D uring the last ten years, there has been considerably increased activity by tax authorities worldwide, searching for tax evaders who hide untaxed income in another country. This article summarises recent efforts in some countries.

This summary is based on information published or leaked by tax authorities. Other sources include the published work of investigative reporters. Only facts are presented; the reader will no doubt have his or her own opinion on the appropriateness of the reported actions – most particularly the use by tax collectors of unauthorised disclosure of information and the propriety of payments to whistle-blowers.

Information has been published in the United States naming individuals charged with tax evasion through the use of ‘offshore’ bank accounts – the ‘name and shame’ approach.

Several hundred bilateral exchange-of-information agreements and protocols have been signed in recent years as part of the war on tax evasion. They are too numerous to deal with in this short article. When they are comprehensive, they are an important weapon. Generally they permit information to be exchanged about a named person, but prohibit ‘fishing expeditions’.

Another weapon used by many jurisdictions is the amnesty, which appears to have been used extensively in Italy, according to published reports. Italians had declared EUR104.5 billion as of 9 June 2010, following an amnesty offer.

I discuss below five countries that have been most active in their war on tax evaders: Canada, France, Germany, the UK and the US. Other countries reportedly taking action against tax evaders, or that have expressed interest in buying information, include Australia, Austria, Bulgaria, Ireland, Italy, the Netherlands, New Zealand, Spain and Sweden.

Information is current as of 30 June 2010.

The Canada Revenue Agency (CRA) went to court twice in 2008 to attempt to compel a Canadian bank-owned broker (RBC Dominion Securities) to provide information about clients with an interest in Liechtenstein bank accounts. In early 2010, a third court application by the CRA was reported. The CRA are investigating whether brokerage employees had helped clients to evade taxes.

A US Senate Sub-committee hearing in 2008 noted that a UBS official had been in Canada soliciting new business. A figure of CAD3 billion hidden in UBS Swiss bank accounts was mentioned at the hearing. There were subsequent news reports that UBS had a ‘Canada desk’, to help Canadian clients secretly move funds to Switzerland. (See US below for an outline of the UBS situation.)

The CRA has publicised its attempts to obtain information from UBS and from the Swiss authorities about Canadians with UBS Swiss accounts (total estimated at CAD5.6 billion). There are no reports of success, despite CRA threats of litigation. However, the publicity has generated many voluntary disclosures.

In early 2010, the CRA asked the French tax authorities to share the information taken from HSBC Geneva (see France below). There is no published information about whether France complied.

The CRA has been in dispute with a Canadian bank (Scotiabank) since 2002 in an attempt to obtain information about Canadian taxpayers investing in a CAD1.1 billion offshore fund to avoid tax. 120 investors were identified by the CRA, but they are seeking 60 more, to ‘verify their compliance’. Scotiabank’s Irish subsidiary refused to provide information to the CRA. The Canadian parent said it could not force its subsidiaries to provide information, which is surprising.

In 2009, the French tax authorities obtained information taken by a bank employee from HSBC Geneva containing 2005-2007 client data. At first, HSBC said that fewer than ten clients were affected. Subsequently, they reported that the information taken concerned 24,000 bank accounts of which 15,000 were still open, while information from France referred to 79,000 people from various countries, including 8,231 French taxpayers. The Italian tax authorities were said to have been provided with information on 5,700 Italian account holders at HSBC Geneva, with total assets of USD6.9 billion. Information was also provided to the Spanish tax authorities.

A copy of the material was sent by the French authorities to the Swiss Attorney-General, so that the Swiss authorities could advise HSBC Geneva of accounts that had been disclosed to the French authorities. This sparked voluntary disclosures by French taxpayers. A figure of EUR500 million collected to the end of 2009 was quoted, with more expected.

In 2006, an employee of a major Liechtenstein bank (LTG Group) stole a great deal of banking information about its foreign customers, including about 1,400 German taxpayers. The German authorities paid EUR4.2 million or perhaps EUR5 million (reports vary) for the information and arranged for the thief to obtain a new identity. The German authorities either sold or gave relevant information to some treaty partners and investigated information concerning German taxpayers banking in Liechtenstein. In April 2010, it was reported that Germany had completed 200 investigations of a total of 588 opened and had recovered EUR200 million to date.

In March 2010, a German state (North Rhine-Westphalia) in conjunction with the German federal authorities, purchased information (for EUR2.5 million according to media reports) concerning 1,500 German taxpayers with hidden assets in Switzerland. An investigation of 1,100 customers began, involving a total of EUR1.2 billion. Some employees of Credit Suisse suspected of facilitating tax evasion were also investigated. A report on 9 June 2010 suggests that the German government bought another CD with data on 20,000 Swiss bank accounts at a cost of EUR185,000.

Questions have been raised in Germany, and in other countries, about the propriety of purchasing and using stolen information, effectively rewarding criminal behaviour. Also discussed has been whether local courts will accept such information as evidence, and whether evidence obtained through using it is acceptable. The discussion is ongoing. The German Chancellor was reported as saying that she was in favour of buying from France the information taken from HSBC Geneva (see France above), which reportedly included information on 1,000 to 1,500 German taxpayers.

The German subsidiary of UBS (see US below) is reported to be under investigation by the German tax authorities.

In 2006, Her Majesty’s Revenue & Customs (HMRC) required five major UK banks to provide information on UK customers banking with their offshore branches or subsidiaries. The banks resisted, but the UK courts confirmed that the banks must comply. Information on about 400,000 UK taxpayers was received by HMRC, and an amnesty was offered. Later, two more amnesties were offered – one (the Liechtenstein Disclosure Facility) for taxpayers banking in Liechtenstein (still open) and a second amnesty (the New Disclosure Opportunity) for the rest of the world (no longer available). It was reported that 10,000 UK taxpayers came forward under the second amnesty.

In September 2009, the UK Tax Tribunal approved the issue of 308 separate notices by HMRC to banks and building societies with a ‘UK presence’ demanding information about (un-named) customers with UK addresses and non-UK bank accounts. Many non-UK banks have such a presence.

HMRC has reportedly negotiated with the German authorities to purchase Swiss banking information relating to an estimated 6,600 UK taxpayers (see Germany above).

In December 2009, HMRC announced that penalties for undisclosed offshore income would be substantially increased, to a maximum of 200 per cent of the unpaid tax. They plan to identify, and presumably prosecute, intermediaries who helped hide funds offshore.

In 2001 the US Department of Justice, together with the Internal Revenue Service (IRS), began to attack offshore tax evasion by seeking information about foreign credit cards held by US taxpayers. Tax evaders frequently used such cards to return funds to the US in a way that they hope will not attract the attention of the IRS.

Supported by court decisions, the IRS required major credit card companies to provide information on credit cards issued in over 30 foreign countries. When cards were in a corporate name, the IRS followed up by checking with suppliers. For example, if a card was used to purchase an airline ticket, the IRS would require the airline to provide the passenger’s name. The IRS also obtained information about merchants who requested that credit card sales proceeds be deposited offshore. 1,400 IRS agents were assigned to the project, and relevant information was passed to treaty partners.

An Offshore Voluntary Compliance Initiative in 2002/03 had a ‘strong response’ from 1,299 taxpayers; the IRS collected USD75 million, with more to come. Some 400 offshore promoters were identified. A 2010 report on this amnesty programme indicated that 15,000 taxpayers had used the programme.

Information from the Liechtenstein bank (see Germany above) was acquired from Germany. The IRS then opened over 100 criminal cases against US taxpayers.

In July 2008, the US Government Sub-committee on Investigations estimated that the US lost around USD100 billion due to ‘offshore tax abuse’.

The UBS saga deserves an article for itself. What follows is merely a brief outline.

The UBS problem was identified in 2007. In essence, through a whistle-blower, the IRS obtained information on about 20,000 US taxpayers with UBS accounts. UBS had sent senior employees to the US to offer their services to US taxpayers in concealing assets from the IRS. The whistle-blower, who is currently serving 40 months in jail, has claimed the substantial ‘finder’s fee’ offered to whistle-blowers by the IRS. In 2009, UBS admitted guilt, agreed to provide information concerning about 4,450 US customers of the bank and to pay fines, penalties, etc. of USD780 million. Civil proceedings against UBS were then deferred, and the Swiss federal government approved the disclosure. However, it was not until June 2010 that the Swiss parliament agreed that the information could be provided to the IRS. There are conflicting reports about whether a referendum is now necessary. A Swiss tax office spokesman is reported to have said that 500 client dossiers have already been transferred to the US.

In April 2010, seven New York-area named individuals were charged with concealing over USD100 million in UBS Swiss bank accounts.

The US Department of Justice is reported to have extended its investigation to other Swiss banks, including Credit Suisse, HSBC and Julius Baer; some writers believe that the IRS’ next step will be to investigate banks based in Asia.

Published reports suggest that one effect of the investigations by tax authorities has been to generate a considerable number of voluntary disclosures by tax evaders. This is particularly evident in jurisdictions where the tax authorities promise that voluntary disclosure will minimise, or eliminate, the risk of criminal prosecution.

Why are we seeing so much activity by tax authorities searching out tax evaders? Perhaps the budgetary deficits reported almost everywhere are the incentive. Tax advisors, and the vast majority of taxpayers who pay their required share of taxes, will no doubt welcome the war on tax evasion.