On June 30, the Organisation for Economic Co-operation and Development (OECD) said the international community was making “tremendous progress” in tackling offshore tax evasion through the implementation of transparency standards set by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
The OECD aims to reinforce its approach to tax transparency post-pandemic as members will struggle to recover from the crisis.
“The immediate aim for the Global Forum is to support its members through the recovery from the coronavirus pandemic. Tax transparency can play a key role in this, by supporting the public finances. In addition to any immediate support we can provide, in the upcoming years the Global Forum will look to further entrench the achievements made so far,” said Zayda Manatta, head of secretariat of the Global Forum, via email.
“This includes ensuring the still relatively recent widespread adoption of the automatic exchange of information and the standard of exchange of information on request work effectively in practice. This means ensuring the quality and accuracy of the information exchanged and supporting its effective use. At the same time, the Global Forum stands ready to embrace any new initiatives that may arise from its membership and to address any new or emerging risks that could compromise the effectiveness of international tax transparency.”
The Common Reporting Standard (CRS) requires financial institutions, on an annual basis, to report information to jurisdictions that will be automatically exchanged with other jurisdictions. It is a standard for the Automatic Exchange of Information (AEOI) designed to combat offshore tax evasion.
Prior to the meeting of the OECD/G20 Inclusive Framework on BEPS, OECD secretary-general Angel Gurría said AEOI was “a game changer.”
In the past year, automatic exchange enabled tax authorities to obtain data on 84 million offshore financial accounts – a sum worth €10trn, compared to €1.1trn in 2017 for 11 million offshore accounts.
“The automatic exchange of information is a “game changer” as it provides for the exchange of a wide swathe of information regarding financial assets held offshore in banks, insurance companies, trusts, foundations, investment funds and other investment vehicles by tax residents of a jurisdiction, without a prior request being sent by the receiving country,” said Manatta.
“The information exchanged includes not only the details of the underlying assets and the account holder but also the beneficial owners of assets held through investment entities. Even before starting an investigation, tax authorities now have access to vast amounts of new information that can help identify non-compliant taxpayers.”
Manatta expects governments to champion transparency standards as they represent a key source of domestic revenue.
“Tax transparency measures are one of the tools that could help mobilise the domestic revenue necessary to address the strain on the public finances caused by the measure put in place to respond to the coronavirus pandemic. The tolerance for tax evasion should be reduced even more, and countries can be expected to make greater use of the information received under their international exchange frameworks to tackle tax evasion,” she said.
“The financial crisis in 2008 was the catalyst that mobilised the international community to overcome the interests of tax secrecy jurisdictions and paved the way to the global adoption of international tax transparency standards.”
Gary Ashford, partner and tax adviser at Harbottle & Lewis, believes the fight against tax evasion will get “deeper and deeper” over the years.
“It starts with bank accounts, DAC6, offshore structures, and anti-money laundering rules in terms of beneficial ownership registers. It expands all the time to ensure there is a transparent picture. It’s not in any way going to turn backwards – if anything, it’s going to lead to the legitimacy of assets because people will know who owns them,” he adds.
Caused by the pandemic, the extension of DAC6 – an EU mandatory regime that requires businesses to report cross-border arrangements – “will not affect this year’s efforts to tackle tax evasion,” affirmed Manatta.
More developing countries are also joining the Global Forum in a bid to eradicate banking secrecy for tax purposes.
“The Global Forum is now focused on both ensuring that developing countries experience the benefits that tax transparency has to offer as well as consolidating the benefits arising from its already very wide membership,” said Manatta.
In 2018, the Global Forum welcomed a new regional initiative, in which the Punta del Este Declaration in Latin America was signed to provide tailored support to the region in Uruguay combating tax fraud and corruption.