The role of judicial cooperation in the fight against tax evasion and tax avoidance in the CEMAC zone

SECTION II: THE MECHANISMS OF TAX EVASION AND TAX AVOIDANCE

Pandora Papers, Panama Papers, Paradise Papers, Mauritius Leaks, Swiss Leaks, GAFA tax... Very often, the subjects of tax evasion and tax avoidance make news headlines. Scandal after scandal, billions are hidden from tax authorities to the greatest disadvantage of public treasury^83(*). However, it is possible to stop this downward spiral. This can be done by first understanding the different forms of tax evasion and tax avoidance (paragraph I) before delving into their cause and consequences (paragraph II).

PARAGRAPH I: FORMS OF TAX EVASION AND AVOIDANCE

Tax evasion (A) and avoidance (B) can take different forms depending on the circumstances as well as the socioeconomic and political context.

A: Forms of tax evasion

These forms could be analysed at the national (1) and at the international (2) levels.

1: at the national level

Tax evasion at the national level is characterised by voluntary omission to declare, voluntary amount of the amount subject to tax, making fictitious or inaccurate entries in the accounting books, opposition to the action of the tax administration.

a- voluntary omission to declare

When the failure to report is voluntary, this will necessarily imply bad faith on the part of the taxpayer. This bad faith must take place within the period prescribed by law for the declaration for it to be considered as a voluntary omission.^84(*)Among the taxpayer's obligations, there is that of declaring taxes to the competent tax authorities while respecting the legal deadlines. The method and time of declaration will depend on the regime^85(*) under which the taxpayer is placed. The taxpayer further has the obligation to pay the declared taxes whether he has made a gain or a loss.

b- Voluntary concealment of amounts subject to tax

This is when the taxpayer does not declare all income or declares nothing at all. This form of tax evasion is not only common to CEMAC member States but to the majority of the French-speaking countries whose taxation system is declarative. This concealment is favoured by the insufficient means put at the disposal of tax agents to carry out their control.^86(*)

c- Making fictitious or inaccurate entries in the accounting books

The taxpayer has the obligation to keep the accounting books according to the prescriptions of the tax law, mainly the journal, the balance, the balance sheet, the result formation table, the economic, fiscal and financial table, as well as the supporting documents in support of this accounting. The material element of this offense is constituted by the action of making or causing to be made inaccurate or fictitious entries in the journal and the inventory book provided for in the tax Code or in the documents which take their place. The voluntary nature of the breach is expressly required by section 227 of the French tax procedure book. The deliberate making of fictitious or inaccurate entries in the accounting books is done with the aim of understating receipts or income^87(*).

d- Issuance of false invoices

Anyone who intentionally provides false data or who provides erroneous information and who attaches falsified documents commits an offense of tax evasion. At this juncture, the taxpayer organises his insolvency with the aim of showing the tax authorities that the taxable matter no longer exists following bad business or the bankruptcy of his company or enterprise.

e- Opposition to the action of the Tax Administration

In some countries, it is an offense to oppose the action of the tax administration to collect due taxes; this constitutes fraudulent intent. The action of the Tax Administration can be either the control or the request for documents from the taxpayer.

2: at the international level

At the international level, tax evasion can take different forms as soon below.

a- The overstatement of the prices of goods purchase abroad

The fraud here is takes place when goods are imported through an intermediary company established in a tax haven at overstated prices.^88(*)

b- understatement of export selling prices

There are several manoeuvres to reduce the price from an international point of view. The following example may well illustrate this: an exporter from country A sells goods to an importer from country B, then following a devaluation (indexation clause) he issues a debit note representing an additional price (of the initial selling price). The latter is not accounted but paid in the accounts of the importers' bank found in a tax haven. The importer's bank in the tax haven will then loan part of this amount to the managers of the company found country A. The balance is used for placement or investment in favour of the managers of the company found country A.^89(*)

c- The transfer of profits by overstating or understating the turnover or expenses

This makes it possible to reduce the taxable profit of an international group by artificially increasing or reducing expenses or turnover, that is to say, by direct relations between varieties of the same group. Indeed, in a large group, the subsidiaries have ties of dependence and movements of goods and merchandise are numerous. Profit shifting may occur through the sale of assets by an entity located in a high-tax country to a subsidiary located in a tax haven at a low price, followed by a sale by the subsidiary at a high price. A significant profit will thus be localized in the tax haven. Profit shifting is also achieved by artificially reducing or increasing a company's expenses such as service fees, interest and royalties.^90(*)

d- The Remuneration for fictitious services

Fraud can be detected on the occasion of the payment of a fee resulting from a study carried out for the benefit of a natural or corporate person. It can also take place when a royalty is paid for the use of a trademark.

In the first hypothesis, we can cite as example a company that pays at a high price for a study or an expertise to be conducted by a research company located in a tax haven (the more you have charges, the less you pay taxes).

In the second hypothesis, we can cite the fictitious concession of commercial mark. In other words, company A transfers ownership of a mark to a foreign company under irregular considerations.^91(*) Haven examined the different forms of tax evasion at the national and international level, it will now be proper to look at the forms of tax avoidance.

B: forms of tax avoidance

Examining the forms of tax avoidance will warrant us to look at tax heavens as the principal method of avoiding tax, before delving into the other forms.

1- Tax heavens

A tax heaven is a jurisdiction with a very low rate of taxation for foreign investors. In other words, it is a country that offers foreign businesses and individuals minimal or no tax liability for their bank deposits in a politically and economically stable environment^92(*). Tax havens have are primordial in the process of tax avoidance. Without them, big companies and wealthy individuals would not be able to avoid taxes. This is because of their role and impacts.

a- The role of tax heavens in tax avoidance

As earlier mentioned, a tax haven is a country or territory that has deliberately adopted tax laws and policies allowing individuals or companies to minimize their taxes in the countries where they are actually active. Tax havens have the following characteristics:

- They provide tax benefits to individuals or companies, without requiring a real activity on site.

- A very low or even zero tax rate.

- Lack of transparency: these countries have adopted laws or administrative practices that prevent the automatic exchange of information, particularly in the context of tax procedures with other States.

- Legal, administrative or judicial provisions that ensure the secrecy of the identity of the real holders of companies, trusts, etc. or that of the owners of assets or rights.^93(*)

b-The impacts of tax heavens

By depriving States of essential financial resources to finance the fight against poverty and inequality, tax avoidance has a considerable human cost. By definition, tax avoidance is an opaque practice, quantifying its amount is a complex exercise and there are therefore several estimates. In November 2020, researchers from the international Tax Justice network calculated that countries globally lose a total of more than $427 billion in taxes each year due to corporate and personal tax avoidance.^94(*)

If tax avoidance is rampant all over the planet, it is developing countries that are proportionally the most impacted by it. With globalization, developing countries concluded bilateral tax treaties with rich countries in order to attract foreign direct investment. But due to the lack of international rules that gave room to unfair negotiations and the fact that multinational companies have enough means to recruit experts that will examine the tax systems of developing countries in which they carry out their activities in other to device legit mechanisms of avoiding taxes. This made it difficult for these countries to collect taxes from these companies or in taxing their activities. This further creates difficulties given that, most of the developing countries hosting these multinationals are heavily indebted and have very significant needs in terms of financing their public health or education services for, every franc avoided as tax could be invested to improve the quality of life of thousands of people.^95(*)

2-Other forms of tax avoidance

The list below presents known examples of tax evasion:

- Keeping money out of the banking circuit, in cash.

- Gold bullion, leaving no trace of transaction.

- Life insurance, bank accounts and investments held in the name of the insurance company, which frees the contracting party from the obligation to declare the account, while allowing him to control the assets and investments.

- The bank account in Switzerland, now less attractive since this country aligned itself with OECD standards, with banks in Switzerland applying the rule of knowing the ultimate beneficial owner.

- The bank account in Guatemala, where the obligation for a bank to know the final beneficial owner does not exist, thus allowing a lawyer to act as nominee for a client via an offshore company.

- The trust (trust) works according to the principle of the screen, via a donation from a constituent (settlor) who gets rid of his fortune for the benefit of an agent (trustee) who manages it for the beneficiaries, for example charities. All the work of the advisers who make this arrangement consists in complicating and opacifying the scheme so that in the end the agent is no more than a nominee and constituting him the real beneficiary.^96(*)

- Cryptocurrency: digital and decentralized currency of the banking system that operates through a peer-to-peer network^97(*)(an interconnected network)

PARAGRAPH II: CAUSES AND CONSEQUENCES OF TAX EVASION AND AVOIDANCE

The causes (A) and consequences (B) of tax evasion and tax avoidance are many and extremely varied. It would be risky to venture to cite them or to determine which of them is the most practiced or the most determining. However, we can cite a plethora of them being exhaustive.

A: causes of tax evasion and tax avoidance

As mentioned supra, tax evasion and tax avoidance have diverse cause.

1- Causes of tax evasion

Tax evasion is caused by a plethora of factors as seen below.

a- The inadequacy of the tax system

It is often that recognized the tax system of CEMAC members like that of France remains very unequal. It should also be noted that to the inequalities established by the tax law are added the inequalities resulting from the conditions of application of this tax law. Some taxes can be more easily defrauded than others and the means of prevention and control are deliberately not put in place.^98(*)

b- The economic hardship

Majority of taxpayers in developing countries live in poverty. The scarcity of revenues makes it difficult for the inhabitants of the CEMAC zone to pay taxes. Reason why they chose tax evasion.

c- Mentalities

Taxpayers do not have what is called "tax culture". Rare are those who actually pay the tax except certain professional categories such as employees, commercial companies, etc. This is reflected by the absence of the exemplary political and administrative authorities in tax matters by granting themselves undue exonerations and exemptions.

d- Tax pressure

It is often said that «too much taxes kills tax»^99(*). Potential tax evaders would cheat even more if the weight of their taxes is unbearable for them. As a result of this, excessive tax pressure encourages fraudulent behaviours. Some of the fraudsters even consider this form of incivility to be legitimate when they calculate what they taxes imposed on them by the State each year. This position was comforted by ADAM SMITH when he said that "there is no doubt that an exorbitant tax on the order of one-half or even one-fifth of the wealth of the nation would justify, like any flagrant abuse of power, resistance from the people».^100(*) 

e- The quest for easy gain

Some traders (physical or corporate persons) venture in tax evasion so that part of their profits should not be taxed (by increasing fees, hiding receipts, etc.) coupled to the fact that necessary measures for their control are deliberately not put in place. This is also true foro many liberal professions which have numerous possibilities of exempting part of their activities from taxation.

f- Denial of constraints

It is in the sense of the obligatory or binding character of the tax. For Nozick, who refers explicitly to KANT, it is wrong to force an individual to pay a tax to finance goods or services to which he has not consented. It is therefore legitimate to resist taxation through tax evasion, tax avoidance or tax revolt. For him, tax evasion, tax competition, tax avoidance, tax revolts are good because they force governments to choose means that respect individual rights to achieve their ends. Added to the causes of tax evasion, they are also factors responsible for tax avoidance.

* ⁸³ www.oxfamfrance.org/inegalites-et-justice-fiscale/evasion-fiscale-definition-consequences-solutions/ accessed on 04/03/2022.

* ⁸⁴Ghislain Kavula Mwanangana, La problematique de la fraude fiscale sur le développement de la république démocratique du Congo (on line) mémoire :licencié en droit, Université de kinshasa 2006 (accessed on 04/03/2022) available on https://www.memoireonline.com/12/06/303/m_problematique-fraude-fiscale-developpement-republique-democratique-congo3.htm  

* ⁸⁵ In the case of Cameroon, we have; The Discharge Tax Regime, The Simplified Regime (RSI) and The Regime of the Real

* ⁸⁶ Ghislain kavula Mwanangana, Op.cit.

* ⁸⁷ Ibid.

* ⁸⁸ Ibid.

* ⁸⁹ Ibid.

* ⁹⁰ Pierre Aubry, La Suisse et l'Europe : la Suisse dans la constellation des paradis fiscaux, Séminaire de science politique, mars 2003, p. 10 ; cited by Ghislain Kavula Mwanangana, La problematique de la fraude fiscale sur le développement de la république démocratique du Congo, mémoire : licencié en droit, Université de kinshasa 2006.

* ⁹¹ Ghislain kavula Mwanangana, Op.cit.

* ⁹² www.investopedia.com/terms/t/taxhaven.asp accessed on 06/03/2020.

* ⁹³Op.cit. note 80.

* ⁹⁴Ibid.

* ⁹⁵Ibid.

* ⁹⁶ Le Matin (Suisse), 14 février 2010, Les sept techniques de base pour devenir un parfait évadé fiscal, par Sonia Arnal, p. 29

* ⁹⁷ Thomas Chenel, « Les cryptomonnaies facilitent des activités criminelles et la fraude fiscale, insiste l'OCDE » [archive], sur Business Insider France, 2 mars 2021 (consulté le 6 juillet 2021)

* ⁹⁸ Ghislain kavula Mwanangana, Op.cit.

* ⁹⁹"Too much tax kills tax" Legend has it that the inspiratorof this formula, the contemporary American economist Arthur Laffer, scribbled on the corner of a table curve that was going to make him famous. This graph showed that raising taxes inevitably leads to falling tax revenues. Arthur Laffer's theory earned him the attentive ear of Ronald Reagan and today of Donald Trump.

* ¹⁰⁰Bertrand Lemernicier, L'évasion fiscale est-elle un devoir moral ? in revue éthique, octobre 2001.