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57-446: Subsequently, Metabolife's founder Michael Ellis was convicted of lying to the FDA and concealing evidence of ephedra's dangers, and the company and its owner were both convicted of income tax evasion . A congressional investigation found that Metabolife had received thousands of reports of serious adverse events, many occurring in young and otherwise healthy people, and that Metabolife concealed

114-519: A fundamental problem with inhibiting evasion of local sales taxes is that liberal democracies, by their very nature, have few (if any) border controls between their internal jurisdictions. Therefore, it is not generally cost-effective to enforce tax collection on low-value goods carried in private vehicles from one jurisdiction to another with a different tax rate. However, sub-national governments will normally seek to collect sales tax on high-value items such as cars. One reason for taxpayers to evade taxes

171-399: A government department would, and some governments have adopted this approach. In Bangladesh , customs administration was partly privatized in 1991. Abuse by private tax collectors (see tax farming below) has on occasion led to revolutionary overthrow of governments who have outsourced tax administration. Tax farming is an historical means of collection of revenue. Governments received

228-492: A huge scale. In August 2005, Bangladesh had hired four PSI companies – Cotecna Inspection SA, SGS (Bangladesh) Limited, Bureau Veritas BIVAC (Bangladesh) Limited and INtertek Testing Limited – for three years to certify price, quality and quantity of imported goods. In March 2008, the Bangladeshi National Board of Revenue cancelled Cotecna's certificate for serious irregularities, while importers' complaints about

285-543: A large collection of artwork, were liquidated in late 2006 to compensate creditors and settle outstanding personal-injury claims. Metabolife's non-ephedra assets were acquired by Ideasphere Inc., a New York-based dietary-supplement manufacturer, for $ 12 million in 2007. In 2008, Michael Ellis authored a memoir entitled The Metabolife Story: The Rape of Cinderella , with a testimonial by the former FBI special agent who arrested Ellis in 1989 for producing and distributing methamphetamine. Income tax evasion Tax evasion

342-399: A lump sum in advance from a private entity, which then collects and retains the revenue and bears the risk of evasion by the taxpayers. It has been suggested that tax farming may reduce tax evasion in less developed countries. This system may be liable to abuse by the "tax-farmers" seeking to make a profit, if they are not subject to political constraints. Abuses by tax farmers (together with

399-538: A part of southern Travis County . From 1988 to 1993, Wentworth was a member of the Texas House of Representatives from District 123. He won a special election on May 7, 1988, called when Republican Representative Kae T. Patrick of San Antonio resigned during his fourth term. In 2010, Wentworth wrote to Chairman Ron Blatchley (Chairman of the Texas State University System Board of Regents)

456-494: A range of activities that intend to subvert a state's tax system, but such classification of tax avoidance is disputable since avoidance is lawful in self-creating systems. Both tax evasion and tax avoidance can be practiced by corporations, trusts, or individuals. In 1968, Nobel laureate economist Gary Becker first theorized the economics of crime , on the basis of which authors M.G. Allingham and A. Sandmo produced, in 1972, an economic model of tax evasion. This model deals with

513-630: A scathing letter from a sitting State Senator expressing his unhappiness with the Texas State University System Board of Regents decision to appoint State Rep. Brian McCall as the Chancellor of the Texas State University System over him. In the letter, Wentworth expressed a strong disagreement with McCall's appointment and repeatedly states that he authored the bill that changed the name of Southwest Texas State University (SWT) to Texas State University-San Marcos (TSU-SM) - an unpopular bill among

570-575: A tax system that exempted the aristocracy) were a primary reason for the French Revolution that toppled Louis XVI. Pre-shipment inspection agencies like Société Générale De Surveillance S. A. and its subsidiary Cotecna are in business to prevent evasion of customs duty through under-invoicing and misdeclaration. However, PSI agencies have cooperated with importers in evading customs duties. Bangladeshi authorities found Cotecna guilty of complicity with importers for evasion of customs duties on

627-400: Is ad valorem import duty, the tax base can be reduced through under-invoicing. Misdeclaration of quantity is more relevant for products with specific duty. Production description is changed to match a H. S. Code commensurate with a lower rate of duty. Smuggling is import or export of products by illegal means. Smuggling is resorted to for total evasion of customs duties, as well as for

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684-427: Is a serious problem for the tax administration in many countries. Tax evasion is a crime in almost all developed countries, and the guilty party is liable to fines and/or imprisonment . In Switzerland , many acts that would amount to criminal tax evasion in other countries are treated as civil matters. Dishonestly misreporting income in a tax return is not necessarily considered a crime. Such matters are handled in

741-473: Is an activity commonly associated with the informal economy . One measure of the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the difference between the amount of income that the tax authority requests be reported and the actual amount reported. In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion and tax avoidance can be viewed as forms of tax noncompliance , as they describe

798-470: Is an illegal attempt to defeat the imposition of taxes by individuals, corporations , trusts , and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the taxpayer's tax liability, and it includes dishonest tax reporting, declaring less income, profits or gains than the amounts actually earned, overstating deductions, bribing authorities and hiding money in secret locations. Tax evasion

855-423: Is stored in tax havens stays undetected in random audits. Even though there is high diversity among people who evade taxes, there is a higher probability among the highest wealth group. According to Alstadsæter, Johannesen and Zucman 2019 the extent of taxes evaded is substantially higher with higher income, and exceptionally higher among people of the top wealth group. In line with this, the probability to appear in

912-402: Is the personal benefits that come with it, thus the individual problems that lead to that decision Additionally, Wallschutzky's exchange relationship hypothesis presents as a sufficient motive for many. The exchange relationship hypothesis states that tax payers believe that the exchange between their taxes and the public good/social services as unbalanced. Furthermore, the little capability of

969-509: The Panama Papers rises significantly among the top 0.01% of the wealth group, as does the probability to own an unreported account at HSBC. However, the upper wealth group is also more inclined to use tax amnesty. Jeff Wentworth Earl Jeffrey Wentworth (born November 20, 1940) is a Republican former member of the Texas Senate from San Antonio . He represented District 25 in

1026-552: The $ 10,000 after Ellis' and Blevins' methamphetamine convictions were publicized in the media. Other recipients of Metabolife contributions included then-Governor of California Joseph Graham 'Gray' Davis, Jr. , who was given $ 175,000. Metabolife was investigated by the Internal Revenue Service and the Department of Justice for income tax evasion ; ultimately, the company pleaded guilty to filing fraudulent tax returns and

1083-578: The 2008 tax gap found a range of $ 450–$ 500 billion, and unreported income to be about $ 2 trillion, concluding that 18 to 19 percent of total reportable income was not being properly reported to the IRS. Generally, individuals tend to evade taxes, while companies rather avoid taxes. There is a great heterogenic among people who evade people as it is a substantial issue in society, that is creating an excessive tax gap. Studies suggest that 8% of global financial wealth lies in offshore accounts. Often, offshore wealth that

1140-449: The CTA seeks to mitigate the misuse of shell companies for tax evasion purposes and bolster efforts to combat financial crimes within the U.S. jurisdiction. As of 2007 the most common means of tax evasion was overstatement of charitable contributions, particularly church donations. The IRS estimates that the 2001 tax gap was $ 345 billion and that the 2006 tax gap was $ 450 billion. A study of

1197-960: The European treasuries through suspected fraud and speculation with dividend tax. The five hardest hit countries have lost together at least $ 62.9 billion. Germany is the hardest hit country, with around €31 billion withdrawn from the German treasury. Estimated losses for other countries include at least €17 billion for France, €4.5 billion in Italy, €1.7 billion in Denmark and €201 million for Belgium. A paper by economists Annette Alstadsæter, Niels Johannesen and Gabriel Zucman, which used data from HSBC Switzerland (" Swiss leaks ") and Mossack Fonseca (" Panama Papers "), found that "on average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to about 30% in

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1254-524: The Exchequer George Osborne promised to collect £5 billion by "waging war" on tax evaders by announcing new powers for HMRC to target people with offshore bank accounts. The number of people prosecuted for tax evasion doubled in 2014/15 from the year before to 1,258. In the United States of America, Federal tax evasion is defined as the purposeful, illegal attempt to evade the assessment or

1311-442: The FDA's treatment of Metabolife and its efforts to regulate ephedra. During this period in the late 1990s, Metabolife contributed $ 1.6 million in soft money to both political parties, and almost $ 3 million to lobbyists . At the state level, Metabolife contributed $ 10,000 to then-Governor of Texas George W. Bush , who intervened to stop regulation which would have banned over-the-counter sales of ephedra. Bush subsequently returned

1368-583: The Internal Revenue Service raided Compton's office, seizing documents and computer data, and in November 2003, 10 days after a warrant against Metabolife and its principals was unsealed in U.S. District Court, Compton died from a self-inflicted gunshot wound to the head. Some of the politicians associated with Metabolife also encountered legal difficulties; Texas state legislators Jeff Wentworth and Rick Green were accused of illegal lobbying on behalf of

1425-547: The Pandora Papers also cites that the former Managing Director of IMF and French finance minister, Dominique Strauss-Kahn was permitted to create a consulting firm in the United Arab Emirates in 2018 after the expiry of tax exemptions of his Moroccan company, which he used for receiving millions of dollars worth of tax free consulting fees. A network of banks, stock traders and top lawyers has obtained billions from

1482-497: The Swiss tax courts, not the criminal courts. In Switzerland, however, some tax misconduct (such as the deliberate falsification of records) is criminal. Moreover, civil tax transgressions may give rise to penalties. It is often considered that the extent of evasion depends on the severity of punishment for evasion. Professor Christopher Hood first suggested privatization of tax enforcement to control tax evasion more efficiently than

1539-520: The UK tax collection agency stated that it would continue to crack down on tax evasion, with the goal of collecting £18 billion in revenue before 2015. In 2010, HMRC began a voluntary amnesty program that targeted middle-class professionals and raised £500 million. Corrupt tax officials co-operate with the taxpayers who intend to evade taxes. When they detect an instance of evasion, they refrain from reporting it in return for bribes . Corruption by tax officials

1596-412: The United States. In a 2017 study Alstadsæter et al. concluded based on random stratified audits and leaked data that occurrence of tax evasion rises sharply as amount of wealth rises and that the very richest are about 10 times more likely than average people to engage in tax evasion. The tax gap describes how much tax should have been raised in relation to much tax is actually raised. The IRS defines

1653-456: The amount of money a person or a corporation possesses. Efforts to evade income tax decline when the amounts involved are lower. The level of evasion also depends on the efficiency of the tax administration. Corruption by tax officials makes it difficult to control evasion. Tax administrations use various means to reduce evasion and increase the level of enforcement: for example, privatization of tax enforcement or tax farming. In 2011 HMRC ,

1710-591: The company. Following the FDA's ban of ephedra, Michael Ellis was indicted on eight counts of making false statements to the FDA in an effort to obstruct regulation of ephedra. Ellis ultimately pled guilty to a single count of lying to the FDA about the adverse effects of Metabolife 356. He was sentenced to 6 months in federal prison and a $ 20,000 fine. In response to falling sales, and facing more than $ 1 billion in personal injury legal claims related to Metabolife 356, Metabolife filed for Chapter 11 bankruptcy in 2005. The company's furnishings and property, including

1767-446: The diet of its cosmonauts . In the late 1990s, the U.S. FDA considered regulating ephedra more strictly, in response to reports of adverse reactions and more than 100 deaths linked to the supplement. These included reports of psychosis , heart attack , stroke , and diabetic ketoacidosis . A clinical trial conducted to address safety concerns found that Metabolife 356 increased blood pressure and induced mild cardiac arrhythmias ;

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1824-542: The evasion of income tax, the main source of tax revenue in developed countries. According to the authors, the level of evasion of income tax depends on the detection probability and the level of punishment provided by law. Later studies, however, pointed limitations of the model, highlighting that individuals are also more likely to comply with taxes when they believe that tax money is appropriately used and when they can take part on public decisions. The literature's theoretical models are elegant in their effort to identify

1881-470: The federal level, and no state currently collects VAT; the overwhelming majority of states instead collect sales taxes . Canada uses both a VAT at the federal level (the Goods and Services Tax ) and sales taxes at the provincial level ; some provinces have a single tax combining both forms . In addition, most jurisdictions which levy a VAT or sales tax also legally require their residents to report and pay

1938-401: The gross tax gap as the difference between the true tax liability for a given year and the taxes actually remitted on time. It comprises the nonfiling gap, the underreporting gap, and the underpayment (or remittance) gap. Voluntary tax compliance in the U.S. is approximately 85% of taxes actually due, leaving a gross tax gap of about 15%. The tax gap is growing mainly because of two factors,

1995-517: The import and export of contraband . Smugglers do not pay duty since the transport is covert, so no customs declaration is made. During the second half of the 20th century, value-added tax (VAT) emerged as a modern form of consumption tax throughout the world, with the notable exception of the United States . Producers who collect VAT from consumers may evade tax by under-reporting the amount of sales. The US has no broad-based consumption tax at

2052-573: The lack of enforcement on the one hand and the lack of compliance on the other hand. The former is mainly rooted in the costly enforcement of the taxation law. The latter is based on the foundation that tax compliance is costly for individuals as well as firms (tax filling, bureaucracy ), hence not paying taxes would be more economical in their opinion. Customs duties are an important source of revenue in developing countries. Importers attempt to evade customs duty by (a) under-invoicing and (b) misdeclaration of quantity and product-description. When there

2109-555: The other three PSI companies mounted. Bangladesh planned to have its customs department train its officials in " WTO valuation , trade policy, ASYCUDA system, risk management" to take over the inspections. Cotecna was also found to have bribed Pakistan's prime minister Benazir Bhutto to secure a PSI contract by Pakistani importers. She and her husband were sentenced both in Pakistan and Switzerland. In early October 2021, 11.9 million leaked financial records in addition to 2.9 TB of data

2166-446: The payment of a tax imposed by federal law. Conviction of tax evasion may result in fines and imprisonment, such as five years in prison on each count of tax evasion. The Internal Revenue Service (IRS) has identified small businesses and sole proprietors as the largest contributors to the tax gap between what Americans owe in federal taxes and what the federal government receives. Small businesses and sole proprietorships contribute to

2223-489: The reports and acted with "indifference to the health of consumers." Metabolife was founded in the early 1990s by Michael Ellis, a former police officer on probation for charges relating to his involvement with a methamphetamine lab. Ellis and a boyhood friend, Michael Blevins, were arrested in 1989 for producing and distributing methamphetamine. Both Ellis and Blevins cooperated with federal authorities in return for lighter sentences. Following Blevins' release from prison,

2280-558: The same time, tax avoidance was estimated at £1.7 billion (this does not include international tax arrangements that cannot be challenged under the UK law, including some forms of base erosion and profit shifting (BEPS)). In 2013, the Coalition government announced a crackdown on economic crime . It created a new criminal offence for aiding tax evasion and removed the requirement for tax investigation authorities to prove "intent to evade tax" to prosecute offenders. In 2015, Chancellor of

2337-422: The system to catch the tax evaders reduces associated risk. Most often, it is more economical to evade taxes, being caught and paying a fine as a consequence, than paying the accumulated tax burden over the years. Thus, evasion numbers should be even higher than they are, hence for many people there seem to be moral objective countering this practice. The level of evasion depends on a number of factors, including

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2394-509: The tax gap because there are few ways for the government to know about skimming or non-reporting of income without mounting significant investigations. Shell companies have historically been utilized as vehicles for tax evasion and other illicit financial activities due to their opaque ownership structures. These entities, often devoid of substantial operations or assets, allow individuals to conceal their true identities and assets, thereby evading taxes and facilitating money laundering. Recognizing

2451-505: The tax havens of Bahamas and British Virgin Islands through an Emirati company, partially owned by an investment conglomerate, Dubai Holding and Axiom Limited, major shares of which were owned by the ruler. As per the leaked records, the Dubai ruler owned a massive number of upmarket and luxurious real estate across Europe via the cited offshore entities registered in tax havens. Additionally,

2508-454: The tax on items purchased in another jurisdiction. This means that consumers who purchase something in a lower-taxed or untaxed jurisdiction with the intention of avoiding VAT or sales tax in their home jurisdiction are technically breaking the law in most cases. This is especially prevalent in federal countries like the United States and Canada where sub-national jurisdictions charge varying rates of VAT or sales tax. In liberal democracies,

2565-513: The top 0.01% of the wealth distribution... Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. We also find that after reducing tax evasion—by using tax amnesties—tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from

2622-490: The trial concluded that there were serious safety concerns associated with the use of Metabolife. Metabolife took an active role in lobbying against regulation of ephedra, forming an advocacy group called the Dietary Supplement Safety and Science Coalition and contributing heavily to Congressmen Brian Bilbray ( R - Calif. ) and Dan Burton ( R - Ind. ), among other politicians. Bilbray subsequently criticized

2679-437: The two formed Metabolife to market ephedra, a herbal supplement containing compounds chemically related to methamphetamine. Ellis served as the company's CEO until September 2000, when he was succeeded by David Brown (Brown went on to serve as president and CEO of LifeVantage in 2008). Metabolife 356, an ephedra supplement manufactured by Chemins , was initially marketed by Metabolife as a bodybuilding supplement , but in 1995

2736-461: The ultra-wealthy." HMRC , the UK tax collection agency, estimated that in the tax year 2016–17, pure tax evasion (i.e. not including things like hidden economy or criminal activity) cost the government £5.3 billion. This compared to a wider tax gap (the difference between the amount of tax that should, in theory, be collected by HMRC, against what is actually collected) of £33 billion in the same year, an amount that represented 5.7% of liabilities. At

2793-413: The upper legislative chamber from January 1997 to January 2013. In addition, from 1993 to 1997, he represented District 26 , having been initially elected to the state senate in 1992 to succeed fellow Republican Cyndi Taylor Krier , when she became the county judge of Bexar County . District 25 included northern portions of Bexar County, all of Comal , Guadalupe , Hays , and Kendall counties, and

2850-492: The variables likely to affect non-compliance. Alternative specifications, however, yield conflicting results concerning both the signs and magnitudes of variables believed to affect tax evasion. Empirical work is required to resolve the theoretical ambiguities. Income tax evasion appears to be positively influenced by the tax rate , the unemployment rate , the level of income and dissatisfaction with government. The U.S. Tax Reform Act of 1986 appears to have reduced tax evasion in

2907-468: The vast majority of SWT alumni with suggestions throughout he expected this appointment in part due to carrying this legislation, having it killed in one sub-committee, re-introducing the bill in a rush before another unrelated sub-committee to finally get it passed. Opposition to the bill was not limited to SWT alumni but also included dozens and dozens of Texas Southern University (TSU) faculty, students and alumni aligned with SWT alumni. In 2012, Wentworth

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2964-564: The vulnerabilities posed by such practices, the United States enacted the Corporate Transparency Act (CTA). The CTA mandates that companies disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) , aiming to dismantle the anonymity of shell corporations and increase transparency in corporate ownership. By requiring comprehensive reporting of beneficial ownership information (BOI),

3021-464: Was complicit in the company's failure to account for $ 93.7 million in income on its income tax returns from 1996 through 1999. Compton had assisted the company in setting up secret offshore bank accounts and trusts in the Cayman Islands and was aware that Bradley, Ellis, and Blevins each had over $ 1 million in unreported cash concealed in safes within their homes. In July 2002, criminal investigators of

3078-459: Was defeated in his bid for re-nomination. In the Republican primary runoff held on July 31, he lost to Tea Party candidate Donna Campbell , who amassed 45,292 votes (66.2 percent) to Wentworth's 23,168 (33.8 percent). Wentworth and his wife Karla, a licensed professional interior designer, have two sons, Jason and Matthew Wentworth. After his term in the state Senate, Wentworth was appointed to

3135-487: Was rebranded as an aid for dieting . The product became highly successful due to a marketing plan that enlisted customers to advertise and sell the supplement; at their peak, sales of Metabolife 356 were in the hundreds of millions of dollars annually. At one point, Metabolife offered the Russian government $ 15 million to paint its logo on an International Space Station rocket and incorporate Metabolife's ephedra supplement into

3192-566: Was released in the name of Pandora Papers by the International Consortium of Investigative Journalists (ICIJ), exposing the secret offshore accounts of around 35 world leaders in tax havens to evade taxes. One of the many leaders to be exposed was the ruler of Dubai and prime minister of the United Arab Emirates, Sheikh Mohammed bin Rashid al-Maktoum . Sheikh Mohammed was identified as the shareholder of three firms that were registered in

3249-500: Was sentenced to pay a criminal fine of $ 600,000. Metabolife owner William Bradley also pleaded guilty to evading millions of dollars in taxes and was sentenced to 6 months in federal prison and 2 years of probation . According to federal prosecutors in the case against Metabolife and its executives, the company's certified public accountant, Michael Compton, knew about and helped conceal Metabolife's illegal activities. Compton had admitted falsifying tax returns for company executives and

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