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OECD’s new info exchange standard a watershed moment?

TJN2014_OECD-AIE-ReportThe OECD has published a report on a new global standard for countries and tax havens to exchange information with each other: a crucial tool for tackling offshore secrecy and tax evasion. The report represents significant progress by endorsing a principle that civil society organisations have been demanding for many years, and which has now been endorsed by the G20 finance ministers. In reaction to the report by the OECD, Tax Justice Network (TJN) publishes an analytic response on whether the OECD's new standard is indeedd a watershed moment. The OECD report, which focusses especially on due dilligence checks, a crucial element in any transparency regime, seems to have many positive details. Yet, TJN says, there are a number of shortcomings in the report, too: some technical, and some political.




20 March, 2014 | Tax Justice Network

OECD’s Automatic Information Exchange Standard: A watershed moment for fighting offshore tax evasion?

Read the whole report here.

From the Introduction

The OECD, a club of rich countries, has published a report on a new global standard for countries and tax havens to exchange information with each other: a crucial tool for tackling offshore secrecy and tax evasion. The OECD is the dominant standard setter for information exchange, and the report represents significant progress by endorsing a principle that civil society organisations have been demanding for many years, and which has now been endorsed by the G20 finance ministers.

That principle is called Automatic Information Exchange (AIE), and the G20 endorsement marks a decisive step beyond the OECD's inadequate previous system of ‘on request’ information exchange, where a jurisdiction could only request information from a tax haven, say, if it could demonstrate in detail that there was a specific case to answer: in effect, it had to know the information before it submitted a request for it.

The new OECD report responds to a request from G20 finance ministers and central bank governors in April 2013 to flesh out the technical details of how AIE should work in practice.

Tolerance for tax evasion has shrunk dramatically in the past couple of years, but to date few serious concrete steps have been taken. The OECD’s new report could be the first big step towards assembling the nuts and bolts of real change.

There are many positive details in the report: it is wide in its scope, covering not just individuals but trusts and foundations, and various investment entities. There is a special focus on due diligence checks, a crucial element in any transparency regime.

Perhaps the most promising feature is that under the new system, an enormous hurdle - likely to involve many trillion dollars’ worth of assets - could be tackled for the first time. What could be called ‘ownerless’ assets are often held in structures such as foundations or discretionary trusts. These are the mechanisms through which the world’s top income earners can hide tax evasion and remain unaccountable.

The new standard requires some trusts to report on the settlor, the beneficiary or any other natural person exercising ultimate effective control over the trust. While further clarifications are needed (in addition to fixing loopholes and extending this provision to foundations, too), this is a significant step towards achieving transparency by obliging those who are best fit to identify the real persons hiding behind these entities widely used for tax evasion.

Yet there are a number of shortcomings in the OECD report. Some are technical, others are political. We are concerned that powerful tax haven interests have inserted themselves into positions of influence in the OECD and forthcoming Global Forum process. There is a risk that in the next months, many of the required adjustments and clarifications will be watered down. This could happen either through fierce direct financial sector lobbying efforts5, or in the disguise of state representatives of captured states who defend their own financial services industry.

Furthermore, the way developing country interests have been heard or taken into account is far from acceptable and once more challenges OECD’s and the Global Forum’s role in setting legitimate international tax standards.

The identified concerns need to be addressed for the new standard to contribute to stopping the growth in inequality across and within societies, now identified by the IMF as an important obstacle to economic growth.

Read the whole report here: http://www.internationaltaxreview.com/pdfs/TJN2014_OECD-AIE-Report.pdf

Source: Tax Justice Network http://www.taxjustice.net/2014/03/14/oecds-automatic-information-exchange-standard-watershed-moment-fighting-offshore-tax-evasion/


 

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