Engaging with High Net Worth Individuals on Tax Compliance

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09 Sep 2009
9789264068872 (PDF) ;9789264068834(print)

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High Net Worth Individuals (HNWIs) pose significant challenges to tax administrations due to the complexity of their affairs, their revenue contribution, the opportunity for aggressive tax planning, and the impact of their compliance behaviour on the integrity of the tax system.  This publication examines in detail this taxpayer segment, describes their usage of aggressive tax planning schemes and proposes prevention, detection and response strategies that tax administrations can use to respond to these challenges. It also addresses aspects of voluntary disclosure initiatives for past non-compliance that may be particularly pertinent in the current environment.

The publication outlines a number of innovative approaches to enable governments to better manage the risks involved with marketed tax schemes and tailor-made arrangements.  To improve compliance, tax administrations could consider changing the structure of their operations to focus resources effectively, for example, through the creation of a dedicated HNWI unit. Other recommendations include creating the appropriate legal framework, exploring forms of co-operative compliance and engaging more in international co-operation, at both the strategic and operational level.

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  • Executive summary
    High net worth individuals (HNWIs) present tax administrations with particular challenges: the complexity of their affairs; the amounts of tax revenue potentially at stake; the opportunity to undertake aggressive tax planning (ATP) and the effect of their compliance behaviour on the overall integrity of the tax system. It is against this background that the OECD’s Forum on Tax Administration (FTA), building on ongoing work carried out by the Working Party No. 8 on Tax Avoidance and Evasion, commissioned work on this taxpayer segment. The work follows on from the Study into the Role of Tax Intermediaries (the Intermediaries study) published by the OECD in January 2008 which noted that "High-net-worth individuals are the second principal market for aggressive tax planning".
  • Introduction
    Fair and equal treatment of taxpayers is a fundamental principle of tax administration. Nevertheless the limited resources available often have to be focussed on particular risk areas or higher risk taxpayer segments. There are typically four considerations that justify a particular focus on the high net worth individual (HNWI) segment: complexity, revenue, opportunity and integrity.
  • The environment and the risks
    This report uses the term "high net worth individuals" (HNWI) to refer to individuals at the top of the wealth or income scale. The term "high net worth individuals" is used broadly and thus includes both high wealth individuals1 and high income individuals.2 It does not otherwise attempt to define the term as any conclusions from this report will have to be implemented in the context of what is most appropriate in the circumstances of each country.
  • General strategies to counter aggressive tax planning by high net worth individuals
    Tax administrations recognise that the majority of taxpayers pay the right amount of tax in the right place at the right time. As stated in the introduction to this report, the limited resources available to them mean that resources have to be focussed on those areas perceived to be a higher risk to the tax base and there are several considerations justifying a particular focus on high net worth individuals (HNWIs).
  • Organisational responses to dealing with tax risk posed by high net worth individuals
    As discussed in Chapter 2, tax administrations need good information about the high net worth individuals (HNWI) segment and must have processes in place to use this information effectively. This goes beyond understanding the market for aggressive tax planning (ATP) as it must also include an understanding of the particular needs of this segment and the responses that tax administrations can provide to service those needs.
  • Co-operative strategies
    Tax administrations need to use a range of strategies to address the challenges presented by high net worth individuals (HNWIs). Countries need to consider the strategies discussed in Chapter 2 and to reflect on the organisational and management responses discussed in Chapter 3. They should also explore strategies which rely on the co-operation of the taxpayer to volunteer relevant information and that aim to influence his or her behaviour to reduce the prevalence of aggressive tax planning (ATP) arrangements.
  • Voluntary disclosure regarding past non-compliance
    Over the past few months the international tax environment has changed dramatically towards greater transparency and exchange of information for tax purposes. All financial centres1 have now committed to the OECD standard on transparency and exchange of information2. Austria, Belgium, Luxembourg and Switzerland have withdrawn their reservation to Article 26 of the OECD Model Tax Convention. Countries are now moving towards implementation of these standards as emphasised by the leaders of the G20 at the London Summit on 2 April 2009. The OECD has issued a report which shows the progress in implementation. An ever larger number of tax information exchange agreements are being signed. Progress is also being made in updating treaty networks to the OECD standard and some countries are bringing in domestic law mechanisms that permit exchange of information for tax purposes.3 Tax administrations are active in promoting new tools which will provide them with more information, such as the United States Qualified Intermediary programme.4 The European Union is discussing the extension of its Savings Directive to investments not currently covered. In response to the current financial and economic crisis governments are taking increasingly robust measures to counter international tax evasion and those who assist in facilitating it.
  • Annex A
    This annex contains the paper released for consultation on the OECD website on 30 October 2008.
  • Annex B
    Assess the offshore tax risk to your tax base. Gaining a better understanding of the size of the risk makes for better informed decisions on resource allocation and treatment strategies.
  • Annex C
    In this report, HNWIs are defined as those with more than USD 1 million of investible assets, excluding their private residence.
  • Annex D
  • Glossary
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