Tackling Tax Avoidance
 

Tackling Tax Avoidance

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Tax is a crucial revenue stream for administrations across the world. ...

Tax is a crucial revenue stream for administrations across the world.

While many agencies have already established processes for compliance and enforcement, a combination of avoidance and error is still costing governments billions.

Detection and Prevention measures provide the key to tackling these challenges

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    Tackling Tax Avoidance Tackling Tax Avoidance Presentation Transcript

    • Global Public Sector the way we see itWinning the Fight againstAvoidance and ErrorProtecting Tax Yield with a Focus on Detection and PreventionCOMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS
    • Global Public Sector the way we see itCOMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTCombining Detection and Prevention Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTProtecting Tax Yield with a Focus on Detectionand PreventionTax is a crucial revenue stream for With such a huge sum failing to reach the pound, euro or dollar that goes uncollectedadministrations across the world. public purse, it is no wonder that almost is money urgently needed for investmentWhile many agencies have already every tax office is looking to increase the elsewhere. But it isn’t exclusive to theseestablished processes for compliance level of compliance with the tax laws to countries. In rapidly growing economies too,and enforcement, a combination of increase revenue. In the UK, for example, there is a need to improve tax complianceavoidance and error is still costinggovernments billions. the Government’s 2010 Spending Review set so that the development of public services the tax agency (HMRC) a target to raise an can be properly funded. Emerging marketsCapgemini offers tax agencies and inspectors extra £7bn a year by 2014-151. Likewise in typically face the challenge of a largean effective and powerful solution to France, the tax and customs offices (DGFIP) informal economy, where workers are paidprotect tax yield by combating tax avoidance reported a 3.5% increase in detected fraud, in cash and spend money with unregisteredand reducing the tax gap. The value of this equivalent to a €97M increase in 2010, businesses. In a market like Brazil thisoffering cannot be underestimated. Recent bringing the total value to €2.8bn in 20102. unseen economic activity makes up 37% offigures from one organization suggest that GDP and helps to create a tax gap estimatedtax avoidance and error costs 145 countries, These figures reflect the ambition of other at between 42% and 50%.3representing over 98% of world GDP, more administrations in those countries hit bythan US$3.1 trillion annuallyi. the recent economic crisis where everyi Tax Justice Network: http://www.tackletaxhavens.com/Cost_of_Tax_Abuse_TJN%20Research_23rd_Nov_2011.pdf1 http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf Previous | Next2 http://www.budget.gouv.fr/files/bilan-dnlf-2010.pdf3 “New Estimates for the Shadow Economies all over the World”, Friedrich Schneider, Andreas Buehn & Claudio E. Montenegro, International Economic Journal Vol. 24, No. 4, 443–461, December 2010
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTNumerous factors contribute to a drop in • Use of social networking to share Emerging markets not only face many of thetax yield at a time when the public sector information about tax avoidance activities same issues, but in also more fundamentalis coming under pressure to maximize by groups other than organized criminals; challenges, such as a lack of the data andtax revenues. The current economic data management systems needed to raiseenvironment is just one of them; the • Anti-fraud sophistication in the private yields.downturn has seen tax revenues decline sector financial institutions, leadingmore rapidly than the overheads of running organized criminals to target the publica country, so tax agencies must focus even sector;more on reducing the tax gap to increaserevenues. • Availability of public sector on-line channels that make it easier and cheaperOther contributory factors particularly of for criminals to target tax agencies fromrelevance in developed countries include an anywhere in the world;increase in: • Sophistication and “industrialization”• Physical mobility, both at national and of an agile and resourceful criminal international levels, which makes it more industry. difficult to correctly assess liabilities or track taxpayers; Previous | Next
    • Global Public Sector the way we see itCOMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTIdentifying Tax Avoidance Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTIdentifying Tax AvoidanceWhile tax avoidance is a significant Across all geographies, the tax gap comes • Errors: while individuals can deliberatelycontributor to the tax gap, it isn’t the only down to four main factors: omit to report income, non paymentone. When you add in errors either by can also be due to errors, especiallythe taxpayer or the tax administration, • International transactions: as more administrative errors within the taxalong with other factors, the size of the economic activity globalizes, the easier it organization itself or submission ofproblem becomes even bigger. becomes to move money around and to inaccurate information without the therefore avoid taxes; declaring taxpayer being aware. This isIn the UK, what begins as a £15.2bn often the result of unclear rules that needproblem as a result of tax fraud grows to a • Black market: non declared revenues and to be better defined and communicated.tax gap of £40bn4 when all the variables are non paid contributions quickly add up.brought to bear. Tax avoidance is another In Italy, for example, Industry Minister • Data: a lack of good quality data andfactor in the complex tax environment. It Paolo Romani estimated that in 2011 poor data management combine toallows taxpayers to manage their finances phantom or undeclared income stood at prevent agencies gaining a clear picture ofin a way that allows them to pay less tax, $320bn;5 who is paying what, who isn’t, and whatfor example by paying into a tax exempt they should be paying.pension fund.45 http://www.hmrc.gov.uk/stats/mtg-2011.pdf http://articles.cnn.com/2011-11-02/opinion/opinion_europe-shadow-economies_1_tax-evasion-tax-collection-tax-rates?_s=PM:OPINION Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTSo who is avoiding paying their taxes,whether purposefully or through humanerror? Non-payers come from every areaof the taxpaying community. They includeprivate citizens who don’t declare rentalincome on a second property, buy theircigarettes on the black market, or fail todeclare their earnings. They can be microfirms that fail to register for certain taxesor have undeclared income, medium-sized companies that fraudulently claimtax deductions for R&D activities, or largegroups and companies that have foundcorporation tax loopholes. In the UK,HMRC attributed half of the 2009-10 taxgap to Small and Medium Enterprises.iiii http://www.hmrc.gov.uk/stats/mtg-2011.pdf Previous | Next
    • Global Public Sector the way we see itCOMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTOur Offer to Tax Agencies Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTCapgemini’s Offer to Tax Agencies:Prevention and CureIn March 2010, the UK National Fraud downstream processes, once repayment combines cure and prevention. On theAuthority’s publication “A fresh approach is made, recovery of monies requires one hand, the cure has a quick impactto combating fraud in the public sector”iii time and cost, most notably in people. and removes avoiders who are already incompared the public and private sectors. It In addition, such activity may not be the system. In Australia, for example, theobserved that the private sector’s main focus successful, especially in identifying Australian Taxation Office reported thatwas on fraud prevention. This consisted of fraudulent cases. Bearing this in mind, it for the quarter 1 July to 30 Septemberidentifying high risk activities and refusing has become necessary to take the idiom of 2011, 356 people and 122 companies werethe provision of a service or product, or “prevention being better than cure” at face prosecuted and convicted of taxation andflagging high risk cases for investigation value. A successful approach requires the superannuation offences. Some 12 peoplebefore a transaction was completed – so application of a combination of upstream received custodial sentences, ranging fromcalled upstream activities. The report and downstream techniques; capitalizing two months to five years. Thus the fraudstersidentified a stark contrast to the public on the existing and future investments in were removed from the system6.sector approach, which is predominantly people, organization, processes, informationconcerned with detection, investigation and and technology. On the other hand, prevention is less costlyprosecution of fraud that has already been and ensures a progressive reduction ofcommitted – downstream activities. In other words, to tackle the tax gap the tax gap. Technology combined withThe report urges more widespread use of problem, governments need to adopt a evolution of existing business processesprivate sector upstream techniques. In targeted and holistic approach that can provide solutions to detect evasion andiii6 http://www.eurim.org.uk/activities/psd/A-fresh-approach-to-combating-fraud-in-the-public-sector.pdf http://www.ato.gov.au/corporate/content.aspx?doc=/content/00299856.htm Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTact on both prevention and cure. It can This technology-enabled framework • Results: analysis of results on a case-evolve constantly to fight fraudsters who are comprises: by-case basis to identify potentialincreasingly skilful and well-informed. A improvements and follow up global fraudholistic approach at a national level allows • Data management: data is collected activity. This last stage leads us to theinter-agency cooperation and enables a from multiple sources, cleansed and then prevention.single view of the customer, which allows analyzed;taxpayers to comply with their obligations At the same time, further measures shouldand tax agencies to effectively manage their • Modeling: statistical methods (based be built around multiple independentcompliance regimes. upon known cases) are used to track defenses against evasion, including identity fraudsters and explore new methods of management, risk profiling, watch-lists, andSuccessful management of avoidance defrauding the tax agency, essentially due advanced business and transaction rules.depends on effective gathering and analysis to the constantly evolving skills of the Tax agencies need processes that don’t justof data. In some countries agencies have fraudsters; make it easy for citizens to understand theiralready been given more power to ask obligations and comply with the rules, butpotential avoiders for additional details that • Alert detection: regular fraud scenarios also make it difficult for them not to comply.can be checked against their tax returns. detect anomalies and generate alerts; Above all, systems must be flexible enoughHowever, any new data sources have to be to allow prevention and detection strategiesfactored into the analysis inspectors perform • Investigation: analysis of suspicious and business rules to change regularly, sowithout rebuilding the IT system every time. cases using available data allows the that agencies are not outmaneuvered by theCapgemini can help. We have worked with agency to track suspicious cases; constantly evolving tactics of tax evaders.tax agencies to put in place fraud detectionsystems and processes that sit within adefined anti-fraud framework solution fortax agencies. Previous | Next
    • Global Public Sector the way we see itCOMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTCapgemini’s Unique Solutions Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTCapgemini’s Unique Solutions for Tax Agencies:Tailored for Individual Levels of MaturityCapgemini has extensive experience as give them the tools and methods they need • Solution Design – a design phase ofa trusted advisor to tax agencies world- to make the whole process of tax collection approximately three months to producewide. We recognize that the labor inten- cost-effective and efficient depending on the blueprint for a holistic fraudsive nature of tax investigations demands government priorities. management approach underpinneda solution for automating as much of the by best-of-breed technology. This isanalysis as possible to generate new Our innovative and effective techniques are usually combined with a small pilot toleads for investigators. built into tailored solutions that typically demonstrate the value of the solution to consist of: the stakeholder;We help our clients accomplish this andreduce the tax gap by cutting avoidance and • Avoidance and Error Assessment – a • Solution Implementation – a moreerrors. At one level we work with our cli- three to six-week assessment of existing dedicated proof of value, followedents to look at the way in which they detect technology and processes around by the design and build of a larger-systemic error and then help them to im- detection and prevention to identify the scale fraud management system withprove their process. At another level we use key areas for improvement and what the options for fraud management as an ITsophisticated fraud detection systems that priorities are; managed service or as Business Processbuild on the expertise of tax inspectors and Outsourcing. Previous | Next
    • Global Public Sector the way we see it COMBINING DETECTION AND PREVENTION IDENTIFYING TAX AVOIDANCE OUR OFFER TO TAX AGENCIES CAPGEMINI’S UNIQUE SOLUTIONS HOME CONTACTOur proposal is based on the followingfactors:• Business priorities that are defined with the head of fiscal control to primarily focus on the easiest cases to sanction;• Tackling fraud that can be quickly identified without tying up too much time or resource, whether on cost or human resources Capgemini is successfully delivering• Integrating upstream processes into the projects for tax offices globally: strategy to make the existing analytical Australia, Sweden, France, UK, India, system more efficient in the medium or US, Brazil, Netherlands, and Slovakia. long term. For more information or to request a meeting please contact: publicsector.global@capgemini.com Previous | Next
    • HOME ­About Capgemini ® With more than 120,000 multicultural organization, Capgemini has people in 40 countries, developed its own way of working, the Capgemini is one of the world’s foremost Collaborative Business ExperienceTM, and providers of consulting, technology and draws on Rightshore®, its worldwide delivery outsourcing services. The Group reported model. 2011 global revenues of EUR 9.7 billion. Together with its clients, Capgemini creates Learn more about us at and delivers business and technology www.capgemini.com solutions that fit their needs and drive the results they want. A deeply Rightshore® is a trademark belonging to CapgeminiContact our experts:Ian Prettyian.pretty@capgemini.comAlexandre Negadialexandre.negadi@capgemini.com Copyright © 2012 Capgemini. All rights reserved.