Why tax evasion a global problem?
BSG reported that the global wealth increase by 12.1 % to $135.5 trillion where the North America and Europe remain the wealthiest nation and the offshore wealth reported at $8.5 trillion and projected to increase to $11.2 trillion by 2017. Offshore accounts are preferred by wealth management clients to seek diversification on high levels of economic and political stability offered by the offshore financial institutions. However, offshore wealth is highly unfavorable to tax authorities of the investor’s residence government as it has been considered a legal way to evade tax payable to the residence country. Despite the small share on the total wealth held offshore, the portion of offshore wealth are greater in developing world mainly in Asia-Pacific region than the wealthiest nation due to their faster wealth growing rate as a result of aggressive market entrant. Revenue losses in developing countries are estimated at the amount totaling $100 billion annually, three times more money gained from development aid. With the projected increase of offshore wealth, the tax evasion is evidently a growing problem worldwide. The affected nations are not only developed nations but even worse in developing or least developed nations. In most developed countries, tax losses consequently will increase tax imposed on the citizens in order to maintain their public service benefit, while tax revenue is more crucial for developing countries as it supposed to fund their development activities, provide or improve their public services and reduce their dependencies on international aid. Africa as a whole loss 98% of its total healthcare budget while 119 out of 145 countries loss more than 50% of its healthcare budget due the same reason . Besides revenue loss, the inability to collect tax on income and wealth held cross-border may also continuously undermine tax morale and indicate state’s weaknesses in tax collection.
The Efforts to Address Tax Evasion
The major players in creating system for cross-border tax are the OECD, EU, the United States and Switzerland. The evolution of cross-border tax administrations begin in the late 1990s at slower pace, mainly through the OECD Model Tax Convention or the OECD Model Treaty working on the exchange of tax information upon request by countries through bilateral agreements or treaties. The information can only be given when countries provided the relevant information of the specific individual and justification on why the information is need. The European Commission also has been working to address this issue within its member states through series of directives under EUSD Model that mandate for either exchange of information or impose a withholding tax to be deducted from interest income in the transitional period. Tax evasion issue suddenly receives fast-growing attention beginning in 2008 after two major tax evasion scandals happened; the Liechtenstein Tax Evasion Scandal and the...