INTRODUCTION
For the author, a member of the country's Tax Administration, in his capacity as Tax Inspector, it is an honor to be able to give added value or summarize in this work what is related to the inspection and the work that the Internal Revenue Service must perform in Chile., in order to reduce tax avoidance and evasion, which is its final objective.
In this context of Economic Globalization, it is important to make it easy for the taxpayer to comply voluntarily with their tax obligations and in this Chile has been characterized in recent years through the Internal Revenue Service under the slogan "Facilitating Compliance Tax ”, which has made it worthy of various awards both nationally and internationally, for its technological innovation and electronic government, which has allowed taxpayers to carry out many procedures through the Internet, avoiding attending any Tax Service office Internal, changes that undoubtedly go hand in hand with the innumerable mutations that are being generated today in the entire world.
The current technological level offers us the possibility of handling large volumes of information without causing excessive costs to taxpayers. The only limitations for this are the powers granted to the Internal Revenue Service to request information for the privacy of individuals and companies of this information (eg, bank secrecy).
This is very important since having information on taxpayers is an essential element to fulfill its mission, as well as having human and technological resources. Through the information it is possible to establish efficient attention systems that favor the voluntary compliance of the taxpayers and to focus the control actions to combat evasion. The information is especially relevant when it is necessary to protect tax compliance in a scenario of economic globalization.
This work covers the Chilean experience in the scope of the faculties that are counted to request information from taxpayers and the main examples of application of the information in the plans and programs of taxpayer care and inspection.
The importance of information in the control of tax obligations and the fight against evasion will be analyzed, describing the main sources of information and their characteristics, on the other hand, the situation in Chile is indicated in relation to the powers available for inspection and main applications of such powers. It also indicates the deficiencies that exist in this area, outlining the greater powers that it would be necessary to grant to the TA (tax administration). To end with an analysis of the powers to require information from a perspective of control of obligations in the field of economic globalization and international taxation and a mere definition and analysis of tax havens
1. Why does the Internal Revenue Service require information?
The fundamental mission of all TA (Tax Administration). It is the control of compliance with tax obligations. Whether it cautions and encourages voluntary taxpayer compliance, fights evasion, takes administrative action to change the way taxpayers file and pay taxes, the degree of compliance with the TA's mission depends on how effectively to carry out its functions, especially the inspection function.
The effectiveness of the audit depends directly on the deterrent capacity of the evasion that the TA has, which is summarized in the probability of detecting the tax noncompliance of the taxpayers, it is more effective in the audit if it has a greater probability of detecting to taxpayers who do not comply with tax provisions.
The two ways that every TA has to increase the probability of detecting non-compliance are: increase the availability of information related to taxpayers' tax obligations and optimize the use of the information available.
The first course of action is related to the concept of visibility of infringements, defined as the relative costs and difficulties that tax inspectors face in detecting and testing infringements. In this sense, the voluntary compliance of taxpayers should be greater for those groups of taxpayers about which the TA receives more information from third parties.
On the other hand, optimizing the use of information requires having modern computational resources to manipulate the increasing availability of information and the technical capacity to determine functions that allow taxpayers who are more likely to be evaders to be selected for inspection.
Some of the affidavits that the Internal Revenue Service requests from taxpayers are:
- Affidavit for withdrawals and corresponding credits Affidavit for income from wages, withholdings and training Affidavit of rejected expenses and credits Affidavit for income from retirement and withholding Affidavit for deductions of fees or ancillary Affidavit by sworn statement for donations Lease of non-agricultural goods Sworn statement by taxpayers of free zones Sworn statement for properties with usufruct Sworn statement of partners and commoners and their participation Sworn statement for transfer of funds
Relevant information for AT
- Periodic information on taxpayer declarations. Third party information provided periodically, in bulk. Information held by the taxpayer at the disposal of the TA Information accessed by the TA in qualified cases (tax offense, judicial investigation). Information from other sources to the that the AT can access
a) Regular information on taxpayer returns
The most relevant information for the control of taxpayers is that which they provide periodically, through their tax returns. In them, taxpayers submit information that reflects the determination of their tax base and the tax to pay (eg: forms No. 29 and 50). These declarations have the character of a sworn declaration, since the taxpayer, when audited, must answer for the validity and veracity of the information that he declares.
Corresponds to the source of basic information for inspection against which all the verification action carried out by the AT is contrasted. This type of obligations is the first established by the tax regulations, so that the AT can account for and subsequently control the proper determination of the taxes that taxpayers must declare and pay.
b) Third party information provided periodically, in bulk.
The inspection of tax obligations basically consists of contrasting the tax returns of the taxpayers, with the information held by the TA
To carry out this work, one of the most valuable sources of information is the other taxpayers who operate with the subject of the audit, that is, the information of third parties related to who is audited or who wants to control the correct declaration and payment of taxes.
In this sense, the fact that the TA has massive information about groups of taxpayers that allows it to validate the tax base that they declare, constitutes a tool that encourages the voluntary declaration of all the tax obligations of the taxpayers most adverse to the risk to be audited. Second, it allows to validate one by one the taxable bases of the taxpayers, in order to be able to select those in which there is any discrepancy between the declared taxable base and the determination made by the TA
This would allow us to think about the attractive possibility that, in a scenario in which the TA has full information on the activities of taxpayers, evasion could be reduced to zero, since the TA would be able to validate 100% of the data declared by the taxpayers. However, there are two important limitations that make this a chimera, at least in the short term.
First, the collection of massive information from third parties requires having broad powers that allow establishing the obligation to taxpayers or a group of them, so that they report as and when required by the TA, regarding matters related to operations. that constitute the basis for determining the tax obligations of taxpayers.
In this sense, it is well known that the TA has difficulty in obtaining the legal powers that allow taxpayers to be required to report en masse, not only because it requires legal initiatives that must be discussed in parliament, but also by the refusal by the producers, industrialists and merchants associations to disclose information regarding their operations, which they frequently keep confidential regarding operations protected by bank secrecy.
Another important limitation to have full information on the operations of taxpayers is the ability to receive, order, process and manipulate the information requested from third parties for the required purposes. In this sense, it is necessary to develop the capacity to inform taxpayers en masse regarding aspects such as the following:
- Clear and precise description of the information required. Form of presentation of the information and means of information in which it can be presented (paper form, computer file). Form of delivery of the information, such as magnetic media or forms. Delivered at the offices of the AT or via email, etc. Date of delivery of the information. Penalties to be imposed on taxpayers who do not comply with the obligation to report or are late, if they deliver the information with errors, incomplete or if once the information is delivered, it is modified with another presentation (article 97 No. 1 of the Tax Code). Consultation systems or help available for taxpayers to resolve their doubts regarding the obligation to report imposed by the AT
Regarding the receipt of the records, the operational capacity must be developed to dispose of and direct the necessary human physical resources to absorb the influx of taxpayers obliged to provide information. This work is further compromised by the traditional tendency to meet obligations on the last day of the set deadline. Despite this, if special care is not taken at this stage, there is a risk of invalidating the process or causing even more rejection by taxpayers, given the natural demand for facilities demanded by the TA to adequately fulfill its obligations. imposes.
The ordering and processing of the information gathered is also a relevant stage that presents limitations to the volume of information that can be manipulated by the TA In this case, it corresponds to the work of gathering information and classifying either for digitization in the case of the information on paper, validation in the case of magnetic media.
Finally, the TA must have the ability to manipulate the information appropriately to select the taxpayers who may have higher levels of inconsistency between what they actually declare and the resulting determination of the TA with the available information. If the AT requires information in a massive way and does not take any action or its actions are erratic to verify the tax returns of the taxpayers, the effect that occurs is totally contrary to the initial objective that the AT had, that is, the taxpayers will perceive that the infractions committed are not visible by the AT and therefore harm tax compliance
c) Information held by taxpayers at the disposal of the TA
Another important source of information for the inspection work is the one that taxpayers must prepare and maintain in their establishments, which is accessed by the TA at any time to verify tax compliance (eg, sales and purchase book)
There are at least two areas in which the TA uses the information held by the taxpayers. First, in those cases in which those who present indications of not correctly fulfilling their obligations are selected for inspection, they are requested to present the documents that support the statement presented to review the provenance of the allegations. Second, in the activities of control of tax compliance of commercial establishments, to verify the correct accounting of sales.
In the first case, once a taxpayer is selected to be audited, he must provide the necessary information for the periods that are questioned, in order to establish the correct imputation and subsequent documentation based on the supporting documentation of his operations. determination of taxes. This work is one of the most traditional in the audit, since it is the only one that ensures the review of the taxpayer's background and the possibility of challenging them.
In the second case, the TA performs a supervisory presence work verifying that the taxpayers satisfactorily fulfill their obligations. If infractions are detected, they must be sanctioned by the AT to cause corrections to the behaviors that compromise tax compliance and therefore tax collection. This is a fundamental task of the TA, as it is the most effective way in which it can increase the visibility of taxpayer infractions, creating the perception that if they are not complied with, it will be punished in a timely manner (title II of the tax code contemplates infractions and penalties).
d) Information accessed by the AT in qualified cases, such as tax crimes or judicial investigation.
As already mentioned, an important limitation for access to taxpayer information is the existence of confidential information, such as the existence of bank secrecy. However, the AT must have the power to request confidential information in cases in which a tax crime investigation or a judicial investigation for economic or other crimes is followed.
Having this power is of great relevance for the TA and its work to control conduct classified as a tax offense, given that it is necessary to have the maximum information to prove these behaviors.
In these cases, the TA has to act in a timely manner, so in justified cases of suspicion of conduct typified as a tax offense, the procedure for seizing the taxpayer's documentation is authorized, allowing it to act surprisingly at its commercial addresses with the possibility of accessing all the information that may support an administrative investigation. (Faculty contained in article 161 Nº 10 of the Tax Code)
Within this same framework, the TA must have the power to access the information of the taxpayer's bank accounts, in order to have the information on money flows, income and payments made.
e) Information from other organizations to which the TA has access:
In the field of auditing, the use of information from other public or private organizations that have databases of taxpayer operations, information related to the companies in which it participates, partners, etc., is frequent.
In this sense, the AT must establish agreements for access to the information of other organizations, which can be useful to complement the AT's own information.
As an example, the Civil Registry, Treasury, Investigative Police, etc. can be cited.
2. The powers of the Internal Revenue Service to obtain and manage information at the national level.
2.1. Information needs
Chile has a tax self-declaration system in which the taxpayer is responsible for determining how much they have to pay monthly, in the case of VAT, or annually, in the case of Income. The TA, for its part, is responsible for ensuring the voluntary compliance of taxpayers and the fight against tax evasion.
For this purpose, the TA must generate the necessary tools that facilitate the voluntary compliance of the taxpayers, to generate the mechanisms that allow to selectively verify if their declarations are in accordance with reality, in order to focus the inspection efforts, sanctioning the noncompliant and / or evaders.
In Chile, the powers of the TA to collect information from taxpayers allow controls to be carried out throughout the Taxpayer's Life Cycle, which includes registration in the taxpayer registry, declaration of initiation of activities, periodic authorization of documents for register operations, declaration and payment of your taxes and, eventually, termination of business declarations when your economic activity ceases.
The TA is continuously receiving information directly from the taxpayers, which must be processed, registered, analyzed and maintained, in order to identify them, formalize their relationship with the TA and enable subsequent monitoring of their actions.
However, this information is not enough. In order to fulfill its mission, the TA also requires information specific to each taxpayer and in its possession (accounting and financial records, documents, contracts, etc.) and information on the taxpayer in the possession of third parties (interests, salaries and wages, fees, purchase and sale of shares, commercial and banking behavior, etc.). Therefore, Chilean tax legislation has also provided the TA with the necessary powers to obtain and manage this information.
2.2 Main powers of the Chilean TA to request information.
The powers that the Chilean TA has are based on the following three legal bodies: the Tax Code (Decree Law No. 830), the VAT Law (Decree Law No. 825) and the Income Law (Decree Law No. 824).
Through these provisions the TA can carry out the following actions:
- Examine and review taxpayer returns, within statute of limitations. Examine taxpayer inventories, balances, books, and documents to verify the accuracy of returns and obtain information. Examine books and declarations of the people obliged to withhold a tax. Arrange for taxpayers to present a statement of situation. Make or modify taxpayer inventories. Request a sworn statement in writing or summon any person domiciled within the jurisdiction of the office that it is summoned, so that it attends to declare under oath on facts or antecedents of any nature related to third parties. Examine the current accounts, under special situations and with the authorization of a competent judge.Make use of all legal means to verify the accuracy of the returns filed by the taxpayers and to obtain information and background regarding the taxes that are due or may be due. Summons the taxpayer to file a statement or rectify, clarify, expand or Confirm the previous one. Enroll in the Unique Tax Role (RUT) all persons, entities or groups that, due to their activities or condition cause or may cause taxes. Enroll taxpayers in Special Registries, arranged by the Regional Directorate. Request a sworn declaration of the Start of Activities. Obligation of the Companies to communicate any modification of their Constitution contract. Obligation of every person,that due to termination of business or its activities ceases to be affected by taxes, to communicate this fact to the SIIO obligation of the Companies to request authorization to make capital reductions. Not to authorize any dissolution of the Company, without a certificate from the TA in which note that you are up to date in the payment of your taxes. Obligation of Municipal officials to provide the SII with information related to patents, real estate and others. The Regional Director may request, in particular cases, from the banks, a copy of the balance sheets and statements of situation that taxpayers present to these institutions: tax officials, semi-prosecutors, of fiscal institutions and semi-prosecutors of autonomous administration, municipalities and authorities in general,They are obliged to provide the SII., All the background that it requests for the inspection of taxes. Obligation of the Trustees to communicate the bankruptcy declaration to the Regional Director corresponding to the domicile of the bankrupt. Various obligations established to third parties or institutions to give information to the SII., or ensure compliance with certain tax requirements. The books of sales must be kept in business and must be recorded in them, day by day, the operations of sales and services. Obligation to submit monthly statements. Obligation of individuals natural or legal that are obliged to withhold tax, to submit to the SII., a report indicating the withholdings made.Obligation of the Trustees to communicate the bankruptcy declaration to the Regional Director corresponding to the domicile of the bankrupt. Various obligations established to third parties or institutions to give information to the SII., Or to ensure compliance with certain tax requirements. The books of sales must be kept in the business and sign up in them, day by day, the sales and services operations.Obligation to file monthly statements.Obligation of individuals or legal entities that are required to withhold tax, to submit to the SII, a report in which the withholdings made are indicated.Obligation of the Trustees to communicate the bankruptcy declaration to the Regional Director corresponding to the domicile of the bankrupt. Various obligations established to third parties or institutions to give information to the SII., Or to ensure compliance with certain tax requirements. The books of sales must be kept in the business and sign up in them, day by day, the sales and services operations.Obligation to file monthly statements.Obligation of individuals or legal entities that are required to withhold tax, to submit to the SII, a report in which the withholdings made are indicated.or ensure compliance with certain tax requirements. The books of sales must be kept in business and must be recorded in them, day by day, the operations of sales and services. Obligation to file monthly statements. Obligation of individuals or legal entities that are required to withhold tax, to submit to the SII., a report indicating the withholdings made.or ensure compliance with certain tax requirements. The books of sales must be kept in business and must be recorded in them, day by day, the operations of sales and services. Obligation to file monthly statements. Obligation of individuals or legal entities that are required to withhold tax, to submit to the SII., a report indicating the withholdings made.
2.3 Application of powers to obtain information in Chile
The powers granted to the Chilean TA allow it to have sufficient information to achieve high levels of efficiency in public service, improve the ability to preemptively inspect, carry out massive oversight processes, selectively inspect and inspect in the field the tax compliance of the taxpayers.
Below is a brief description of each of these work guidelines.
a) Efficiency in public attention:
Having information allows improving public service systems, especially for taxpayers who show good tax behavior, for whom quick and simple care is proposed, which facilitates their voluntary tax compliance.
In effect, the TA has online information in the computer systems that support the taxpayer service policy characterized by transparency, since it has clear procedures and rules managed through different levels of access in the computer systems; objective, being based on previously defined parameters and historical information on the taxpayer's behavior; and efficient, by guaranteeing in most cases that the taxpayer satisfies her requirement in a single visit to the offices of the Service. In this sense, it has even been guaranteed, through a commitment to quality care, that no taxpayer will take more than 30 minutes to be attended to carry out the procedures that are mandatory. (If it is not fulfilled,the SII agrees to go to the taxpayer's domicile with the procedure resolved if everything is in order)
b) Preventive control:
Preventive control uses historical information on taxpayer behavior, information from declarations and information from third parties to preventively control tax compliance. This means, processing information to identify potential defaulters with which it is necessary to adopt more restrictive measures regarding the level of facilities provided by the TA For example, the number of documents to authorize through stamping, forcing them to attend more often the TA to be controlled, thus avoiding situations that, when not corrected on time, can lead to irregularities with a greater impact on tax collection.
Some application examples along this line:
- Taxpayer's annotation system in the SII's computer system, which consists of being able to determine the taxpayers who have a pending situation with the TA, either due to non-compliance with a notification, not located at the home, defendant, non-declarant, records loss of documentation, etc. System of total withholding of the VAT tax to taxpayers included in payroll of difficult control, of a specific economic sector where a measure of change of taxable person of VAT operates. (ex: flour, meat, cattle and others)
c. Massive audit:
The powers of the TA to request information from third parties allow us to have information to carry out massive control processes, the main characteristic of which is the intensive use of information provided by different sources, which allows the information to be crossed, the differences between the different sources to be established and summon the taxpayer to clarify or confirm them (Article No. 63 of the Tax Code)
The main inspection program of this type is the Income Operation, which consists of the computational verification of more than 2 million annual tax returns, a process that takes place in May of each year. For this, the AT establishes the obligation to inform a group of taxpayers, in the month of March of each year, which brings together more than 15 million information records regarding income obtained from people and investments made. In April, taxpayers file their tax return and pay the resulting amount or request a refund of the balance in their favor. Subsequently and as a result of the process of crossing information of declarations in the month of May, the payment of the corresponding tax refunds is authorized. Of the total of declarants,Approximately 10% are selected, who are summoned to attend the TA offices, starting in June, to analyze the main discrepancies in depth.
d. Selective control:
The large amount of information obtained in the mass auditing processes, added to the information gathered by specific requirements, allows carrying out case selection processes for selective auditing, which is produced through the messenger of databases in order to obtain indicators. that reveal probable evasive behavior, with which a set of taxpayers to be audited is generated, materializing through audit programs.
As an example we can cite the inspection program for personal purchases made through companies. This program was based on the assumption that taxpayers who consume goods and services for personal use through the company are the ones who probably assume systematic behaviors of bulging credits to reduce their taxation. In this sense, direct sales establishments such as supermarkets were notified to report all the data contained in the sales invoices issued during the one-year period. With the data obtained, taxpayers with the highest frequency of purchases with invoices in hours and non-working days were selected. Subsequently, it was verified who of these was a VAT and Income taxpayer.As a result, the taxpayers resulting from the crossings were notified for inspection, about 600 cases, obtaining after 6 months a yield of US $ 8 million.
and. On-site control of tax obligations:
Finally, the powers that the TA has are also used to be able to inspect the activities and records of taxpayers in the field and to access the supporting documentation that will ultimately serve to distort or confirm the TA's appreciation regarding the correct level of taxes that each taxpayer must pay.
2.4. The cost of compliance
A point to consider in the analysis of the powers that the TA has in Chile to obtain and manage information has to do with the cost that such requirements mean either to the taxpayers or to it.
In effect, the TA must ensure that the requested information is available to the taxpayer and its capture and processing does not mean disbursements that are prohibitive. The storage capacity, process and analysis available, must also be taken into account before using the powers to obtain information. In this area, a highly favorable factor for TA is the perception of taxpayers in the sense that TA has a lot of information and that computer capacity is much higher than effective. This results in a very significant indirect return for voluntary tax compliance.
The TA continually redesigns its procedures and adapts its systems to face the prevailing computing reality in order to take advantage of new technologies to capture and process information at low cost for both the taxpayer and the TA itself, in this sense. expects for this year to reach a figure close to 100% of declarations through the Internet.
2.5 The rights of taxpayers.
The extent of the powers that the AT has has its counterpart in the right that the Political Constitution of the State guarantees to the privacy of people. Therefore, the AT must take special care with the use it makes of these powers. Think about the power that the TA has to access information that could reveal professional, commercial or industrial secrets, situations that would escape the strictly tax, even having information that allows inferring about the personal behavior of certain taxpayers.
For this, the TA has had to generate the internal management procedures and systems that guarantee adequate control of the interactions that the supervisory force has with taxpayers, to avoid abusive practices in the use of these powers, as well as providing institutional computer systems that allow access to the information captured by the AT, with personal password mechanisms that allow the responsibility of each official user of the systems to be identified and delimited,Profiling mechanisms that allow discrimination on the level of access to the different types of information according to the responsibility of the tasks that are specific to each position and with blog mechanisms that allow monitoring of the type of information consulted by a specific official.
In addition, the AT has tax secrecy, a mechanism by which tax legislation guarantees the taxpayer that the data provided by him will be used for strictly tax purposes and will only be known by competent AT personnel.
2.6 Weaknesses of the legal framework.
Based on how extensive and powerful the AT's powers are to obtain and manage taxpayer information, there are certain weaknesses in the legal framework that deserve to be commented.
On the one hand, bank secrecy constitutes a powerful barrier to accessing information that is necessary to establish the true level of taxpayer income. Proof of the above, is the tough legal battle that the TA had to wage against the Banks to have access to the information related to interest on deposits.
Although, it is feasible to open bank secrecy through a court order, this is possible only once the AT has established that a certain taxpayer incurred a tax offense that deserves to be punished with corporal punishment and, therefore, the AT has filed a complaint against it, with which the information available to the Bank serves to confirm or prove the taxpayer's willful conduct, but it loses much of its value as it cannot be used as an effective means of selecting taxpayers with potential evasive behaviors.
On the other hand, some faculties authorize access to information that third parties have about taxpayers as long as it is previously identified, with which it can only be used in specific situations, losing all the wealth of its potential to be used massively either for contrast with other sources of information or to carry out selective inspection plans.
2.7 Where we are going.
The current characteristics of the way in which business is carried out, the advances that can be seen in the short term in this world that is increasingly changing its technological standards, force the AT to be continually improving and learning from the environment in order to comply with your mission. In this context, the capacity of the TA to access, register, store, process and exploit information becomes vital.
The opportunities offered today by the massive use of the Internet, inter-company networks, intranets, large databases and the technologies that the market has developed to exploit them are tools that AT is already using to face an increasingly more world. changing.
On the other hand, the AT has to strengthen its current powers, requiring additional powers that increase the fraud detection capacity. In this sense, having massive information on establishments that sell through credit cards, volume of expenses of credit card users, amounts paid on trips abroad, information that allows better control of capital gains, among others, constitutes a challenge for the future. In addition, it should be ensured that the obligations to report are effectively fulfilled, so that stronger sanctions should be established for those who prefer to protect their clients, who make deliberate errors in the delivery of information, deliberately delay the delivery or rectify their declarations of information.
3. AT powers to request information from taxpayers in the international arena.
3.1 Exchange of tax information between administrative authorities.
The globalization and liberation of the international economy accompanied by adequate legislation, which has reduced the obstacles to investment and foreign exchange, has translated into the internationalization of the commercial-economic world.
In the international concert, the issue of the exchange of information on tax matters between administrative authorities has become one of the main concerns, since it is considered essential at the time of considering a policy that seeks to combat tax avoidance and avoidance.
The primary objective of international collaboration is to help the authorities to correctly determine the scope of application of a convention, to allow the provision of information for the correct application of internal laws, and is also an effective mechanism to prevent tax avoidance and avoidance. The exchange of information is not only reduced to the existence of a tax offense, it is also linked to the idea of fraud prevention, and therefore, to the law itself.
Within this context, international practice has been structured on the basis of concluding agreements that regulate this matter. These agreements may be specific on the exchange of information, either bilateral or multilateral, such as the Council of Europe Multilateral Convention or the Nordic Convention on Mutual Assistance in Tax Matters, or they may be specific provisions within an agreement to avoid double international taxation normally held between two countries.
This last mechanism is the most widely used in international practice. Interested countries negotiate and agree on provisions within this context, provisions that are an integral part of the general agreement. In this regard, the most well-known and important models of the agreement to avoid double taxation, the Andean Pact Model and the OECD, contain an article that specifically contemplates the exchange of information between competent authorities as an effective means of preventing and combating tax avoidance and avoidance., which have served as the basis for a large number of bilateral agreements.
From the analysis of the most used instruments, it can be established that there are certain obligations or actions that may be required from the administrative authority, such as:
- that when faced with the request for information, the competent authority must adopt all the measures aimed at obtaining it, within the scope of its competence; that the refusal of one party to respond to the request for information of the other must be founded; A requested State must authorize in its country the presence of supervisors from the state that requires the information; that the authorities must facilitate reciprocal consultations as well as the exchange of experiences regarding the flow of information; that the information obtained by virtue of a requirement only It must be used for tax purposes.
Chilean practice has leaned towards the formula of general bilateral agreements. To date, Chile has not entered into any agreement that specifically regulates the exchange of information, but it has included special provisions in the fourteen agreements to avoid double taxation that it has signed up to now, also being the Chilean position in current and future negotiations taking place on this issue.
The agreement to Avoid Double Taxation between Chile and Canada, signed in January 2000, includes a special article regarding the exchange of information (Article 26), which is based on the OECD Model, but to which a new numeral with a view to further strengthen this exchange.
On the other hand, the Agreement between Chile and Argentina to Avoid Double Taxation, which has been in force since 1986, provides in its article 22º under the title "Queries and information" the power of the competent authorities to carry out consultations and exchange information tending to the application of the Convention itself and to the application of controls to avoid tax fraud and evasion, considering the information obtained as secret. However, to date, this standard has not been put into practice, which does not allow it to adequately determine its real and practical scope.
3.2 The main obstacles to the exchange of information.
Problems in implementing an effective information exchange system with various countries. First, all TAs strive to maintain efficient administration on a limited budget. The use of different languages and formats has brought with it great difficulties and problems. One of the great challenges is to encourage standardization for all types of exchange. This is perhaps one of the most necessary and urgent joint efforts of the administrative authorities.
Here are some of the most common problems that arise in the area of information exchange:
I. Sending a request for information on the most frequent problems that arise in the area of information exchange:
- The request refers to taxes not contemplated in the Convention. Most Conventions are limited to income and capital taxes. The request for information is sent by a local tax official without authorization by the Competent Authority to make such request. The country making the request has not exhausted its Internal remedies to obtain the information The country making the request requires information that it is not possible to obtain under its internal legislation The legislation of the country making the request does not provide for the protection of confidentiality and, therefore, cannot guarantee that the information received is used appropriately.
I. Sending a request for information - practical problems:
- Insufficient information is given to identify the taxpayer. The request is made in the local language, without translation. The attention to the request represents an excessive burden for the administration to which the request is made (both in terms of financial costs or human resources).The request is not clear (the type of tax is not indicated, the years to be audited, etc.). The existence of Statutes of Limitations the aspect of time is, in many cases, a crucial factor in tax assessment.
I. Problem to answer requests:
- Lack of knowledge of foreign languages by the local administration. The time required to deal with the request is very long due to the limited resources available. The existence in some countries of bank secrecy may prevent the collection of the requested information.
3.3 Chile: its internal legislation
From an internal perspective, the exchange of information that takes place between the different organisms in charge of carrying out the tax policy is essential, either between entities belonging to the same level (horizontal exchange) or between bodies located at different governmental levels (exchange vertical information). Whatever the case, in Chile the body in charge of managing said exchange in the Internal Revenue Service.
This is due to the fact that according to Chilean internal legislation, said body is responsible for the application and supervision of all internal taxes currently established or established, fiscal or other in which the Treasury is interested and whose control is not specially entrusted. by law to a different authority. Precisely, it is the Director of this body who is responsible for administratively interpreting the tax provisions, setting standards, issuing instructions and issuing orders for the application and supervision of taxes. (Article Nº 6 of the Tax Code).
According to what was reported, the internal legislation of several countries empowers administrative authorities to use their discretionary power and grant administrative assistance to other countries. This is a very interesting area of development among the administrative authorities of the different countries that unfortunately has not been elaborated or used.
As for the exchange of information with other tax authorities, the Chilean law grants the SII Director express powers in this regard, which are not subject to the conclusion of an international agreement.
The Tax Code indicates that it is the Director of Internal Taxes who is responsible for maintaining the exchange of information with the Internal Tax Service of other countries for the purposes of determining the taxation that affects certain taxpayers. This exchange of information must be requested through the appropriate Ministry and must be carried out on the basis of reciprocity, being protected by the rules regarding the secrecy of tax returns.
Although the exercise of this power does not require an international agreement, from a practical perspective, the adoption of administrative agreements that serve as a regulatory framework to facilitate the implementation of this exchange is recommended, making it more efficient and effective.
In any case, this legal power of the Director is insufficient, since it has been understood limited to the exchange of information only with respect to a particular taxpayer, a general or partial exchange that is not related to the case of a specific taxpayer being inappropriate.
For this reason, and by virtue of Law 19,506, which came into force in July 1997, important modifications were introduced, granting the competent bodies the necessary powers to expand the scope of information required, but in this case in the context of an international agreement.
This law expressly conferred on the Director of the Internal Revenue Service the attribution, responsibility and obligation to maintain contacts with foreigners that are convenient to avoid the avoidance and evasion of taxes in the intentional field.
Thus, the attribution, responsibility and obligation of the Internal Revenue Service was established as the supervision of compliance with the Chilean tax law with respect to income generated abroad and international agreements on tax exemption, elimination of international double taxation. or on the exchange of information, together with the power to collect antecedents and to program and carry out detection tasks for foreign or Chilean entities or persons that carry out activities in Chile or abroad, under conditions of marginalization of taxation, avoiding or evading the taxes that according to the laws would be due to the State of Chile, and likewise, with respect to foreign companies to which remittances are made from Chile for various concepts,and prepare inspection plans to combat circumvention and evasion in the international tax area.
Along with the foregoing, it was also granted the responsibility linked to the fulfillment of the function of "Competent Authority" under the Tax Treaties, especially in relation to the exchange of information.
TAX HAVENS
Although there are regulations in the country, there are still gaps that complicate discovering the path that capitals follow and punishing those responsible.
Tax havens are numbered, or at least those are the plans of the Organization for Economic Cooperation and Development (OECD). These centers are receiving strong pressure from the main economies, as in the case of Cyprus, whose Entry into the European Union was delayed by criticism of its tax scheme.
However, the task does not seem easy. The OECD has included within this category a list of 39 financial centers worldwide that still fall within this definition. Although Chile is not a member of the OECD, in its legislation on tax havens it has basically ascribed the same principles established by the body. And although there are regulations in the country, there are still gaps that complicate discovering the path capitals follow and punishing those responsible. Although an attempt has been made to legislate on this issue, nothing concrete has yet been achieved.
With the process of economic integration, competition between companies in a global market increased, and each country took its own measures to protect its interests and thus ensure that it received an adequate share of the fruits of foreign investment.
Given the variety of tax systems and models, investors naturally began to look for those states that offered more attractive regulations, and destinations began to focus on small islands in the Caribbean and the Mediterranean basin, which offered little or no or minimal taxation, in addition to a fundamental weapon: bank secrecy.
This is how the so-called “tax havens” or preferentially harmful tax regimes were born, which according to the OECD correspond to “a territorial state or dependency with very lax fiscal and financial regulations and which does not maintain any type of fiscal or financial agreement with the rest of the countries ”.
How to recognize them
They correspond to very small nations and more than 90% are islands, which despite having rudimentary economies, basically focused on tourism or agriculture, exhibit a Gross Domestic Product per capita superior even to developed nations. They also have an inordinate number of banks and companies per inhabitant, which is usually a sign of the so-called shell companies.
Tax havens serve three purposes: to provide a place to hold passive investments, to file a paper's profits, and to protect taxpayers against paying taxes in their home countries.
One of the characteristics of a tax haven is that it supposes the institutional concealment of extraterritorial wealth, under the protection of a meager and insufficient tax system. Institutional cover-up occurs basically through two elements: on the one hand, the absence or almost non-existence of a regular tax system, where there is no tax, and on the other hand, the concealment of non-resident income through bank and commercial secrecy, this in order not to provide information.
The consequences
From the point of view of the wealth-generating country, tax havens can be considered a negative element because the tax bases that should be taxed in their respective States are redirected to these destinations, therefore generating a detriment to the public purse. On the other hand, from the point of view of the tax haven it can be understood that it is positive, since it works as a powerful mechanism for attracting foreign investment.
On the other hand, the concealment of information can lead to a presumption of money laundering, in some cases to invent non-existent operations, problems with transfer prices, dislocation of tax bases, concealment of effective income beneficiaries and triangulation of operations.
From the point of view of the audit, it will be considered of greater evasive risk and, therefore, greater care will be taken with those companies that are related or maintain some commercial link with countries considered as tax havens.
A tough battle
Between 1985 and 1994, the Group of Seven (G7) foreign direct investment in the most industrialized countries of the world in a specific number of jurisdictions in the Caribbean and in the South Pacific increased more than five times, reaching more than US $ 200 billion., a growth rate much higher than the group's total foreign investment.
This alerted the OECD, which in 1996 began working on the issue of harmful tax competition, and in conjunction with the G7 developed a list of tax systems that sought to attract investment, reaching a total of 82 jurisdictions, divided into cooperatives and not cooperative, depending on whether they were willing to eliminate the deficiencies in their financial systems or not. This number has decreased over time, as the various states and countries are committed to eliminating these harmful characteristics from their regimes and have now been reduced to 39. Only Liberia, the Principality of Liechstestein, Marshall Islands and Monaco continue to be identified as non-cooperative nations.
To meet its goal of eliminating tax havens, the OECD has defined a program of recommendations that include passing rules to regulate foreign-controlled corporations. In this way, it seeks to impose part of the tax on the taxpayer resident in the country related to the corporation. But she also advises "limiting tax exemptions to avoid double taxation, when it occurs in the context of a harmful tax regime."
The agency has managed to establish information exchange commitments with a large part of the tax havens classified as cooperatives, known as "letters of commitment".
Through these mechanisms, collaboration with states such as Aruba, Bermuda, and Bahrain has been strengthened. Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, Seychelles and San Marino.
But although most of the pressure has been placed on Caribbean states, many of these governments complain that there is no equitable treatment for other tax havens in the heart of Europe. In fact, the Prime Minister of the Bahamas expressed concern that some European countries are reluctant to change their harmful regimes.
The case of Chile
In Chile, the investment platform is regulated by Law 19,840. Article 41D of the Income Tax Law was added to this decree in 2003, which establishes a preferential tax regime for companies incorporated in our country with the contribution of foreign capital and whose sole purpose is investments in Chile. and abroad, but on the condition that its partners or shareholders who own more than 10% of the participation or profits do not come from or reside in the countries included in the OECD list of tax havens.
This measure reaffirms the concern that the Chilean government has over the issue of tax control. Currently, it has a serious system increasingly promoting the exchange of information, the signing of commercial treaties and agreements to avoid double taxation and prevent tax evasion. The general tax rate for foreign taxpayers without domicile or residence in the country is 35%, which is comparatively far from low taxation. Investment attraction mechanisms work through the simplification of administrative procedures, the generation of tax regimes and the reduction of some types of income.
On the other hand, bank secrecy operates in our country. However, in specific cases of fiscal investigation, financial institutions must report such events and therefore in these situations the required information could be accessed.
characteristics
No or merely nominal taxation. The tax charged in one country, derived from income from geographically mobile activities, be it financial services or derivatives, is much lower than the tax that would be applied for the same income in another country.
For some countries, the tax advantages that ultimately classify them as paradises, correspond to the means with which they have to attract foreign investment, at the same time their economy is raised from this point of view, thus even having preferential regulation regarding investments. foreign companies that are made to the detriment of their own investors.
Lack of effective exchange of information. In these countries, it is common to use the so-called bank secret, which prevents obtaining any information about a bank account, even if it is black money. Also the issuance of anonymous debt instruments, or the same administrative practices can prevent the exchange of such information. Another important factor is the absence of a requirement for an annual general audit for companies or the non-request for public registration of shareholders.
Lack of transparency. These regimes give their beneficiaries space to negotiate with the tax authorities, to help the institutional concealment of both wealth coming from abroad and that generated in paradise itself.
Why are they harmful?
Capital diversion. In tax havens, international financial flows and indirectly real investment flows are distorted, affecting the country of origin of the capital.
Image damage. The states see the integrity and equity of their fiscal structures deteriorated, especially in the smaller countries that, because they are considered paradises, are rejected for trade treaties or agreements.
Inequality. By privileging foreign companies or investors on tax issues, they discourage compliance by local taxpayers.
Phantom Needs. These states are forced to reshape the desired level and composition of taxes and public spending, to satisfy demands that come almost exclusively from foreigners, such as excessive amounts of banks, companies, etc.
- Tax deviation. The lowering of taxes forces the transfer of the tax burden to less mobile tax bases such as work, property and consumption. Minimal benefits. This system hurts the paradise country itself, because although they receive a large amount of foreign investment, the profits they obtain from them are very low, due to the preferential rate of taxes they apply.
CONCLUSION
The main objective of this work has been to give a brief overview of the Chilean Tax Administration, in terms of its powers, difficulties it encounters in carrying out its work of Application and Inspection of tax obligations in the context of Globalization and Liberalization of the Economies of the current world.
Within this context of Globalization, it is imperative to give greater powers to the Internal Revenue Service, for its inspection tasks, especially with regard to bank secrecy.
Undoubtedly, the Chilean Tax Administration has been characterized by high technological development, reaching 97.04% of income tax returns filed on the Internet this tax year 2006, which is a milestone and an example in the globalized world. world level today.
The exchange of information between the various TAs constitutes a great need in the improvement of the inspection processes, due to the high international exchange that is taking place between the countries at present, undoubtedly the so-called Tax Havens, they should regulate their legislation if they want to integrate on equal terms with the different TAs of the world in the new existing scenario.
BIBLIOGRAPHY
- Decree Law No. 825, on Sales and Service Tax, Edition 2005. Decree Law No. 824, on Income Tax, Edition 2005. Decree Law No. 830, Tax Code, Edition 2005. Internal Tax Service website www.sii.cl.
INDEX
- Introduction 1Why does the Internal Revenue Service require information? 2 The attributions of the Internal Revenue Service for the 9 obtaining and handling of information at the national level. Exchange of tax information between 19 administrative authorities. Tax havens 26 Conclusion 32 Bibliography 33
