Te Wiki o te Tāke; assessing trust in the tax system. Parliament’s enquiry into cryptocurrencies and the ATO launches a crackdown on disguised undeclared foreign income

Earlier this week the International Federation of Accountants, in cooperation with the Chartered Accountants Australia and New Zealand (CAANZ) and the Association of Chartered Certified Accountants, issued the third edition of the Public Trust in Tax Study. This is an international study carried out across 8000 people in the G20 countries and New Zealand. These people were asked questions about who they trust in the tax world.

This is the first time this survey has been carried out since 2018 and there are some really interesting findings in here. People continue to have the highest level of trust in professional tax accountants - 55% highly trust them, with professional tax lawyers coming in at 50% and NGOs at 37%.

Now one of the most interesting findings, and one which is very encouraging around the world, is that trust in government tax authorities has improved from a net 2.7% to 14.9% - an almost six-fold increase. But that said, you’ve still got quite a split on that, as you might expect, with 43% saying they trust or highly trust the tax authorities, while 22% say we distrust them or highly distrust them. Politicians still have work to do because they have a net 22.8% distrust.

In relation to media, and this is quite relevant because there's quite a bit of debate going on at the moment around media reporting, has a net 0.1% positive, but 41.9% distrust or highly distrust social media. The lowest level of trust was in New Zealand were just 13.4% of respondents had trust in social media.

Now, across the G20, 48% of the population are satisfied with the ease and efficiency of their dealings with tax authorities, that’s slightly down from 2018. But people strongly support the use of tax incentives to support sectors affected by Covid-19, with an overall 66% support for that. There's also support for tax incentives to target what are described as global megatrends, such as climate change and the ageing population.

However, this is really quite interesting because it seems contradictory, 49% support the use of tax incentives to attract multinational businesses. However, support for international tax collaboration has fallen in 15 of the 20 countries sampled since 2018. And here in New Zealand, support for incentives to attract multinationals was bottom. New Zealanders saw it as very unimportant, with only 21% supporting incentives.

New Zealanders were also the least likely to believe in the importance of intergovernmental competition on tax matters, which incidentally was also the position back in 2018 when this survey was last held. New Zealanders were also more inclined than most other countries to require multinationals to disclose country by country tax information.

And this is where there's been a big shift, because in 2018, 12 of the sample countries said tax information should be made publicly available. But in this current survey, only six countries, including New Zealand, supported it, with the main shift being towards the information should be made available to authorities but not publicly.

Inland Revenue will be very encouraged that when questioned about the least burdensome tax filing processes, New Zealand comes top with 81.8% of respondents reporting less than one week's time spent each year. And New Zealanders also felt that Inland Revenue ranked highly in the overall fairness of the process and interacting with tax authorities. So again, that's good work for Inland Revenue. And, of course, this will have started to take account of the impact of Inland Revenue’s Business Transformation programme.

So it's quite an interesting survey overall.  I think the thing that catches my eye is this sort of shifting mood around multinationals and international cooperation. And I think something that tax authorities need to be paying more attention to is that the public is probably not really aware of just how much information sharing is going on. Reading between the lines here, there's a bit of unease about that.

But the fact that people also prefer tax incentives to attract multinationals is quite interesting to see as well, because those tradeoffs mean there are tradeoffs for overall revenue. But obviously the belief is that more multinationals mean a higher tax revenue. New Zealanders, however, would appear to be very sceptical of that. And that's probably because we're not one of the largest 20 countries in the world, so that the issue of multinational investment and its benefits is rather greyer for New Zealand than it might be in other countries.

Cryptos and tax

Moving on, the Finance and Expenditure Committee announced an enquiry into the current and future nature impact and risks of cryptocurrencies and called for submissions last month. These submissions are now publicly available. They received nearly 270 of them from a variety of people, including one from Satoshi Nakamoto, who is apparently quite important in the crypto world. (Assuming it is him).

The Reserve Bank drew attention for its submission where it really was very sceptical about the future worth of cryptocurrency and in fact, made a couple of references to their potential involvement in tax evasion.

PricewaterhouseCoopers and Chartered Accountants Australia and New Zealand also made submissions, and the Chartered Accountants Australia and New Zealand submission is actually quite well worth reading. It was submitted a couple of days before the new Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill was released, which actually addressed some of these issues.

In its summary, CAANZ said that the taxation of cryptocurrency in New Zealand remains problematic and

The taxation of cryptocurrency in New Zealand remains problematic. Application of the current tax rules results in material inconsistency and the Government legislative response has been light. We believe a comprehensive framework is needed.

The CAANZ submission is actually a good little precis of the current state of the tax treatment of crypto currencies and what Inland Revenue guidance has been issued.

The submission says it seems sensible to remove cryptocurrency from the GST rules, but in relation to the financial arrangements rules, it believes that's not quite as clear cut as it might be thought. CAANZ believes that there are both pros and cons to making this change, depending on the nature of the coin and the taxpayer specific circumstances.

What it summarises is there's a need for a comprehensive framework that allows cryptocurrency to fit into the existing tax rules. It's needed to give simplicity and clarity and reduce compliance costs, because as CAANZ quite rightly points out, the existing tax rules are generally well understood and can be applied to existing and new cryptocurrency overall guidance. And I think that’s where Inland Revenue is trying to head. But it’s moving forward cautiously on this.

CAANZ asked about of its 600 members if they held cryptoassets themselves, if their clients did and if so had they sought advice?  They got a reply from about 300, with many expressing concerns about the time and cost involved in keeping accurate and detailed records. And they thought that significant taxpayer education is required because there was a feeling that the rules were unclear, and that people did not understand the rules as well as they should do. So an education campaign was required.

Some interesting stuff there. And no doubt we'll probably see some further submissions from CAANZ on the new tax bill.

Concealed foreign income

Across the ditch, the Australian Tax Office has released an alert on what is called concealed foreign income. What it's concerned about is that people are misrepresenting foreign income as a gift or a loan from a related overseas entity such as a family member, friend or a related company or trust.

It is basically saying all those taxpayers deliberately omitting foreign income, concealing their interests in foreign assets or making false claim for deductions in their tax returns, will face substantial penalties, including possible sanctions under criminal law. Now, the ATO Alert also sets out guidance as to how to document genuine gifts or loans from overseas related entities where the funds are not used for income producing purposes.

Now, this is of interest because often where the ATO goes, Inland Revenue will follow. And at the moment we know Inland Revenue is assiduously working through information it’s received under the Common Reporting Standard Automatic Exchange of Information which should cover foreign income. But it is one of those areas that myself and other colleagues persistently see - people have overseas income and are not entirely clear about their obligations in relation to it.

In most cases, they're reporting it in the jurisdiction in which the assets are situated, but not reporting it here because there is this idea that double taxation means if it's being taxed over there so it doesn't get taxed here. So disabusing people of that misconception is something we're working on constantly. And again, this is also a question of perhaps more Inland Revenue guidance allied with an education campaign.

Covid support update

And finally, just a quick reminder that applications for the third round of the wage subsidy opened last Thursday and are open until 11.59 p.m. on 30th September.

What you’ve got to keep in mind here is that if you miss one of these subsidy rounds, that's it. No retrospective applications are allowed. And I've seen one or two instances where people have not realised this and have missed the opportunity to claim a wage subsidy. So be alert. We may be seeing more in this space. The resurgence support payment is still available and as I mentioned last week, there may be further rounds to come.

That's it for today. I'm Terry Baucher. And you can find this podcast on my website, www.baucher.tax  or wherever you get your podcasts. Thank you for listening and please give me your feedback and tell your friends and clients. In the meantime, kia pai te rā, have a great day!

The Week In Tax · IFAC report surveying public trust in G20 tax systems, FEC inquiry on cryptocurrencies & more