Both sections 2 and 3 are aimed at contributing to a discussion on appropriate responses and tools. To illustrate how these ideas might be put into effect, draft model provisions are included as annexes to this paper.

# 2. Attributing Income Received Offshore to Resident Individuals

Tax policies that address the risks posed by wealthy individuals who control significant assets at home and abroad but use offshore structures to manage their holdings and minimize their taxes matter for developing economies.<sup>24</sup> This typically involves multiple entities in a variety of offshore jurisdictions. Trusts are often used because they are very flexible, which is also one of the reasons why trusts are used for entirely legitimate purposes, such as the management of the affairs of individuals who lack the capacity to make decisions for themselves. The formal documentation of a trust does not always disclose the true purpose of the trust arrangement. In some cases, the trust deed may suggest that there is a charitable purpose by mentioning a wellknown charity as one of the potential beneficiaries. In reality, the trustees in the offshore jurisdiction will often manage the trust’s assets in accordance with the instructions of the person who actually controls the trust. Using structures that include a mix of corporations and trusts established in different countries may make it harder to detect the true owner. It can also make it hard to establish a charge to tax if the tax legislation does not permit the tax authority to look through the structures and attach a liability to the true owner.

So, the desired tax policy outcome is the ability to attribute to resident individuals income and capital gains accruing to entities they control but that are held through complex and opaque structures in offshore jurisdictions. In the absence of an effective income tax charge on these types of structures, there is a clear incentive to use them to legally avoid a domestic charge to tax. Introducing a charging provision will bring this income back within the tax base of the jurisdiction concerned. However, the use of these structures is not confined to legal tax avoidance. It is common for it to be associated with deliberate tax evasion and other criminal activity, including corruption. One of the ancillary benefits of an effective charging provision, coupled with increasing international exchange of information, is that it should help deter corruption, which often involves cash payments into offshore accounts. The link between tax evasion and other criminal activity including corruption is well established.<sup>25</sup> Having an effective charge to tax on income diverted into offshore structures is therefore a necessary part of the wider fight against corruption and other forms of criminality. It is the policy corollary to the improved access to information about such structures that is resulting from the Common Reporting Standard and increased international cooperation between tax administrations and between tax administrations and other arms of law enforcement.

Anglo-Saxon jurisdictions (US, UK and Australia) have enacted specific rules, particularly targeting trusts. Typically, a charge may arise on the settlor (person putting wealth into the trust) and/or the beneficiaries. To be effective, charging provisions should not be limited to trusts but should apply generally to arrangements that may be exploited to exclude income from a charge to tax. So, for example, the UK has provisions known as the “settlements

> 24 The leaked data contained in the Mossack Fonseca and Paradise Papers illustrate the lengths some tax avoiders and evaders will go to disguise their ownership of assets and minimize their taxes. As discussed in Alstadsaeter et al. (2018) several developing economies that feature prominently among the countries that generated a lot of shell companies relative to the size of their economy also have high offshore wealth-to-GDP ratios. Similar observations apply to corrupt officials who commonly rely on corporate vehicles to conceal their identities. These include shell companies in offshore jurisdictions, trusts and foundations (WBG 2011).

> 25 For a recent discussion of the close relationship between tax crimes and corruption see OECD-WBG (2018).

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