## 1.     Key Recommendations of the Organization for Economic Cooperation and Development 25

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### I. Purpose of this note
- Aim: guide tax administrations considering a program to enhance the tax compliance of HWIs (high-wealth individuals).
- Explains rationale for a specialized compliance program and provides guidance on:
  - defining the HWI population;
  - preparing for a program; and
  - implementing it.
- First steps emphasized:
  - recognize the compliance risks posed by HWIs (complex financial affairs, significance for revenue, tendency to use aggressive tax planning);
  - assess readiness to undertake a HWI compliance program (HWICP) and remedy deficiencies.
- Readiness factors to consider:
  - alignment with the reality of the political environment;
  - extent of authority to monitor and tax HWIs;
  - capacity to engage HWIs and their advisors;
  - sufficiency of information to support a HWICP.
- Implementation approach: use the CRM model as the foundation for the program.
  - CRM seeks to identify the most serious compliance risks and mitigate them using a range of treatments to increase compliance and minimize the compliance gap cost-effectively.
- Interim steps for administrations not ready for full HWICP:
  - monitor HWI compliance to ensure filing and payment obligations are met;
  - build profiles of wealthiest individuals to recognize and address compliance risks systematically.

### II. Characteristics of the High-Wealth Individual
- Definition guidance:
  - No standard definition; generally individuals at the very top of wealth scale.
  - Net worth/wealth = financial assets + real assets (land and buildings) owned by individuals and immediate families, less debts.
  - Wealth definition includes personal wealth and wealth held in trusts and legal entities effectively controlled by individuals and families.
- Preference for wealth-based definition over income-based definition:
  - Income is more susceptible to fluctuation and manipulation than wealth.
- Common financial-sector thresholds:
  - HNWI commonly defined as total wealth of USD 1 million or more.
  - UHNWI usually describes those with accumulated wealth of more than USD 30 million.
- Observations from published sources:
  - In 2015, an estimated 34 million HWIs worldwide had accumulated wealth of at least USD 1 million each; these individuals comprise just 0.7 percent of the world’s population but control 45 percent of the world’s wealth.
  - Some 211,000 HWIs globally have total wealth of USD 30 million or more; their combined wealth is estimated to be USD 29.7 trillion.
  - Ultra-high wealth individuals (UHWIs) (Credit Suisse definition: control total wealth of over USD 50 million) numbered over 120,000 globally in 2015.
  - Global HWI portfolio composition (2015):
    - cash: more than one-quarter of portfolio;
    - equities: 27 percent;
    - real estate: 18 percent;
    - fixed income investments: 17 percent;
    - alternative investments (hedge funds, derivatives, currency, commodities, private equity): 13 percent.
  - Wealth concentration:
    - In 2015, the top percentile of wealth holders owned just over half of the world's wealth and the richest decile owned 87.7 percent.
    - In 2014, just 80 people controlled as much wealth as the bottom 50 percent of the world’s population.
  - Income shares trend:
    - Over last three decades the income shares of the richest one-percent have increased substantially in English-speaking advanced economies, China and India.
    - In the United States, the richest 0.1 percent saw their share of income grow from 2.6 percent of total US income to 10.4 percent.
- Tax-relevant features of HWIs:
  - Income derives largely from capital rather than earnings as wealth increases.
  - Capital income streams and foreign-sourced income pose increased compliance risks:
    - withholding and reporting systems often weaker or manipulable for capital income;
    - reliance on self-reporting for many forms of capital income and foreign income.
  - Tax administrations often focus compliance on earned income and related taxes, neglecting:
    - income earned on capital and investment assets (individuals and legal entities);
    - income from abroad.

### III. Why leading tax administrations give special attention to HWIs
- Resource allocation rationale:
  - Limited tax administration resources are focused where revenue risk is greatest.
  - HWIs present substantial revenue risk despite administrative challenges.
- Four reasons from OECD (2009) for special attention to HWIs:
  i. the complexity of their affairs;
  ii. the amount of revenue at stake;
  iii. their opportunity to undertake aggressive tax planning;
  iv. the need to preserve the integrity of the tax system by ensuring that the wealthy pay their fair share.
- Typical elements of HWI compliance programs:
  - A dedicated HWI unit—often within the large taxpayer office (LTO)—with highly skilled officers undertaking risk analysis, audit, and debt collection.
  - Expanded information reporting covering entities and assets owned by HWIs, and mandatory disclosure of certain types of transactions.
  - Measures encouraging voluntary compliance, such as pre-filing agreements, a rulings regime, and carefully designed voluntary disclosure schemes for past non-compliance.
  - Comprehensive checks—risk reviews, audits, and prosecutions for the most egregious offenders—applied according to perceived risk level.
  - Withholding taxes (example: withholding on rental payments reaching HWIs in India).
  - Tightening laws to prevent tax-free private use of assets held by companies, use of companies and trusts to hold income at lower tax rates, and streaming income to “preferential” beneficiaries.
- Main recommendations from OECD publication:
  - gaining an understanding of aggressive tax planning;
  - creating dedicated units to deal with HWIs;
  - improving international cooperation;
  - legislating to target aggressive tax planning;
  - exploring the concept of cooperative compliance.
- Benefits and international relevance:
  - HWICP benefits substantial even for lower-income countries due to domestic wealth concentration.
  - Examples of revenue results from HWI-focused activity:
    - Australian Taxation Office’s HWI audit program (2014–15): yielded AUD 680 million in liabilities and collected over AUD 440 million in cash from 800 compliance activities.
    - United Kingdom HMRC High-Net-Worth Unit (wealth over GBP 20 million): brought in GBP 937 million in additional revenue between 2009 and 2013–14.
    - Indonesia High Wealth Unit (2013): assessments totaling IDR 107 billion arising from compliance actions.
- Role of information exchange and voluntary disclosure:
  - Exchange of information initiatives (e.g., EU Savings Directive 2003, US FATCA 2010) have revealed cross-border tax evasion by HWIs.
  - Many countries have used voluntary disclosure schemes (VDIs) to address past non-compliance revealed by exchanged information.

### IV. What a tax administration should do when considering setting up a HWICP
- First step: assess readiness and remedy obstacles before implementation.
- Four principal areas for assessment:
  A. Alignment of a HWICP approach with the realities of the political environment.
  B. Extent to which fundamental legal authority and taxing rights are present.
  C. Capacity of the administration to engage HWIs and their intermediaries.
  D. Availability of necessary data and information.
- Purpose of the assessment: identify legal or procedural obstacles and address them before program implementation.
- Alignment detail:
  - Focus: whether HWICP objectives are consistent with political and economic realities.
  - Consider public and media perceptions of fairness and necessity of a stronger compliance program for HWIs.
  - Resolve inconsistencies as far as possible.

### Box 3 — Alignment with Political, Economic, and Social Environment (selected points)
- Political Environment:
  - Direct support of the responsible Minister and his Cabinet colleagues is important.
  - HWIs often hold political posts or are Members of Parliament, may back political groups, and have access to high levels of government.
  - Without broad and high-level political support, some HWICP tools may be unusable.
- Economic Objectives:
  - Governments may offer tax incentives to attract or retain HWI-controlled wealth; incentives include legislated tax exemptions and holidays, lower tax rates, delayed payment, etc.
  - Before initiating a HWICP, tax statutes should be reviewed to identify conflicts between tax policies/incentives and HWICP objectives.
- Public and Media Acceptance:
  - Public understanding and acceptance of a HWICP is important to maintain integrity and credibility of the tax system.
- Fairness:
  - Targeting HWIs for compliance focus is justified by limited resources and revenue risk; a strong communication program is needed to address fairness objections.
- Judicial History:
  - Courts may limit access to financial records or delay decisions; many audit assessments will likely be appealed and HWIs can pursue protracted litigation.

### B. Legal Authority to Support a HWICP (selected points)
- Key legal issues to address:
  - (i) Whether tax laws are extensive enough to tax the full scope of HWI income.
  - (ii) Whether the tax administration has authority to gather information and enforce the laws.
  - (iii) Whether there is specific anti-avoidance legislation.
  - (iv) Whether privacy laws specify protection and proper use of HWI data.
- Taxation Authority Over Income Streams:
  - Tax laws may be underdeveloped for income from equities, capital gains, and alternative investments.
  - One report estimates that HWIs, on average, hold 57 percent of their wealth in equities, fixed income and alternative investments.
  - Reviews may reveal forms of personal income exempted or omitted from taxation.
  - Alternative investments cited include private investment funds, private annuities, hedging transactions, commodity trading, financial derivatives, futures trading, currency trading, precious metals trading, oil and gas earnings, and collectibles investing.
- Authority to Gather Information and Enforce Laws — six broad questions:
  - Authority to gather, maintain, and analyze high wealth data (some laws limit data gathering to formal audits).
  - Authority to engage HWIs outside standard audit structure (advisory visits, reminder notices may be prohibited in some jurisdictions).
  - Sufficiency of audit authority and timeframes (example: where audits must be completed within 30 days, amendment may be required).
  - Burden of proof for unexplained wealth (to support HWICP, burden of proof should be on the taxpayer to substantiate source of funds).
  - Authority for exchange of information with other jurisdictions (legislation and tax treaties needed).
  - Data security and legal protections to prevent loss, theft, or misuse of HWI information.
- General anti-avoidance provisions:
  - Many tax laws include general anti-avoidance provisions; an IMF Tax Law Technical Note provides a sample GAAR.

### C. Evaluation of Capacity to Engage HWIs and Intermediaries
- Capacity issues to evaluate:
  - (i) Sufficiency of audit function (staff, skills, procedures) for HWI cases.
  - (ii) Availability of a range of other compliance tools.
  - (iii) Availability of procedural and technical guidance.
- Audit Function:
  - Staff requirements:
    - Highly skilled staff with extensive audit experience across PIT, CIT, and capital taxes.
    - Formal qualifications in accountancy, law or economics and in-depth tax code knowledge.
    - Maturity, integrity, and competence to engage HWI advisers.
  - Audit Techniques:
    - Forensic auditing skills are needed (direct proof of income and indirect proof of income methods).
  - Audit Procedures:
    - Simultaneous auditing of HWIs and controlled entities is recommended.
    - Issue-driven or limited scope auditing may be preferable; procedures and manuals may need modification.
- Compliance tools:
  - Administrations should examine the full range of compliance tools and organizational placement needed to support HWICP.
  - Box 4 — Compliance Treatment Tool Box lists items to examine and develop (selected): Legislation; Technical procedures; Tax guidance; Taxpayer outreach; IT applications; Information reporting; Tax withholding; Sanctions; New data sources; Notices and letters; Training; Audit; Collection; Penalties and fines; Criminal investigations.
- Technical guidance:
  - Assess current procedural and technical guidance; include publications, tax forms, notices, outreach, and guidance on income from abroad and anti-avoidance provisions.

### D. Data and Information
- Review adequacy of data across three categories:
  - (i) Extent of information available to identify the high-wealth population.
  - (ii) Degree to which information allows analysis of tax contribution, compliance levels, tax gap, and compliance risks.
  - (iii) Availability of data exchange and international cooperation under tax treaties.
- Access to and adequacy of data should be reviewed and gaps identified.

### Defining the HWI Population and Initial Operational Design
- Start with a small number of HWIs when a compliance program is new.
- Recommended initial group: UHWIs (those controlling wealth of USD 30 million or more).
- It is estimated that the top one percent of HWIs account for 35 percent of all HWI wealth.
- Rationale for narrow focus: concentrate limited resources on a manageable population with significant tax impact.
- A HWI Compliance Strategy (HWICS) should be devised and documented after readiness assessment and remedial actions; possible contents include intent, covered taxpayers, authority, methodology, staffing, approvals, and communications.
- Implementation requires a program management office with permanent staff; responsibilities include risk mapping, articulation of risk, development of compliance treatments, delivery management, monitoring and measurement, and qualitative evaluation.
- Organizational recommendations:
  - Centralize HWICP within its own operational unit reporting to Deputy Director General level or higher.
  - Two areas usually requiring fulltime staff: audit and taxpayer services.
  - HWI audits require highly specialized skills and training.
  - OECD study Tax Administration 2015 shows a variety of HWI to staff ratios, with Canada and Ireland showing a ratio of about 25:1.

### Using the Compliance Risk Management (CRM) Model — Phases and Actions
- CRM key principles:
  - Promote compliance by identifying risks and applying the simplest, most cost-effective treatments.
  - Focus on increasing voluntary compliance as primary objective; tax recovery is secondary.
  - Use quantifiable and achievable outcomes, not limited to enforcement results.
  - Model is cyclical and relies on measurement and monitoring systems with quantitative and qualitative feedback.
- CRM-Based HWICP phases (Phase 1 to Phase 8):
  - Phase 1: Define—Identify the Population
    - Use tax administration data; supplement with commercial media, internet, and purchased data.
    - Build profiles: linked parties, three-year compliance history, four fundamental obligations (registration, declaration, accuracy, payment), total tax payments by tax type, audit history, unpaid tax debts.
  - Phase 2: Identify HWI Compliance Risks (Risk Mapping)
    - Organize risks by tax type, income stream, tax potential, and compliance level.
  - Phase 3: Assess and Prioritize Compliance Risks
    - Prioritize based on compliance outcome and available resources; outcomes include change in voluntary compliance, change in total tax reported, change in total tax collected, impact on tax gap, tax recovery.
  - Phase 4: Analyze Compliance Behavior
    - Determine causes of noncompliance using cross-departmental approach; establish a Compliance Council; engage external stakeholders periodically.
  - Phase 5: Determine Treatment Strategies
    - Select cost-effective tools; consider non-audit and preventative measures; consider cooperative compliance for experienced administrations.
  - Phase 6: Implement Action Plans
    - Specify what, when, how, and by whom; ensure flexibility to adjust plans.
  - Phase 7: Establish Monitoring and Reporting Mechanisms and Performance Targets
    - Define clearly measurable and time-defined objectives; implement quantitative measurement systems.
  - Phase 8: Qualitative Analysis of Outcomes
    - Use qualitative evaluation to add meaning to quantitative results and feed back into risk mapping.

### Risk Mapping and Measurement (Boxes 5–6 highlights)
- Baselines: set at Phase 1 for facets of compliance history (tax paid, returns filed, timely filing, collection history, audit history) for each income stream.
- Trend Analysis: use baseline and successive periods to assess direction and treatment impact.
- Voluntary Compliance Level (VCL): compute VCL for each type of tax return and each of the four fundamental requirements; suggest VCL computations for each income stream reportable by HWIs.
- Tax Gap: tax gap = percentage difference between tax potential and tax actually paid, usually computed over a 12–month period; HWI tax gap is difficult to compute accurately—compute components or estimate.
- Information: supplement tax records with third party returns, other jurisdictions under AOEI, or media reports (mergers and acquisitions, purchase of collectibles, trophy homes) to identify risks or opportunities.
- Sample external stakeholders to engage: Accounting profession; Legal profession; Banking; Investment industry; Civil society organizations; Real estate industry; Ministry of Finance; Securities commission; Banking regulators; Anti-money laundering agency; Fraud investigation units; Local government.

### Summary of Key Points and Recommendations
- HWIs comprise a significant economic sector with substantial tax complexity and significant revenue potential.
- HWI tax contributions account for a large and growing component of overall PIT due.
- Income from HWI financial activities usually takes the form of capital income and often requires self-reporting.
- Tax administrations should:
  - define and identify the HWI population (initially focus on UHWIs controlling USD 30 million or more);
  - conduct a formal readiness assessment addressing political alignment, legal authority, capacity, and data availability;
  - develop and publish a HWI Compliance Strategy (HWICS) with Ministerial agreement and broad political support;
  - establish a fully staffed HWI Compliance Program with specialized audit and taxpayer services staff;
  - use the CRM model to design and carry out HWICS, focusing on identifying major risks, causes, and developing treatments to reduce the tax gap through improved voluntary compliance and enhanced recovery;
  - implement measurement and monitoring systems that provide quantitative and qualitative feedback and update risk mapping annually.
- A wide assortment of tools and treatments is available; many are underused or underdeveloped.

### Appendix 1 — Key OECD Recommendations (summary)
- Gaining a greater understanding of the risks posed by the HNWI segment:
  - examine types of aggressive tax planning (ATP), suppliers of ATP, and HNWI motivations; develop commercial awareness of HNWI concerns (privacy, wealth preservation, intergenerational transfer).
- Building an effective capability to manage tax risk:
  - create dedicated units adequately staffed by experienced officials; establish dialogue frameworks between senior revenue officials, HNWIs and their advisers; balance compliance activities with taxpayer service.
- Improve international co-operation:
  - improve cooperation at strategic and operational levels, including regular meetings between heads of HNWI units and specialists.
- Creating an appropriate legislative framework:
  - target specific ATP risks with a holistic legislative approach.
- Explore application of co-operative compliance to the HNWI segment:
  - consider dedicated contact points; develop pre-filing or advance ruling programs; involve advisers of HNWIs in legislative development affecting their clients; emphasize transparency and disclosure beyond statutory requirements; provide clarity for taxpayers making full disclosures regarding past non-compliance.

- Key statistics and figures (preserved exactly as in source):
  - 34 million HWIs (2015) with wealth of at least USD 1 million each.
  - 0.7 percent (share of world’s population corresponding to those 34 million HWIs).
  - 45 percent (share of world’s wealth controlled by those HWIs).
  - 211,000 HWIs globally with total wealth of USD 30 million or more.
  - USD 29.7 trillion (combined wealth of the 211,000 HWIs).
  - Over 120,000 UHWIs globally in 2015 (Credit Suisse definition: total wealth of over USD 50 million).
  - Portfolio shares: equities 27 percent; real estate 18 percent; fixed income 17 percent; alternative investments 13 percent.
  - Top percentile owned just over half of the world's wealth (2015); richest decile owned 87.7 percent (2015).
  - In the United States: richest 0.1 percent income share grew from 2.6 percent to 10.4 percent (over three decades).
  - ATO HWI audit program (2014–15): AUD 680 million in liabilities; collected over AUD 440 million in cash from 800 compliance activities.
  - HMRC High-Net-Worth Unit: GBP 937 million in additional revenue between 2009 and 2013–14.
  - Indonesia High Wealth Unit (2013): IDR 107 billion assessments.
  - Examples of voluntary disclosure results (Ireland): limited-time offer produced EUR 227 million from around 3,700 voluntary disclosures; follow-up enforcement netted EUR 420 million from 8,500 taxpayers; special investigations in 2004 collected EUR 950 million from 15,000 individuals; VDI and related initiatives netted EUR 2.6 billion from 34,000 taxpayers (at end–2009).
  - United Kingdom VDI (2007): 64,000 account holders accepted offers and paid GBP 450 million.
  - United States VDIs: 2003 VDI—about 1,300 taxpayers paid USD 75 million; subsequent 2009 VDI—over 14,000 taxpayers came forward.

*Source: Technical Notes and Manuals 17/07 | 2017 — 1. Key Recommendations of the Organization for Economic Cooperation and Development 25*

### 1.     Key Recommendations of the Organization for Economic Cooperation and Development 25

### 1.     Key Recommendations of the Organization for Economic Cooperation and Development 25

### I. Purpose of this note
- Aim: guide tax administrations considering a program to enhance the tax compliance of HWIs (high-wealth individuals).
- Explains rationale for a specialized compliance program and provides guidance on:
  - defining the HWI population;
  - preparing for a program; and
  - implementing it.
- First steps emphasized:
  - recognize the compliance risks posed by HWIs (complex financial affairs, significance for revenue, tendency to use aggressive tax planning);
  - assess readiness to undertake a HWI compliance program (HWICP) and remedy deficiencies.
- Readiness factors to consider:
  - alignment with the reality of the political environment;
  - extent of authority to monitor and tax HWIs;
  - capacity to engage HWIs and their advisors;
  - sufficiency of information to support a HWICP.
- Implementation approach: use the CRM model as the foundation for the program.
  - CRM seeks to identify the most serious compliance risks and mitigate them using a range of treatments to increase compliance and minimize the compliance gap cost-effectively.
- Interim steps for administrations not ready for full HWICP:
  - monitor HWI compliance to ensure filing and payment obligations are met;
  - build profiles of wealthiest individuals to recognize and address compliance risks systematically.

### II. Characteristics of the High-Wealth Individual
- Definition guidance:
  - No standard definition; generally individuals at the very top of wealth scale.
  - Net worth/wealth = financial assets + real assets (land and buildings) owned by individuals and immediate families, less debts.
  - Wealth definition includes personal wealth and wealth held in trusts and legal entities effectively controlled by individuals and families.
- Preference for wealth-based definition over income-based definition:
  - Income is more susceptible to fluctuation and manipulation than wealth.
- Common financial-sector thresholds:
  - HNWI commonly defined as total wealth of USD 1 million or more.
  - UHNWI usually describes those with accumulated wealth of more than USD 30 million.
- Observations from published sources:
  - In 2015, an estimated 34 million HWIs worldwide had accumulated wealth of at least USD 1 million each; these individuals comprise just 0.7 percent of the world’s population but control 45 percent of the world’s wealth.
  - Some 211,000 HWIs globally have total wealth of USD 30 million or more; their combined wealth is estimated to be USD 29.7 trillion.
  - Ultra-high wealth individuals (UHWIs) (Credit Suisse definition: control total wealth of over USD 50 million) numbered over 120,000 globally in 2015.
  - Global HWI portfolio composition (2015):
    - cash: more than one-quarter of portfolio;
    - equities: 27 percent;
    - real estate: 18 percent;
    - fixed income investments: 17 percent;
    - alternative investments (hedge funds, derivatives, currency, commodities, private equity): 13 percent.
  - Wealth concentration:
    - In 2015, the top percentile of wealth holders owned just over half of the world's wealth and the richest decile owned 87.7 percent.
    - In 2014, just 80 people controlled as much wealth as the bottom 50 percent of the world’s population.
  - Income shares trend:
    - Over last three decades the income shares of the richest one-percent have increased substantially in English-speaking advanced economies, China and India.
    - In the United States, the richest 0.1 percent saw their share of income grow from 2.6 percent of total US income to 10.4 percent.
- Tax-relevant features of HWIs:
  - Income derives largely from capital rather than earnings as wealth increases.
  - Capital income streams and foreign-sourced income pose increased compliance risks:
    - withholding and reporting systems often weaker or manipulable for capital income;
    - reliance on self-reporting for many forms of capital income and foreign income.
  - Tax administrations often focus compliance on earned income and related taxes, neglecting:
    - income earned on capital and investment assets (individuals and legal entities);
    - income from abroad.

### III. Why leading tax administrations give special attention to HWIs
- Resource allocation rationale:
  - Limited tax administration resources are focused where revenue risk is greatest.
  - HWIs present substantial revenue risk despite administrative challenges.
- Four reasons from OECD (2009) for special attention to HWIs:
  i. the complexity of their affairs;
  ii. the amount of revenue at stake;
  iii. their opportunity to undertake aggressive tax planning;
  iv. the need to preserve the integrity of the tax system by ensuring that the wealthy pay their fair share.
- Typical elements of HWI compliance programs (Box 1 examples):
  - A dedicated HWI unit—often within the large taxpayer office (LTO)—with highly skilled officers undertaking risk analysis, audit, and debt collection.
  - Expanded information reporting covering entities and assets owned by HWIs, and mandatory disclosure of certain types of transactions.
  - Measures encouraging voluntary compliance, such as pre-filing agreements, a rulings regime, and carefully designed voluntary disclosure schemes for past non-compliance.
  - Comprehensive checks—risk reviews, audits, and prosecutions for the most egregious offenders—applied according to perceived risk level.
  - Withholding taxes (example: withholding on rental payments reaching HWIs in India).
  - Tightening laws to prevent tax-free private use of assets held by companies, use of companies and trusts to hold income at lower tax rates, and streaming income to “preferential” beneficiaries.
- Main recommendations from OECD publication (details at Appendix 1 referenced in source):
  - gaining an understanding of aggressive tax planning;
  - creating dedicated units to deal with HWIs;
  - improving international cooperation;
  - legislating to target aggressive tax planning;
  - exploring the concept of cooperative compliance.
- Benefits and international relevance:
  - HWICP benefits substantial even for lower-income countries due to domestic wealth concentration.
  - Examples of revenue results from HWI-focused activity:
    - Australian Taxation Office’s HWI audit program (2014–15): yielded AUD 680 million in liabilities and collected over AUD 440 million in cash from 800 compliance activities.
    - United Kingdom HMRC High-Net-Worth Unit (wealth over GBP 20 million): brought in GBP 937 million in additional revenue between 2009 and 2013–14.
    - Indonesia High Wealth Unit (2013): assessments totaling IDR 107 billion arising from compliance actions.
- Role of information exchange and voluntary disclosure:
  - Exchange of information initiatives (e.g., EU Savings Directive 2003, US FATCA 2010) have revealed cross-border tax evasion by HWIs.
  - Many countries have used voluntary disclosure schemes (VDIs) to address past non-compliance revealed by exchanged information.

### IV. What a tax administration should do when considering setting up a HWICP
- First step: assess readiness and remedy obstacles before implementation.
- Four principal areas for assessment:
  A. Alignment of a HWICP approach with the realities of the political environment.
  B. Extent to which fundamental legal authority and taxing rights are present.
  C. Capacity of the administration to engage HWIs and their intermediaries.
  D. Availability of necessary data and information.
- Purpose of the assessment: identify legal or procedural obstacles and address them before program implementation.
- Alignment detail:
  - Focus: whether HWICP objectives are consistent with political and economic realities.
  - Consider public and media perceptions of fairness and necessity of a stronger compliance program for HWIs.
  - Resolve inconsistencies as far as possible.

### Key statistics and figures (preserved exactly as in source)
- 34 million HWIs (2015) with wealth of at least USD 1 million each.
- 0.7 percent (share of world’s population corresponding to those 34 million HWIs).
- 45 percent (share of world’s wealth controlled by those HWIs).
- 211,000 HWIs globally with total wealth of USD 30 million or more.
- USD 29.7 trillion (combined wealth of the 211,000 HWIs).
- Over 120,000 UHWIs globally in 2015 (Credit Suisse definition: total wealth of over USD 50 million).
- Portfolio shares: equities 27 percent; real estate 18 percent; fixed income 17 percent; alternative investments 13 percent.
- Top percentile owned just over half of the world's wealth (2015); richest decile owned 87.7 percent (2015).
- In the United States: richest 0.1 percent income share grew from 2.6 percent to 10.4 percent (over three decades).
- ATO HWI audit program (2014–15): AUD 680 million in liabilities; collected over AUD 440 million in cash from 800 compliance activities.
- HMRC High-Net-Worth Unit: GBP 937 million in additional revenue between 2009 and 2013–14.
- Indonesia High Wealth Unit (2013): IDR 107 billion assessments.
- Examples of voluntary disclosure results (Ireland): limited-time offer produced EUR 227 million from around 3,700 voluntary disclosures; follow-up enforcement netted EUR 420 million from 8,500 taxpayers; special investigations in 2004 collected EUR 950 million from 15,000 individuals; VDI and related initiatives netted EUR 2.6 billion from 34,000 taxpayers (at end–2009).
- United Kingdom VDI (2007): 64,000 account holders accepted offers and paid GBP 450 million.
- United States VDIs: 2003 VDI—about 1,300 taxpayers paid USD 75 million; subsequent 2009 VDI—over 14,000 taxpayers came forward.

*Technical Notes and Manuals 17/07 | 2017 — 1. Key Recommendations of the Organization for Economic Cooperation and Development 25*

### Box 3. Alignment of a High-Wealth Individual Compliance Program with the

### Box 3. Alignment of a High-Wealth Individual Compliance Program with the Political, Economic, and Social Environment

### Political Environment
- Direct support of the responsible Minister and his Cabinet colleagues is important to address tension between compliance goals and political reality.
- Briefings of key members of the legislature should take place and their support elicited.
- High-Wealth Individuals (HWIs) often hold political posts or are Members of Parliament, may back political groups, and have access to high levels of government.
- Without broad and high-level political support, some HWICP tools may be unusable.

### Economic Objectives
- Governments may offer tax incentives to attract wealth controlled by HWIs or to discourage their migration; incentives include legislated tax exemptions and holidays, lower tax rates, delayed payment, etc., and are not always well costed or designed.
- Before initiating a HWICP, tax statutes should be reviewed to identify areas where tax policies and incentives conflict with the objectives of a HWICP.

### Public and Media Acceptance
- Public understanding and acceptance of a HWICP is important.
- If the public perceives HWIs may be evading or avoiding tax, a HWICP will be welcomed.
- If the public perceives the tax administration is used for political purposes against HWIs, the integrity and credibility of the tax system may be eroded, potentially increasing noncompliance across the whole taxpayer base.
- Implementation should engender broad public recognition that the HWICP aims to ensure fair application of the tax system and is part of a broad-based compliance strategy.

### Fairness
- Targeting a particular taxpayer segment for compliance focus is sometimes (incorrectly) argued to violate equality before the law.
- Modern tax administration practice promotes fairness by applying limited resources to areas of greatest revenue risk; HWIs are a justified focus.
- A strong communication program is needed to resolve tensions between compliance goals and fairness objections.

### Judicial History
- Courts may be a barrier by not accepting proofs of income, limiting access to financial records, issuing inconsistent or delayed decisions, or engaging in actions that block timely compliance.
- Many audit assessments will likely be appealed; HWIs can afford top legal representation and may pursue protracted litigation.

### B. Legal Authority to Support a HWICP

#### Key legal issues (four)
- (i) Whether tax laws are extensive enough to tax the full scope of HWI income.
- (ii) Whether the tax administration has authority to gather information and enforce the laws.
- (iii) Whether there is specific anti-avoidance legislation.
- (iv) Whether privacy laws specify protection and proper use of HWI data.

#### Taxation Authority Over Income Streams
- Tax laws may be underdeveloped for income from equities, capital gains, and alternative investments.
- One report estimates that HWIs, on average, hold 57 percent of their wealth in equities, fixed income and alternative investments.
- Before initiating a HWICP, tax statutes should be reviewed to determine their impact on earned and capital income anticipated within the HWI population.
- Reviews may reveal forms of personal income exempted from tax by statute (in global tax systems) or omitted from taxation (direct source tax systems).
- Alternative investments cited include private investment funds, private annuities, hedging transactions, commodity trading, financial derivatives, futures trading, currency trading, precious metals trading, oil and gas earnings, and collectibles investing.
- HWIs are likely to arrange affairs to take advantage of laws allowing exemption or omission of certain income forms.

#### Authority to Gather Information and Enforce Laws
- Without legal foundation to gather information and enforce laws, a tax administration cannot run a HWICP.
- Six broad questions must be addressed:
  - Does authority exist to gather, maintain, and analyze high wealth data?
    - Issue: some tax procedure laws only allow data gathering when a formal audit, collection action, or investigation is authorized.
    - Privacy statutes in some countries prevent or restrict access to personal financial information, hindering analysis.
  - Does authority exist to engage HWIs outside the standard audit structure?
    - Example tactics: advisory visits, reminder notices, alerts to omissions; some administrations may be prohibited from such activities.
  - Is the audit authority sufficient to audit HWIs and their personal financial information?
    - Standard single year or multi-year comprehensive audits may be inappropriate; limited scope audits or other enquiries may be preferable but may need legislative authorization.
    - Where legislation provides audits must be completed within short timeframes, e.g., 30 days, amendment may be required.
    - HWI audits are complex, often spanning several months; simultaneous audit of HWIs and controlled companies is often advisable.
    - Some jurisdictions prohibit access to personal financial records without a court order.
  - Where does the burden rest to prove the source of funds for unexplained wealth?
    - Indirect methods are often used when sources of funds for deposits or asset purchases cannot be identified.
    - If law places burden of proof on the tax administration, indirect methods cannot establish tax liability.
    - To support a HWICP, the burden of proof should be on the taxpayer to substantiate taxable or nontaxable source of funds for bank deposits and major asset acquisitions.
  - Does authority exist for exchange of information with other jurisdictions?
    - HWIs’ financial affairs cross borders; proper taxation requires legislation and tax treaties permitting exchange of information with competent authorities in other jurisdictions.
    - Recent developments have improved information flow between taxation authorities.

#### General anti-avoidance provisions
- HWIs can access expensive financial and tax planning advice, generating aggressive tax planning and avoidance risks.
- Many tax laws include general anti-avoidance provisions to limit revenue losses from avoidance schemes.
- An IMF Tax Law Technical Note (referenced) provides more information, including a sample General Anti-Avoidance Rule (GAAR).

#### Data security
- Data security is paramount for this sensitive taxpayer population; law should provide for data protection.
- Where legal authority exists to gather information about wealthy individuals, strong legal protections are needed to prevent taxpayer information loss, theft, or misuse.
- Procedures must ensure HWI information is disclosed only to approved staff with a specific need for access.

### C. Evaluation of the Capacity to Engage with HWIs and their Intermediaries

#### Capacity issues (three)
- (i) Whether the audit function is sufficiently developed with the right staff, skills, and procedures to engage effectively with the HWI sector.
- (ii) Whether a range of other compliance tools are in place.
- (iii) Whether procedural and technical guidance is available.

#### Audit Function
- Where little past compliance focus on HWIs exists, programs and audit skills focused on capital sources of income and capital accumulation may need development.
- An assessment should establish a threshold level of functional competence before embarking on a HWICP.

Audit Staff:
- Highly skilled and knowledgeable staff must be assigned to a HWICP.
- Staff should have extensive audit experience across PIT, corporate income tax (CIT), and capital taxes.
- Formal qualifications in accountancy, law or economics and in-depth knowledge of the tax code (including capital taxes and the international environment) are required.
- Staff must display maturity, impeccable integrity, and be competent and confident to engage with highly-paid tax professionals and lawyers representing HWIs.

Audit Techniques:
- Forensic auditing skills are needed, differing from typical audits focused on accounting records and invoices.
- HWI audits focus on capital accumulation and missing income; techniques include the direct proof of income method and the indirect proof of income method.
- These techniques may need development in some countries.

Audit Procedures:
- Simultaneous auditing of HWIs and the legal entities they control is recommended due to highly integrated financial affairs.
- Many jurisdictions separate audit functions between legal entities and individuals and lack processes for integrated audit.
- Issue-driven or limited scope auditing is valuable where financial activities are extensive and comprehensive audits are impractical.
- Procedures and manuals may need modification to allow necessary flexibility in audit procedures.

#### Compliance tools
- Audit is not the only tool; an analysis of all compliance tools is necessary.
- Administrations should examine the full range of tools to support and enhance HWI compliance and consider organizational placement and linkages required to support a HWICP.

Box 4. Compliance Treatment Tool Box (items to examine and develop where necessary):
- Legislation
- Technical procedures
- Tax guidance
- Taxpayer outreach
- IT applications
- Taxpayer service
- Instruction guides
- Website information
- Website applications
- Tax form changes
- External stakeholders
- Education
- Research and studies
- Media
- Information reporting
- Tax withholding
- Sanctions
- New data sources
- Notices and letters
- Organizational change
- Training
- Audit
- Compliance projects
- Collection
- Penalties and fines
- Criminal investigations

#### Technical guidance
- Assess current procedural and technical guidance available for HWI sector issues.
- Technical guidance should include publications, tax forms, notices, outreach, pamphlets, and guidance on specific issues such as income from abroad or anti-avoidance provisions.

### D. Data and Information
- Review adequacy of data and information across three categories:
  - (i) Extent of information available to identify the high-wealth population.
  - (ii) Degree to which information allows analysis of tax contribution, compliance levels, tax gap, and compliance risks.
  - (iii) Availability of data exchange and international cooperation under tax treaties.
- Access to and adequacy of data should be reviewed and gaps identified when assessing readiness for a HWICP.

*Source: Box 3, Technical Notes and Manuals 17/07 | 2017*

### Chapter IV. This is a temporary activity, lasting six to twelve months. The team needs to have a

### Chapter IV. This is a temporary activity, lasting six to twelve months. The team needs to have a strong mandate and clear terms of reference. It should report frequently to the head of the tax administration or a deputy head responsible for operations.

### Defining the HWI Population
- Start with a small number of HWIs when a compliance program is new to the administration.
- Recommended initial group: UHWIs (those controlling wealth of USD 30 million or more).
- It is estimated that the top one percent of HWIs account for 35 percent of all HWI wealth.
- Rationale for narrow focus:
  - Limited tax administration resources can be concentrated on a manageable population with significant tax impact.
  - Smaller economies may use a lower cut-off if the UHWI population is very small.
- Note: HWIs below the cut-off are not to be ignored long-term; the initial focus is on building experience and expertise.

### Publishing the Strategy (HWI Compliance Strategy — HWICS)
- A HWICS should be devised and documented after readiness assessment and remedial actions.
- Possible contents of a HWICS:
  - Why is there need for a HWICP?
  - What is the intent of the HWICP?
  - What benefits are expected? When are these expected?
  - Which taxpayers will be included in the program?
  - What authority exists for such a program?
  - What type of methodology or model will be used to administer the program?
  - How will the HWICP be staffed and managed?
  - Who has approved the HWICP?
- Suggested approvals and communication:
  - Agree HWICS with the Minister of Finance or other responsible Minister.
  - Secure broad political support.
  - Actively communicate purpose and objectives internally and externally.
  - Reflect HWICS in published documentation of the tax administration’s annual work plans.

### Implementation Phase and Operational Unit
- Implementation requires a program management office with permanent staff possessing appropriate skills and knowledge.
- Responsibilities of program head and staff:
  - Risk mapping
  - Articulation of risk
  - Determination of desired outcomes
  - Development of compliance treatments
  - Managing delivery of treatments
  - Monitoring and measurement
  - Qualitative evaluation of results
- Organizational recommendations:
  - Centralize HWICP within its own operational unit reporting to Deputy Director General level or higher.
  - Staffing numbers depend on the size and complexity of the case base.
  - Two areas usually requiring fulltime staff: audit and taxpayer services.
  - HWI audits require highly specialized skills and training.
  - HWI audit activities recommended to be segmented into permanent specialized audit groups, analogous to large taxpayer auditor organization.
- Comparative ratio example:
  - OECD study Tax Administration 2015 shows a variety of HWI to staff ratios, with Canada and Ireland showing a ratio of about 25:1.

### Using the Compliance Risk Management (CRM) Model as the Basis for a HWICP
- The CRM model is recommended as a standard framework for resource allocation based on risk.
- Key principles:
  - Promote compliance by identifying risks in taxpayer segments and applying the simplest, most cost-effective treatments.
  - Focus on increasing voluntary compliance as the primary objective; tax recovery is secondary.
  - Use outcomes that are quantifiable and achievable, not limited to enforcement results.
  - Model is cyclical and relies on measurement and monitoring systems that provide quantitative and qualitative feedback.

### CRM-Based HWICP: Phases and Key Actions
- Phase 1: Define—Identify the Population
  - Use existing tax administration data; supplement with commercial media, internet, and purchased data from research firms tracking UHWIs.
  - Build a profile for each HWI:
    - Identify and link connected parties and controlled entities.
    - Review compliance history for the last three years.
    - Focus on four fundamental tax obligations: registration, declaration, accuracy, and payment.
    - Identify total tax payments by tax type, audit history, and unpaid tax debts.
- Phase 2: Identify HWI Compliance Risks (Risk Mapping)
  - Identify compliance risks organized by tax type, income stream, tax potential, and compliance level.
- Phase 3: Assess and Prioritize Compliance Risks
  - Assess significance of identified risks and prioritize based on compliance outcome and available resources.
  - Outcomes include change in voluntary compliance, change in total tax reported, change in total tax collected, impact on tax gap, tax recovery, etc.
- Phase 4: Analyze Compliance Behavior
  - Determine causes of noncompliance using a cross-departmental approach (audit, collection, IT, taxpayer service).
  - Establish a Compliance Council with representatives from each tax administration function.
  - Engage external stakeholders periodically for additional insights.
- Phase 5: Determine Treatment Strategies
  - Select the most appropriate and cost-effective tools to deliver desired outcomes.
  - Recognize limitations of audit-only approaches; consider non-audit and preventative measures (legislative amendments, form design changes, media campaigns).
  - Experienced administrations may consider a cooperative compliance approach: administration provides enhanced service and advance rulings in exchange for HWI transparency and full disclosure.
- Phase 6: Implement Action Plans
  - Develop action plans specifying what is to be done, when, how, and by whom.
  - Ensure flexibility to adjust plans as new information becomes available or unintended consequences occur.
- Phase 7: Establish Monitoring and Reporting Mechanisms and Performance Targets
  - Define clearly measurable and time-defined objectives.
  - Implement quantitative measurement systems to determine whether results match desired outcomes.
- Phase 8: Qualitative Analysis of Outcomes
  - Use qualitative evaluation to add meaning to quantitative results.
  - Demonstrate compliance benefits and whether predicted outcomes are realized.
  - Feed qualitative analysis back into risk mapping to continue the cycle.

### Box 5 — Elements of the Risk Mapping Process (high-level points)
- Baselines: Set baselines at Phase 1 for facets of HWI compliance history (tax paid, returns filed, returns timely filed, collection history, audit history). Baselines advisable for each income stream reportable.
- Trend Analysis: Use baseline and successive tax period data to determine compliance trend direction and impact of treatments.
- Voluntary Compliance Level (VCL): Compute VCL for each type of tax return and for each of the four fundamental requirements: registering, timely filing, correct reporting, timely payment. VCL computations suggested for each income stream reportable by HWIs.
- Tax Gap: Tax gap = percentage difference between tax potential and tax actually paid, usually computed over a 12–month period. HWI tax gap is difficult to compute accurately; efforts should be made to compute components or estimate it.
- Information: Add information from third party returns, other tax jurisdictions under AOEI, or media reports (mergers and acquisitions, purchase of collectibles, trophy homes) to the risk map. These sources may identify significant risks or opportunities for voluntary disclosure schemes or invitations to self-review.

### Box 6 — Sample External Stakeholders
- Non-government: Accounting profession, Legal profession, Banking, Investment industry, Civil society organizations, Real estate industry.
- Government: Ministry of Finance, Securities commission, Banking regulators, Anti-money laundering agency, Fraud investigation units, Local government.

### Summary of Key Points
- HWIs comprise a significant economic sector for tax administrations.
- HWI tax contributions account for a large and growing component of overall PIT due.
- HWI financial affairs create substantial tax complexity for HWIs and tax administrations.
- Income from HWI financial activities usually takes the form of capital income and often requires self-reporting.
- Several tax administrations initiate programs to improve compliance and/or recover undeclared tax from the HWI sector.
- Tax administrations need to define and identify the HWI population.
- Preparatory review questions for HWICP readiness include:
  - Will the HWICP conflict with other government policies?
  - Are there adequate legal, tax, and administrative authorities for such a program?
  - Does the tax administration have the capacity to engage HWIs?
  - Does the tax administration have access to sufficient data to identify and analyze the HWI population?
- A formal readiness assessment identifies deficiencies and facilitates necessary changes for HWICP implementation.
- A HWI Compliance Strategy should be developed to improve voluntary compliance and tax revenues from HWIs.
- HWICS requires formal commitment from tax administrations and broad high-level political support.
- A fully staffed HWI Compliance Program is necessary for most tax administrations to engage the high-wealth sector.
- Due to complexity and revenue potential, dedicated HWI unit staff need specialized skills, knowledge, and experience.
- Recommendation: Use the CRM model to design and carry out the HWICS.
  - Model focuses on identifying major risks and causes and developing treatments to incrementally reduce the tax gap through improved voluntary compliance and enhanced recovery.
  - Model focuses on outcomes and needs measurement and monitoring systems that provide quantitative and qualitative feedback.
  - Model is cyclical, using results and new information to update risk mapping, causes of risks, and treatment actions annually.
- A wide assortment of tools and treatments is available; many are underused or underdeveloped.

*Source: Technical Notes and Manuals 17/07 | 2017, Chapter IV.*

### APPENDIX 1. KEY RECOMMENDATIONS OF THE ORGANIZATION

### APPENDIX 1. KEY RECOMMENDATIONS OF THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT

### Gaining a greater understanding of the risks posed by the HNWI segment
- looking at the types of aggressive tax planning (ATP) schemes in the marketplace, the suppliers of ATP, and the HNWI's motivation; and
- developing a strong commercial awareness of the broader concerns of HNWIs, including privacy, wealth preservation, and their ability to pass on wealth to future generations.

### Building an effective capability to manage tax risk
- creating dedicated units which are adequately staffed by experienced officials;
- establishing a framework for dialogue between senior revenue officials, HNWIs and their advisers; and
- balancing compliance activities with taxpayer service functions.

### Improve international co-operation
- Improve international co-operation at both a strategic and an operational level, including the use of regular meetings between heads of HNWI units and other specialists within tax administrations.

### Creating an appropriate legislative framework
- Creating an appropriate legislative framework targeted at specific aggressive tax planning risks by taking a holistic approach to focus our strategies.

### Explore application of co-operative compliance to the HNWI segment
- considering the use of dedicated contact points;
- developing a pre-filing program or advance ruling program;
- involving the advisers of HNWIs in the development of legislation that specifically affects their clients;
- emphasizing the need for transparency and disclosure that goes beyond what is statutorily required; and
- providing clarity on key issues of concern to taxpayers wishing to make a full disclosure regarding past non-compliance

*Source: A summary from Engaging with High-Net Worth Individuals on Tax Compliance, OECD, 2009.*

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_Source: https://www.imf.org/-/media/files/publications/tnm/2017/tnm1707.pdf_