Hand it over and nobody will get hurt
The ink on the page of my last post about the new softer, gentler approach to tax collection was not yet dry when Israel’s main financial daily ran a banner headline concerning the upcoming automatic exchange of information between tax authorities. The wording was a rather unimaginative: ‘ A flood of requests from foreign banks on the way: Demand reporting of Israeli residency.’ Personally, I would have gone for the more catchy: ‘We will find you, and we will kill you.’ Game on.
The Common Reporting Standard, that – based on domestic legislation – will require most of the world’s tax authorities to collect data on foreign resident accounts from financial institutions in their jurisdictions and ship it out to the salivating jaws of the tax authorities of the account holders’ countries of residence, is at the door (see Tax Break January 7, 2019).
What bothered me about the headline, and the accompanying two page article, was not the accuracy – in my younger days, I would periodically pull my hair out at the distorted product of an interview I had given to that particular journal on a hot topic. This piece, however, appeared researched and reasoned. My problem was that any reader of the newspaper, other than someone with a financial death wish, has already done what they had to do (compliance, voluntary disclosure, or expensive – and possibly regrettable – planning). Meanwhile, a colossal number of people who do not read the financial press, and may not be financially savvy, remain – incredibly – blissfully ignorant as their canoe careers inexorably towards the falls.
As the death knell for international tax evasion has grown louder in recent years, the Israeli tax authorities (in line with many of their international counterparts) have shown remarkable restraint in enabling errant residents with unreported income from abroad to come clean with minimum fuss (paying some tax and remaining friends). Voluntary disclosure programs have been renewed, extended (there is currently a program in force until the end of this year – albeit without the previous advantage of anonymity), and-where relatively small amounts are involved – even made simple.
The trouble is that, in a country like Israel that does not require a tax return from most salaried employees, many people don’t ‘think’ tax of their own volition. So, when Belgian Aunt Sophie left Yossi the contents of a bank account in Switzerland which sensible Yossi didn’t touch – treating it as rainy day money – he also didn’t think to report the interest to the Israeli tax authorities. And, unprompted, he still doesn’t. He will presumably start thinking about it when he gets a summons to appear in court in his mail box. The tax authorities will have achieved exactly what they actively set out not to do – waste valuable resources crucifying people they are not interested in. As Jesus is reputed to have said a mile and a half from where I am now sitting: ‘Forgive them, for they know not what they do.’
The solution is so simple, it hurts.
In the absence of a universal tax return, every resident over the age of 18 should be required to complete and submit a simple annual questionnaire (either online or offline) including such questions as: ‘Do you, or any of your children under the age of 18, have any access to the contents of a foreign bank account?’ The answer ‘Yes’ to such questions should result in a compulsory tax return coming through the door. Failure to complete the form should result in a compulsory tax return coming through the door together with an appropriate fine designed to concentrate the mind of even the most financially illiterate.
And, if that doesn’t work – the tax authorities need feel no guilt in unleashing the Spanish Inquisition.