Investigative Powers

The purpose of a criminal (tax) investigation is to find the truth by investigating the alleged criminal (tax) behaviour. In conducting an investigation, criminal investigators will generally seek to find and analyze information for the purposes of determining whether or not a crime has been committed. Investigations can result in finding both incriminating (“inculpatory”) evidence and evidence that confirms innocence (“exculpatory evidence”). This is used for prosecution authorities to decide whether or not to prosecute the accused. As criminals seek to hide the criminal nature of their conduct, criminal law enforcement agencies need an appropriate range of investigative powers in order to obtain the necessary information.

Principle 4. Have Effective Powers to Freeze, Seize and Confiscate Assets

Freezing/seizing and confiscation of assets are necessary in order to prevent the proceeds of a crime from being disposed of or being enjoyed by a suspect, or to preserve physical evidence of a crime. In some jurisdictions, the confiscation/forfeiture may be a sanction on its own, or also a way to ensure pecuniary fines are paid. Freezing, seizing and confiscation disrupts criminal activity by inhibiting access to assets that would have been beneficial to the individual or organization committing the crime or can prevent the criminal assets from being employed to commit further crimes. The freezing / seizing and confiscating of criminal assets is also a deterrent measure as it can reduce the profitability of committing tax crimes.

Principle 5. Put in Place an Organisational Structure with Defined Responsibilities

Having a clear organizational model is important because it will allow for efficient allocation of responsibilities, which can reduce the risk of duplication of efforts and gaps in law enforcement. A clear organizational structure is also important as it allows for greater transparency and accountability for the use of resources and deployment of strategies. The organizational structure should ensure that the agency responsible for the investigation and prosecution of tax crimes is independent of personal or political interests, and is also held accountable for exercising its functions with fairness and integrity.

Principle 6. Provide Adequate Resources for Tax Crime Investigation

Whatever the organizational model, sufficient resources should be allocated to investigate and take enforcement action in respect of tax crimes. The level and type of resources will vary in accordance with the overall budgetary constraints and other budgetary priorities for the jurisdiction. In particular, the type of resources needed may vary depending on the nature, scale and developmental stage of the economy. For example, it may be more urgent to build the legal and physical infrastructure before acquiring advanced analytical and technology tools.

Principle 7. Make Tax Crimes a Predicate Offence for Money Laundering

A predicate offence is a crime that is a component of a more serious criminal offence. For example, producing unlawful funds is the main offence and money laundering is the predicate offence. Generally, the term "predicate offence" mainly used in reference to underlying money laundering and/or terrorist finance activity.

Principle 8. Have an Effective Framework for Domestic Inter-agency Co-operation

Combating financial crimes comprises a number of key stages, including the prevention, detection, investigation and prosecution of offences, and the recovery of the proceeds of crime. Depending upon the circumstances, this can involve a number of government agencies, including the tax administration, the customs administration, financial regulators, AML authorities including the FIU, the police and specialised law enforcement agencies, anti-corruption authorities and the public prosecutor’s office.

Principle 9. Ensure International Co-operation Mechanisms are Available

Tax crimes very frequently have an international dimension, for instance because a foreign jurisdiction was used to hide assets or income, or because the proceeds from illicit transactions are kept abroad, without being declared to tax authorities. Because criminal activity can cross international borders, but investigation agencies have powers which are limited by jurisdictional boundaries, co-operation amongst investigation agencies is necessary

Although the legal gateways are in place in many cases, practical obstacles can have a significant impact on effective international co-operation. This includes delays caused by a lack of clear communication channels, confusion about the organisational structure or mandate in the counterpart and therefore delays in identifying the correct agency to whom to address the request, and practical communication difficulties including language or lack of clarity in the presentation of the facts of the request. Results from the survey conducted for this guide also showed that jurisdictions may not keep detailed data to monitor the use or impact of the international co-operation tools, which may contribute to a lack of awareness or reduced profile of these tools.

Principle 10. Protect Suspects’ Rights

Taxpayers suspected or accused of committing a tax crime must be able to rely on basic procedural and fundamental rights:

  1. The right to a presumption of innocence;
  2. The right to be advised of their rights;
  3. The right to be advised of the particulars of what one is accused of;
  4. The right to remain silent;
  5. The right to access and consult a lawyer and entitlement to free legal advice;
  6. The right to interpretation and translation;
  7. The right to access documents and case material, also known as a right to full disclosure;
  8. The right to a speedy trial; and
  9. The right to protection from double jeopardy.

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