handbook-tb

Wei Cui4.1 DetectionGenerally, there are three legal mechanisms that enable tax authoritiesto detect offshore (direct or indirect 36 ) transfers of domestic assetsor shares: self-reporting by the transferor, reporting by the transferee(whether or not accompanied by withholding) and reporting by thirdparties. 37 As regards transferor self-reporting, the source country mayimpose penalties on non-reporting transferors to foster compliance.However, if the chances of detection of taxable transactions are verylow, the expected cost of a penalty for non-reporting may also be toolow to be effective. If most taxpayers do not comply and the tax authorityfails to detect most instances of non-compliance, imposing a heavypenalty on the few detected cases will also seem unfair.It might thus be surprising that, at least until recently, manycountries have solely or largely relied on seller reporting for taxingcapital gains. In response to a recent survey conducted by the UnitedNations Committee of Experts on International Cooperation in TaxMatters, a number of countries, both developed and developing, confirmedthe relevant challenges for detection of taxable transfers. 38 Forthis reason, the Australian government has announced that “to furtherimprove the integrity of the foreign residents’ regime in relation to thedisposal of Australian real property interests … a 10 per cent non-finalwithholding tax [will] apply to the disposal by foreign residents of36Indirect transfers are discussed more extensively in section 6 below.37Some recent discussions of the detection problem refer optimallyto the exchange of information among tax authorities. See Committee ofExperts Paper, at 36-9; IMF Spillovers Report, at 71; Lee Burns, Honoré LeLeuch and Emil Sunley, “Transfer of an interest in a mining or petroleumright,” in Philip Daniel, Michael Keen, Artur Swistak and Victor Thuronyi,eds., Resources without Borders (Washington: International Monetary Fund,2014), at Section 4.1. It seems exceedingly unlikely, however, that the seller’sresident country will have more information about an isolated transactionthan the source country where the transferred asset is located.38See Committee of Experts Paper, at 36-9. The countries confirmingdifficulties with detection include Australia, Azerbaijan, China, Japan,Malaysia, Mexico, Norway, Russia, South Africa and Zambia. India and theUnited States, by contrast, did not report such problems because they requiretransferee withholding.126