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Amnesty for tax cheats - A Blog from Freemont Group

Freemont Group
05 March, 2012

Not every person of wealth seeks professional legal advice to lower their tax liability legally. Plenty of less prudent citizens opt to break tax laws and risk fines and supplementary taxation. Contrary to popular belief, the chances of actually getting caught for tax cheating have always been low and remain low today. Probably the most feared tax authorities in the world, the United States Internal Revenue Service only examined 2% of out of 7 million suspected tax cheats in the year 2008. And a large number of these cheats only had to pay for the difference without getting charged. The old image of an infallible all knowing tax office clearly isn´t working any more.

One strategy to raise some revenue from tax cheats is offering an amnesty at a discounted tax rate. Opponents of such amnesty are quick to respond that such arrangement would give legitimacy to tax cheats and only encourage people to do so. But could it be an acknowledgement by governments that their tax rates are simply too high? Either way, the fact remains that some amnesty programs have been hugely successful in raising revenue and that many people are happy to rectify past decisions against a reasonable fine.

The tax amnesty for UK citizens who stash money in Liechtenstein, for example, has resulted in some 2,000 people coming forward and declare their taxes. While paying back taxes from 1999 onward plus a 10% fine does not seem like a reward, it is a small prize for legalizing funds and use them back home. The UK has slightly different amnesty arrangement for British citizens with assets in Switzerland (although disputed by the European Commission) and is preparing deals with other tax havens as well.

Enforcement and scare tactics are still on the book. Frequently tax officials claim they will have full access to this or that tax haven next year, even though they said the same thing ten years ago. But just as any dog trainer will tell you: rewarding good behavior works better than punishing bad.



About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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