Legal Alert – The Government Proposes New Legislation Concerning Tax Amnesty on Voluntary Disclosure
The government has recently given a proposition concerning a process called voluntary disclosure.
Voluntary disclosure refers to a tax amnesty programme whereby a taxpayer discloses to the Tax Authorities income and/or assets not previously disclosed, and by doing so voluntarily, is exempt from criminal liability or prosecution associated with previous non-disclosure. Preventing criminal proceedings is a key matter for the purposes of the new Act.
The regulation of the new Act follows the current international development concerning the prevention of tax avoidance and tax evasion. The new Act aims to increase tax revenue by encouraging taxpayers to voluntarily disclose the income that has not been reported earlier.
Equivalent regulations concerning voluntary disclosure have already been in use in several countries. In Finland, the legislation is intended to be in force for a fixed one year period in 2016.
Scope of application
According to the proposition, voluntary disclosure is applied to individuals and domestic estates which voluntary disclose income not previously reported. The regulation covers income taxed under the Income Tax Act and assets taxed under the Inheritance and Gift Duty Act.
The new Act only applies to rectifications based on information of income reported voluntarily. The Act does not apply to income or assets derived from criminal activity. Therefore, the request for rectification should also include clarification of the source of the income or assets in question.
Regressive reassessment of taxation
In general, taxation may be reassessed for five years. To eliminate the risk of the taxpayer’s criminal liability or prosecution, the Act exceptionally enables income taxation to be corrected for the fiscal years of 2004–2015. In claims of adjustment regarding inheritance and gift tax, the equivalent time is 11 years from the time of execution of taxation or when the taxpayer should have disclosed the income to the Tax Authorities.
In addition to the tax imposed based on the voluntary disclosure of income or assets, the taxpayer is imposed a punitive tax increase, which accounts for a certain percentage of the amount of the taxable income.