OECD: new developments in tax information exchange

April 24, 2013

On 19 April 2013, the OECD published a report to G20 finance ministers and central bank governors that highlights measures to ensure that all taxpayers pay their fair share.

The report covers three strategic initiatives:

  • Progress reported by the Global Forum on Transparency and Exchange of Information for Tax Purposes, including the upcoming ratings of jurisdictions’ compliance with the Global Forum’s standards on exchange of information on request
  • Efforts by OECD to strengthen the automatic exchange of information
  • Latest developments to address tax base erosion and profit shifting, a practice that can give multinational corporations an unfair tax advantage over domestic companies and citizens

Global Forum on Transparency and Exchange of Information for Tax Purposes: How do countries rate?

The Global Forum, set up in 2000 to agree global tax standards, now has 119 member countries and jurisdictions. Since 2009, when the G20 called for effective implementation of the internationally agreed standard of information exchange, the Forum has published 100 peer review reports.

Most countries have completed the first phase of the reviews which looks at legal frameworks. Fourteen are not moving to the second phase due to deficiencies in their legal frameworks.

After it completes a set of Phase 2 reviews, looking at effectiveness of the information exchange practices, the Global Forum will start rating countries’ implementation of the standards on the basis of a four-tier classification system: “compliant,” “largely compliant,” “partially compliant” and “non-compliant.”

The results of the ratings exercise for the first set of reviews will be completed by year end, with the allocation of overall ratings to approximately 50 tax jurisdictions.

The delivery of overall ratings will be a watershed moment in the Global Forum’s evolution, as it represents the completion of its original mandate, while at the same time setting the bar for its future work.

Indeed, as the reviews are being completed and the ratings exercise undertaken, the Global Forum has started reflecting on its future beyond its current mandate, which extends to the end of 2015. Global Forum members are united in seeing the Global Forum play an important role beyond the Phase 2 reviews and the current mandate.

Thus, the ratings exercise should be seen as one component of an ongoing process for which the support of the G20 is key.

Automatic exchange of information: the next step

The report identifies the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the convention) as the ideal legal instrument for multilateralizing automatic exchange of information.

The convention provides governments with a variety of means to fight offshore tax evasion and ensure compliance with national tax laws, while respecting the rights of taxpayers.

Over 50 countries have either signed or committed to sign; more are expected to sign the convention at a ceremony to be held at OECD headquarters on 29 May 2013.

However, not many offshore jurisdictions have so far joined the convention and the report concludes that further support of the G20 may be useful in this regard.

The OECD work already shows widespread use of automatic exchange of information regarding country coverage and income types, transaction values and records exchanged.

Key findings include:

  • Many countries, OECD and non-OECD economies, receive information automatically from treaty partners.
  • Eighty-five percent of surveyed countries send information automatically to treaty partners (up to 70 partners in one case).
  • The value of transactions reported to most countries in a year is measured in euro billions and five countries each received information totaling in excess of €15 billion.

Addressing base erosion and profit shifting

As base erosion and profit shifting (BEPS) undermine tax revenues and the fairness of the tax system, the OECD has strengthened its work to put an end to international double non-taxation.

On 12 February 2013, the OECD published the report, Addressing Base Erosion and Profit Shifting.

The report calls for the development of a comprehensive action plan to:

  • Identify actions needed to address BEPS
  • Set deadlines to implement these actions
  • Identify the resources needed and the methodology to implement these actions

To advance the work on the action plan, three temporary focus groups were set up and all OECD members and participant countries in the Committee on Fiscal Affairs were invited to participate. The three focus groups are:

  • Countering base erosion, which mainly looks at anti-avoidance measures, measures to avoid the negative effects of asymmetries in tax systems (hybrids), and how to revamp the work on harmful tax practices.
  • Jurisdiction to tax, which mainly looks at issues related to how existing rules allocate the right to tax cross-border business, with a particular focus on the digital economy.
  • Transfer pricing, which looks at issues related to the arm’s length principle.

It is envisaged for the action plan to be delivered to the Moscow meeting of G20 finance ministers’ meeting in July 2013.

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