The challenges of combating hidden assets: A comprehensive overview

The search for untaxed assets due to the increased pressure on taxpayers only makes sense if you can be relatively sure that the person in question will not find any new hiding places. It is obvious: If the authorities only have information on account balances and interest income on domestic accounts, the disclosure will beof black money extremely difficult. This approach therefore seems fundamentally unsuitable for effectively countering the complex and global phenomena of tax evasion.

The problem of international money transfer

Money is now too easy to transfer abroad, which makes it much more difficult to combat tax evasion. In order to effectively contain capital outflows, all states or at least the most important financial systems would have to take action together. However, the idea of enforcing cross-border measures is at the fundamental limits: the sovereignty of the states is a highGood to respect. Each country has the right to determine its own financial and data protection policy. This fundamental property makes a global, unified approach to control and monitor assets extremely complicated. It must not be overlooked that hardly any country is voluntarily committed to such a common regulation, which is the implementationdifficult. Nevertheless, the EU, the US and the G20 countries have made considerable efforts to put pressure on countries with different cultures and legal systems. Under the pretext of prosecuting tax sinners, they are ready to penetrate deep into the privacy of all people – often with means that would be hard to imagine in the pursuit of other crimes – and try toto impose system as the only correct model in other countries. The sovereignty of the respective states is partially disregarded. It is obvious that the pressure on offshore financial places and tax havens in Europe has noticeable consequences, which has a strong impact on the international financial world.

The impact of the measures on offshore financial places

The efforts of the G20 countries and some EU countries to isolate offshore centers have not caused a decline in capital flows in recent years. Unknown estimates suggest that Asian financial centers and North America in particular have benefited from their offshore strategies. It turns out that the international community’s offensive is primarily thereduced the attractiveness of certain offshore centers. However, this phenomenon is far from being limited to global mass influence, although the largest economies in the G20 are working on this problem. If only tax aspects were involved, those responsible in the G20 could have taken more effective measures against offshore capital flows.

The necessary cultural change in the tax and financial system

In order to effectively combat tax evasion, governments would have to try to shape the relationship between the state and the citizen in such a way that as few people as possible are tempted to cheat on tax payments. Recently, the G20 and OECD governments have recognized that a different approach is required in the handling of financial information than in the case ofother violations of the law. Within the EU, the automatic exchange of information between the countries has already been decided and implemented. The FATCA rules have created a comprehensive system that calls for detailed information about US accounts abroad. Here are accounts of US citizens and people born in the US or a greenhave card, in focus. FATCA covers all the accounts and investments of these groups of people abroad and is so important that the US authorities worldwide are putting pressure on to enforce compliance. They partially deny their sovereignty in this area to countries like Germany, Austria or Switzerland and put pressure on them to force cooperation. It turns out theAsk whether these measures are only about tax revenue or whether there are other interests involved.

The differences in dealing with financial data

In recent past, European and American governments have recognized that when handling financial information, an approach is necessary that differs significantly from handling common law violations. If it were only about collecting lost taxes, the authorities could access the data from the domestic banks. But reality shows thatAssets are often hidden in less regulated financial centers. This makes a pure recording of domestic accounts and profits insufficient. Consequently, it is called for not only to record tax-related assets and profits, but also to all transactions and the counterparties involved. The FATCA standard, which is increasingly being adopted by the EU, setsdetailed requirements for this data. But is it a viable compromise to give up privacy in favor of higher tax revenues? The later consideration is dedicated to this question.

The challenges of ownership and account structures

In order for the measures to work, tax evaders must only keep their funds on accounts that are in their names or where they act as an economically entitled person. In addition, banks around the world must know which information should be transmitted to which tax authorities. It becomes particularly complex for people who live abroad because several states areclaim tax and data information. The situation is getting worse for married couples of different nationalities and companies registered in countries with non-transparent ownership structures. There are great difficulties in dealing with companies operating in countries with bearer shares. Bearer shares allow owners to be anonymous, which protects thegranted from discrimination by state agencies, but also concealed ownership. This form of business start-up is widespread and poses a challenge for authorities to reliably determine ownership.

Moral and ethical aspects of anonymity

The owners of companies are usually the shareholders, regardless of their position in the company. The French term “Société Anonyme” underlines the anonymity of the shareholders. This protection of anonymity also has moral and ethical reasons, as it protects employees, customers and the company from discrimination. It is a significant advance in thesociety if this legal form should not be discussed without reason. However, there is a risk that authorities and citizens will have different interests, which will raise this issue on the political agenda. Even in several US states, anonymous companies are allowed to be founded under certain conditions. However, the US is currently unable toto provide data from abroad promptly.

The tension between privacy and control

The fact that this topic is hardly discussed anymore indicates that even European authorities are hardly critical of a further invasion of privacy. The moral-ethical reasons for the bearer shares remain. The bank employees no longer act as customer advisors, but also as data suppliers for national and international authorities. theThe quality of the data depends heavily on the experience, knowledge of human nature and the seriousness of the bank employees. It is difficult to understand why government agencies that have recently been criticized by conflicts of interest in the financial crisis are now again imposing significant interventions on the industry.

The future: reciprocity and abuse

One crucial point is often not taken into account: reciprocity. Will those who loudly demand automatic exchange of information today actually want to live in a world where they not only have to obtain this information from all countries, but also have to provide them in the opposite direction? Who hasn’t critically questioned yet, is eitherignorant or has never been to another region. The current electronic espionage activity of both large and small states should be generously ignored in this consideration. The real problem is the potential for abuse of power and influence. In a few years, new political leadership could steer in a different direction again, leading to renewedscandals would lead. This has been particularly revealed by practices in the USA, a country that claims high constitutional standards. The incident shows how fragile the balance of the rule of law between countries is. The global implementation of the UN Recommendation for Automatic Information Exchange could be oppositional and non-conformists in many statessignificantly disadvantage. Storing assets such as cash, gold, art or stocks outside the banking system will continue to be possible, but control and surveillance is increasingly tightening. The boundaries between legal control and government surveillance are fluid.

A critical look at the way to a controlled financial world

The increasing restriction of cash transport and global data monitoring entail considerable privacy risks. While some measures appear justified in the name of security and tax justice, there is a risk that individual freedom and the right to privacy will be massively restricted. The balance between control and freedom isA central challenge that societies have to face. It is necessary to open the discourse and to critically examine both the opportunities and the risks. This is the only way to find a sustainable solution that protects privacy and at the same time effectively takes action against tax evasion.