Who sets the fiscal policy in most Western countries? If you said the Finance Ministry in each country, go to the back of the class. And if you said the Central Bank in each country, take some extra classes. In practice, there is a new sheriff in town, in over 140 countries…the OECD. It has headed up a major international campaign on the tax front. Below are extracts from a May 24, 2016 article of the OECD entitled: ”Global tax and transparency: We have the tools, now we must make them work”.
What happening:
According to the OECD, if there is a silver lining to the 2008 financial crisis, it is that it was a catalyst for the unprecedented progress we have made in building robust international tax standards for the interconnected global economy of the 21st century.
The current international tax agenda of the OECD relies on two building blocks: (1) tackling tax avoidance via the OECD/G20 Base Erosion and Profit Shifting (BEPS) project (relevant mainly for multinational corporations); and (2) promoting transparency and exchange of information among jurisdictions for tax purposes (relevant mainly for private individuals).
The tax “debate”:
The international debate on taxation first went global in 2009, when at the height of the crisis, the G20 declared that bank secrecy was over and committed to take action against non-co-operative jurisdictions, including tax havens. Countries around the world agreed to fight cross-border tax evasion together by committing to the international standard for exchange of tax information on request (EOIR) developed by the OECD, and by joining the restructured Global Forum on Transparency and Exchange of Information for Tax Purposes.
Individuals – Common Reporting Standard:
Global tax transparency was further enhanced in 2014 when the OECD developed the global Common Reporting Standard (CRS) for Automatic Exchange of Information (AEOI), which 101 jurisdictions have now committed to implement. This common global standard aims to minimize the compliance burdens for both governments and financial institutions and result in an increase in voluntary compliance, as demonstrated by the over US$48 billion collected through voluntary disclosure programs (amnesties).
Comment: The OECD CRS bears a remarkable resemblance to the US FATCA program.
Exchanging the information:
To duly implement the automatic information exchange standard, the OECD is worked with G20 countries and the Global Forum to provide all participating jurisdictions, rich and poor, with the tools and practical guidance necessary for globally consistent implementation. The OECD’s Forum on Tax Administration (FTA) has agreed a Common Transmission System (CTS) creating a global bilateral exchange system to operationalise automatic exchanges in a truly transformative way.
Panama Papers :
According to the OECD, the “Panama Papers” scandal demonstrated that the veil of secrecy continues to damage communities, whether by concealing earnings to evade taxes or to commit other serious financial crimes like money laundering.
The OECD says the international pressure on Panama, encouraging it to fall into line with the new global standards, shows the impact that the OECD’s tax work is having.
Comment: It seems the Panama Papers would have been published with or without the OECD’s work…..
What’s next?
The G20 has mandated the OECD to establish criteria to identify non-co-operative jurisdictions. The OECD and the Global Forum, in partnership with the Financial Action Task Force (FATF), have been mandated by the G20 and Anti-Corruption Summit to work on improving the availability of beneficial ownership information to enable tax authorities to identify the true owners behind shell companies and other legal arrangements.
Corporations:
Implementation is important for the BEPS (Base Erosion Profit Shifting) measures to work. The problem here is that, when reporting their global earnings, many multinational companies can artificially (and legally) move their profits around in search of the lowest tax rates, often undermining the tax bases of the jurisdictions where the real economic activities take place and where value is created.
So a comprehensive package of anti-BEPS measures was endorsed at the G20 Leaders Summit in Antalya, Turkey, on 15-16 November 2015.
For the first time in history 44 countries (all OECD and G20 members plus Colombia and Latvia), representing their equivalent of about 90% of the world’s economy, worked together to tackle tax avoidance.
The BEPS package covers three unifying themes: (1) to align rules on taxation with the location of economic activity and value creation; (2) to improve coherence between domestic tax systems and international rules; and (3) to promote transparency.
Implementing:
The OECD and G20 countries agreed to move forward on implementation and monitoring.
Our Comments:
The OECD has indeed facilitated a potentially large increase in tax revenues and tax enforcement measures for governments around the world.
But many issues remain to be debated. What will governments do with all that extra tax cash? Is the OECD indeed the new world tax sheriff? For how long?
Why are there still no international tax tribunals to help resolve international tax disputes?
Next Steps:
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© November 15, 2024