On November 21st the sixth meeting of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes is opened in Jakarta. On this occasion, a broad coalition of organizations, including GPF, has issued a position paper on Automatic Information Exchange (AIE) for tax purposses. If a person or entity resident in one jurisdiction owns income-generating assets in another jurisdiction, the resident's tax authorities generally need to know about that asset or income, to assess their tax liabities. To obtain that kind of information, countries and jurisdictions have entered into information exchange agreements. After this year's G20 meeting, a standard for the information exchange to happen automaticly is taking shape. The position paper examines the current situation and emphasizes the challenges developing countries face in participation in AIE, the options for meeting these challenges, and the risks of not addressing the integration of developing countries at the start of this process.
21 November, 2013 | WEED
Automatic for the people - automatic information exchange, tax justice and developing countries
Introduction
The journey towards curtailing illicit financial flows is gaining momentum. 2013 has seen a significant shift in international tax cooperation, with the G8 and G20 making new pledges to ensure that countries will automatically share information on taxpayers. If and when these commitments are realised, it will signal a major step forward in enabling tax authorities to catch up with the pace of globalisation and digitalisation of finance. For while money can be shifted at the mere click of a button, the exchange of information between authorities – to combat tax abuse on such transfer flows – has moved at a much slower pace, if at all.
This year’s statements from the 2013 G8 and G20 summits – as well as from the European Union[1] and the Organisation for Economic Cooperation and Development (OECD: a group of 34 developed countries) – are clear that this situation needs to, and will, change. However, questions remain on how this will actually happen, and how countries outside the G20 and OECD will fit into this process. The G20 has promised rapid action, but while this is welcome for the G20 countries, it raises questions around whether the changes will work for developing countries and how easily they will be able to integrate themselves into this new system.
That developing countries need to benefit is clear: the volume of illicit financial flows from developing countries is estimated to be over $850bn a year.[2] The lost tax revenue to developing countries on assets held overseas by individuals alone is estimated to be $156bn.[3] This pool of revenues held offshore is depriving developing countries of the vital capital needed for essential public services. It should be evident that richer nations have a duty to help remedy this problem: these funds are invariably held in developed countries, in tax havens linked to them and in banks headquartered within their borders.
While both the G8 and G20 have made clear reference to the need to ensure developing countries are included in automatic information exchange (AIE), there have been no details on how that might work.
This paper examines the current situation, the challenges facing developing countries’ participation in AIE, the options for meeting these challenges, and the risks of not addressing the integration of developing countries at the start of this process. It concludes by recommending actions that can help to guarantee this global problem has a truly global solution.
Among the paper’s recommendations are proposals highlighting the need to include developing countries and their needs in the process for formulating a new AIE standard, to ensure a global commitment to multilateralism with open access to all, to provide for asymmetry in the approach so that developing countries can focus on maximising the benefits, and to include assurances for data transparency and accountability.
1 www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/137197.pdf
2 Illicit Financial Flows from Developing Countries: 2001-2010,Global Financial Integrity, 2012,
http://iff.gfintegrity.org/iff2012/2012report.html
3 Oxfam, ‘Lost tax haven cash enough to end extreme poverty– twice over’, May 2013, www.oxfam.org.uk/blogs/2013/05/taxhaven-cash-enough-to-end-extreme-poverty
