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encountering Kryptonite

Kitty Miv, Editor
22 November, 2018

I am aware that there is a certain element of risk in kicking off this week's edition on the not insignificant matter of Brexit. As I write, Theresa May is still resident in 10 Downing Street. By the time of publication, she may not be. However, as topics go, Britain's draft agreement on its EU withdrawal arrangements is hard to ignore. Besides, I like to live dangerously.

First of all, you have to take your hat off to Mrs May. Her powers of stamina and longevity are admirable. She appears unfazed by the task of steering the UK through its most challenging period since World War Two while simultaneously dealing with a dysfunctional family in the form of a highly factionalized ruling (just about) Conservative Party. How she manages to get a wink of sleep at night I'll never know. Perhaps she doesn't. Is she possessed of superhuman powers?

The agreement struck last week is intended by the UK Government to provide as much certainty as possible to businesses by providing for a long period of continuity whereby the UK will be obligated to continue following EU rules, including those governing taxation, during a transition period. Where the UK goes from here is anybody's guess. Will SuperMay win the day? Or is she about to encounter her Kryptonite? I'm sure we'll find out soon enough.

Moving on, and how the role of detective has changed over the years. Long gone are the days of invisible ink, candlesticks in libraries, and paper trails. Now the trail that many an investigator must follow, including those detecting for tax evasion, is digital. Indeed, unless you are completely off-grid, it's probably nigh-on impossible not to leave digital finger and footprints all over the place without even realizing it.

Social media is becoming something of a treasure trove for those looking for people with hidden secrets. Or not so secret secrets, as the case may be. And again, this is a platform that is becoming very useful to the tax man. This was highlighted by French Budget Minister Gerard Darmanin's announcement last week that the tax authorities will soon begin trawling through peoples' social media accounts looking for signs that one's lifestyle doesn't quite match the humble income declared on one's tax return. Well, if you do choose to splash pictures of yourself beaming next to your new Ferrari all over the internet after having just told the tax authority that you're earning minimum wage, more fool you. Not that I'm condoning tax evasion of course.

Of course, even in this digital age, tax investigations remain far from easy to resolve. As I pointed out last week, a single large corporate audit is liable to consume a large chunk of an auditor's career, especially if transfer pricing aspects are involved. And perhaps the challenge now is that, with CbC reporting coming on stream, there is too much information for tax departments to sift through. And investigators don't necessarily need to go looking for it either. It is arriving in great digital dollops from tax authorities all around the world thanks to automatic information exchange programs such as the CbC report exchange framework, among other platforms.

But what happens when tax departments and other authorities want to find out about the tax affairs of the social media companies themselves? Unfortunately for them, that is not a straightforward proposition either. Certainly, they're not going to find out by simply by looking at the social media company's social media account.

The European Commission might be about to find out how un-straightforward this is going to be if it starts looking into Facebook's tax affairs in the EU, as it was reportedly considering last week. However, the Commission is already used to carrying out good old-fashioned investigative legwork, including in the area of taxation. Its in-depth investigations into tax rulings granted to various multinational companies by certain member states have usually taken two to three years to be concluded. Therefore, we can probably expect the Commission to spend a similar duration combing through Facebook's tax records. What they need is a few tantalizing clues. Where's Poirot when you need him?

Tags: Euro | Government

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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