Combating international tax fraud remains a work in progress. Although far from complete, governments are pleased to note significant advancements since cooperation was bolstered. Tax authorities find an unexpected ally in their efforts to monitor foreign bank accounts: social media.
Increased automatic information exchange
Since the 2010s, nations have been intensifying their cooperation to enhance oversight of foreign bank accounts, a strategy favored by governments to tackle tax evasion. On April 19, 2013, G20 member countries established automatic information exchange as the new standard for tracing foreign bank accounts. On June 19 of the same year, the OECD released "A Step Change in Tax Transparency," a report outlining specific measures to create a unified model for automatic information exchange applicable to all countries.
In 2014, the G20 and OECD endorsed automatic data exchange as the "new global standard."Â , published on May 6, 2014, was adopted by 34 OECD member countries and several non-member countries. Concurrently, the United States initiated the extraterritorial FACTA (Foreign Account Tax Compliance Act) regulations as early as March 2010. Effective July 1, 2014, FACTA requires banks in countries that have signed agreements with the United States to provide the US tax authorities with all banking information regarding their US taxpayer clients.
In February 2012, the G5 countries (United Kingdom, France, Germany, Italy, Spain) signed the agreement. In 2013, Bermuda, Malta, Jersey, Guernsey, the Isle of Man, and the Netherlands ratified the agreement. This marked a victory for the United States, successfully persuading tax havens to join. Other countries known for their secrecy (Switzerland, Luxembourg, Singapore, Cayman Islands, etc.) also align with Washington. Canada signed the FACTA agreement in February 2014. Moreover, Canada and the United States are committed to enhancing their partnership in combating tax evasion.
In November 2022, the Global Forum on Transparency and Exchange of Information for Tax Purposes celebrated worldwide progress in monitoring offshore bank accounts. Tax authorities disclosed that they exchange information on 111 million accounts globally, representing assets totaling $11 trillion for 2022 alone. However, there is still much work to be done.
Tax evasion comes at a high cost
$427 billion annually – that's the staggering price tag of rampant tax evasion. The NGO Tax Justice Network unveiled this figure in a November 20, 2020 report. According to the NGO, companies export approximately $1,380 in profits to tax havens and affluent countries, evading blacklists, notably those of the European Union (EU). Individuals stash over $10 trillion in assets in these jurisdictions. Europe and North America suffer the most from this tax evasion, with losses amounting to $184 billion and $95 billion, respectively. In contrast, the Cayman Islands lead in capturing the lion's share of these "offshore resources" (16.5%), closely followed by the United Kingdom (10%), the Netherlands (8.5%), Luxembourg (6.5%), and the United States (5.53%).
For the NGO, these findings underscore the ongoing challenge governments face in effectively combating tax evasion despite efforts to enhance cooperation. Above all, the NGO interprets the apparent global consensus favoring greater tax transparency as a sign that large corporations and affluent individuals can still exploit their offshore accounts with relative ease. Does this mean that governments are capitulating to the wealthy?
Greater control over foreign bank accounts
Although tax evasion by wealthy individuals is declining, that of multinationals persists. This is one of the key findings of a report by the , released on October 23, 2023. Government losses remain significant, with over $1 trillion funneled into tax havens in 2022.
According to a report by the Cour des Comptes published in November 2023, France is projected to lose between 4.5 and 24.5 billion euros in personal income tax alone. While these losses remain significant, there have been notable advancements. Tax authorities have identified approximately 35,000 accounts held abroad thanks to automatic data exchange. The Direction Générale des Finances Publiques (DGFIP) confirms a consistent rise in the number of foreign accounts. France aims to increase controls by 50% by 2027, with taxpayers holding foreign bank accounts being the primary targets of this increased scrutiny.
What are the consequences for expats who fail to declare their foreign bank accounts?
To recall, it's mandatory for all individuals to report their foreign bank accounts, along with other assets like life insurance. It's advisable to familiarize oneself with the recommended practices to follow, both in the country of residence and in the country where the assets are held.
In 2022, Spain adopted European regulations and reiterated the requirement to declare foreign bank accounts. Meanwhile, Canada reminded its taxpayers that they may still owe federal, provincial, and territorial income taxes even after relocating abroad. Therefore, those planning an extended stay abroad must notify the Canada Revenue Agency (CRA).
Failing to disclose foreign bank accounts can be quite costly. In the USA, not reporting foreign bank accounts and financial assets (known as the Report of Foreign Bank and Financial Accounts or FBAR) can lead to civil or criminal penalties, depending on whether the non-disclosure was intentional. Civil penalties range from $10,000 for unintentional violations to $100,000 for deliberate ones. Additional factors, such as inflation and the balance of the foreign bank account(s), are also considered. Under criminal law, deliberate non-compliance can result in a maximum of 5 years imprisonment and a fine of up to $250,000. For more serious violations, the penalty can increase to a maximum of 10 years imprisonment and a fine of $500,000.
Tax authorities have an eye on your social media accounts
To intensify their efforts in monitoring taxpayers, tax authorities rely on a widely used tool: social media. Platforms like TikTok, Instagram, Snapchat, LinkedIn, and Facebook serve as valuable allies. Many taxpayers share their experiences and post numerous photos on these platforms. As early as 2014, the Internal Revenue Service (IRS) was already scouring social media to locate foreign bank account holders. However, this hasn't deterred the IRS from pursuing action against the social media giants themselves. In February 2020, the IRS sought $9 billion in back taxes from Facebook.
France has adopted a similar approach. Its 2024 finance law takes it a step further: tax officials may even create fake accounts to more effectively identify fraudsters on social media platforms. While awaiting the implementation decree, tax inspectors (the only ones impacted by the law) are preparing for this change. Since February 2021, a decree (a pilot protocol conducted over three years) has allowed French tax authorities to collect and utilize personal data freely shared by individuals on social media platforms and online marketplaces (such as eBay, Vinted, Le Bon Coin, etc.).
