Defending multiple fronts – the prevalence, perils, and best practices of parallel civil and criminal tax enforcement proceedings
Luis Enrique Torres Asomoza
Von Wobeser y Sierra, Mexico City
Report on a panel discussion at the 16th IBA/ABA US and Latin America Tax Practice Trends Conference in Miami
Friday 14 June 2024
Session chairs
Caroline Ciraolo Kostelanetz, Washington, DC
Alejandro Torres Von Wobeser y Sierra, Mexico City
Speakers
César Cermeño Martínez Quintero Mendoza González Laguado & De La Rosa, Bogotá
Flávia Leardini Mattos Filho, Sao Paulo
Jeffrey Neiman Marcus Neiman Rashbaum & Pineiro, Fort Lauderdale
Luis Marcelo Núñez PAGBAM, Buenos Aires
Luis Suárez de Centi Uria Menéndez, New York
Introduction
The chair commenced the session by outlining the key subjects that the speakers would cover regarding the implementation of civil and criminal tax regulations across different countries.
Additionally, he provided a concise introduction to tax loopholes and the investigative tools employed by authorities in criminal proceedings. He also underscored the significance of the Pandora papers, and the widespread impact this phenomenon has had on various countries.
Panel discussion
Mexico
Alejandro Torres began by pointing out that Mexico has ramped up efforts in the past year to tackle tax evasion and erosion by focusing on jurisdictions where taxpayers pay less than 75 per cent of their owed taxes in Mexico. This targeted approach aims to uphold compliance with tax obligations in the origin countries, preventing capital flight and safeguarding essential tax revenues vital for national development.
To achieve these goals, Mexican authorities have adopted advanced strategies. They collaborate across institutions to maintain a comprehensive taxpayer database, bolstered by artificial intelligence (AI) technologies for in-depth analysis. This combination enables the identification of suspicious transaction patterns that may signal tax evasion. At the beginning of each fiscal year, authorities announce sectors subject to intensified scrutiny, enhancing audit precision and acting as a deterrent to potential tax dodgers.
Mexico’s legislative framework is robust, emphasising measures against tax evasion and money laundering. Alongside routine audits, significant findings may prompt criminal investigations, ensuring rigorous enforcement and reinforcing the nation’s commitment to transparency and fair tax practices. These efforts underscore Mexico’s proactive stance in maintaining tax integrity and fiscal responsibility.
Colombia
In Colombia, there is growing concern about administrative issues potentially escalating into criminal matters. The Colombian judicial system is bifurcated into distinct authorities – one for administrative issues and another for criminal matters. However, the courts in Colombia have established guidelines governing the interaction between these authorities, adding complexity to the situation.
César Cermeño explained that direct tax offences, such as failure to withhold taxes and tax evasion, as well as indirect tax crimes, are treated with utmost severity. There is significant pressure from tax authorities, leading to stringent and often rigid enforcement of the law.
This case underscores the urgent need for reform in Colombia’s judicial and administrative systems to ensure that penalties are proportionate to the offences committed, and that each case’s unique circumstances are duly considered.
Brazil
Flávia Leardini established that in Brazil, offences related to tax evasion generally require awaiting the completion and resolution of administrative proceedings. Prior to 2019, investigations into tax and criminal offences were conducted concurrently. However, recent regulations have introduced a more streamlined approach where taxpayers must first resolve the administrative aspect.
Initially, taxpayers are informed of both administrative and criminal proceedings and have access to information about both. However, criminal proceedings are temporarily halted until the administrative process concludes. Once this administrative phase is finished, taxpayers are invited to settle any outstanding tax liabilities, and an investigation is initiated to ascertain if fraud has occurred.
Overall, Brazil’s current system strives to balance the enforcement of tax and criminal laws, offering taxpayers a clearer and more organised framework for addressing their tax obligations. Nonetheless, it also poses challenges in managing the pressures exerted by tax authorities on taxpayers.
Argentina
Luis Marcelo Núñez mentioned that Argentina is entering a new phase in tax administration under the current government’s vision, which aims to achieve economic stability, growth and security. This vision hinges on establishing a reliable tax administration that fosters transparency and encourages voluntary compliance among its citizens.
Argentina’s tax landscape is intricate and continually evolving, with civil and criminal tax proceedings running concurrently and being deeply interconnected. The Supreme Court of Argentina plays a pivotal role in shaping tax and criminal laws; upcoming changes in government policy and potential new legal frameworks are expected to impact the tax system and ongoing tax and criminal litigation significantly.
Spain
Luis Suárez de Centi commented that the tax process in Spain typically commences with a tax audit, which can take up to 18 months. If any indication of a tax offence emerges during the audit, the information is relayed to the relevant authorities, who may exert pressure on the taxpayer to rectify their tax situation. The administrative process is put on hold if a criminal proceeding is initiated. If the taxpayer opts to settle outstanding taxes, the criminal proceeding is discontinued.
In recent years, the tax authorities have made significant strides in gathering and utilising information, enhancing their efficiency and sometimes intensifying audit practices. The automatic exchange of information within the European Union has further bolstered audit capabilities, enabling stricter monitoring of taxpayers and their assets across various jurisdictions.
Moreover, international treaties have gained prominence, particularly since the Pandora Papers scandal a decade ago. This event marked a pivotal moment, exposing sensitive information that has since catalysed numerous legal and administrative proceedings.
United States
Jeffrey Neiman explained that in the US, the Internal Revenue Service (IRS) and the Department of Justice (DoJ) share responsibility for enforcing both criminal and civil aspects of tax laws. The IRS conducts investigations and audits but requires the DoJ to represent it in court proceedings.
The US has established several priorities to address both civil and criminal tax issues. These include litigation related to foreign bank accounts, aggressive tax planning, dual citizens failing to report income, failure to disclose foreign assets and concealing income from lawful sources.
Conclusion and final remarks
In recent years, countries have taken on the responsibility of fighting various issues, including tax evasion. Efforts have been made to implement tools aimed at reducing aggressive tax strategies and exploiting loopholes that allow individuals and entities to evade or minimise tax payments. For such situations, the Pandora Papers and the Panama Papers have been topics of discussion in the countries mentioned in the panel.
Although the Pandora Papers and the Panama Papers list celebrities and/or politicians from a diverse group of countries, and most of these cases have led to administrative proceedings but not to criminal charges, the panel urged attendees to be careful with the strategies they advise to their clients, and to maintain an adequate communication of the risk they pose, to prevent aggressive strategies that could have adverse consequences further down the line.