Taking Forward the G20 Tax Transparency Agenda

At the London Summit in April 2009 the G20 announced the end of bank secrecy. While it may have been a little early to announce victory, there has been an unprecedented movement towards removing bank secrecy as a barrier to the exchange of information in tax matters:

• since April, over 100 tax information exchange agreements (TIEAs) have been signed and over 70 tax treaties negotiated or renegotiated to incorporate the standards;
• all major on- and offshore centres have now endorsed the standards and those which had impediments to implementing them are in the process of removing them;
• 15 jurisdictions – Aruba, Austria, Belgium, Bermuda, British Virgin Islands, Bahrain, Cayman Islands, Gibraltar, Liechtenstein, Luxembourg, Monaco, Netherlands Antilles, San Marino, Singapore and Switzerland – have moved to the category of jurisdictions having substantially implemented the standard since 2 April;
• Austria, Andorra, The Bahamas, Chile, Liechtenstein, San Marino, Singapore, and Macao, China have passed legislation aimed at implementing their commitments to the international tax standard;
• Malaysia, the Philippines, and Hong Kong, China have initiated important legislative changes intended to allow them to meet the international standard.

Over 170 representatives from 70 jurisdictions and international organisations met on 1-2 September 2009 in Mexico and agreed on a new structure and mandate for the Global Forum:

• almost 90 jurisdictions agreed to participate in the new Forum;
• a steering group was created consisting of Australia, Bermuda, Brazil, Cayman Islands, China, Germany, France, India, Japan, Jersey, Singapore, South Africa, Switzerland, United Kingdom and the United States:
• an initial three year mandate was established and an in-depth peer review and monitoring process was put in place under a Peer Review Group, which has already held two meetings where it agreed its terms of reference and a schedule for the upcoming peer reviews.

But the work is far from finished. Eleven jurisdictions that were classified as tax havens in 2000 have one or zero international agreements which implemented the exchange of information standard (Belize, Liberia, Montserrat, Nauru, Panama, St. Lucia, Vanuatu have zero agreements to the standards). Some jurisdictions are negotiating TIEAs with parties with whom they have little or no economic ties. These issues will be addressed in the context of the Global Forum’s peer review and monitoring process.

Over the next six months the focus of this work will be on:

• strengthening the Global Forum membership, creating a Global Forum Secretariat and a more transparent governance and financing structure;
• implementing an in-depth Peer Review; implementing a Multilateral Tax Information Exchange Agreement which has been designed by the Organisation for Economic Cooperation and Development (OECD) and extending the membership of the joint OECD/Council of Europe Multilateral Convention for Administrative Assistance in Tax Matters; and
• continued work on the three categories of countermeasures: domestic tax measures; tax treaty measures; non-tax measures. Many countries or groups of countries are already using such countermeasures.

As this initiative proceeds, particular attention will be paid to engaging with developing countries since effective taxation systems:

• reinforce democratic governance through increasing the accountability between the state and its citizens – a role that is at the core of effective state-building;
• enable the pursuit of pro-growth economic policies;
• provide certainty and transparency to business thereby encouraging investment; and
• reduce long term reliance on aid.

The economic crisis has put significant pressure on aid budgets and reduced revenues in developing countries at a time when expenditure on social programmes and economic stimulus is most acute. It is vital that developing countries protect their revenue flows by countering offshore non-compliance and strengthening their administrative capacity.

Developing countries face a number of interconnected challenges in mobilising their domestic tax resources: the process of liberalising trade has reduced revenues from tariffs (tariffs typically account for 40 per cent plus of tax revenues in Africa); illicit flows, including tax evasion, to tax havens and other non-cooperative jurisdictions are undermining the revenue base; weak tax administrations fail to collect the revenues due.

The OECD’s Development Assistance Committee and Committee on Fiscal Affairs is exploring how OECD countries and the donor community can support and reinforce the work of Global Forum on Transparency and Exchange of Information by assisting developing countries:

• to participate as equal members;
• to enter into agreements, working through multilateral mechanisms where possible;
• to create administrative structures to implement exchange of information mechanisms both for the provision and receipt of information; and
• to strengthen capacity including audit mechanisms to enable developing countries to request and use information obtained under agreements.

For the latest progress report on the jurisdictions surveyed by the OECD Global Forum in implementing the internationally agreed tax standard, please visit http://www.oecd.org/tax/progressreport.

The views expressed in this article are those of the author and do not necessarily reflect those of the OECD or its Member countries.