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Despite Global Progress on Tax Secrecy, Significant Work Remains

Posted on Nov. 27, 2019

Although work coordinated by the OECD’s Global Forum on Transparency and Exchange of Information has significantly contributed to the global anti-tax-secrecy campaign, developing countries often lack the legal framework and capacity to realize the benefits. 

Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration, said the Global Forum has made major strides in information exchange arrangements and other forms of international tax coordination. The forum implements multilateral standards on tax information exchange agreements, including the common reporting standard for the automatic exchange of financial account information. 

Although outstanding issues regarding beneficial ownership and cryptocurrencies remain, the forum established a foundation for cooperation that made other multilateral efforts — including the base erosion and profit-shifting project — possible, Saint-Amans said at a November 26 meeting of the Global Forum in Paris. The meeting marked the 10-year anniversary of the forum, which coordinates bilateral information exchange for over 150 participating countries. 

“I can say we've made good progress because, firstly, all of the principles — on banking secrecy, trust fund secrecy, and beneficial ownership, etc.  all of that has basically been done. The principles have been accepted, so that's great,” Saint-Amans said. “The second thing is that the system that we've set up — the infrastructure, what everyone here in the Global Forum has done, the peer review process, the mechanisms, the processes, the monitoring, the alert systems — all of those processes are basically gaining mileage. They're pretty much well accepted and rolled out everywhere.”

Quality Over Quantity 

However, Logan Wort, executive secretary of the African Tax Administration Forum, said the effective use of information received under an automatic exchange of information agreement requires a legal framework and institutional capacity that many developing countries still lack. Wort cautioned that the Global Forum's success cannot be assessed based solely on the number of participating countries or the number of bilateral exchange relationships established. 

“There's a lot of countries that have signed up. There's a lot of numbers — $60 billion that's possibly there to be collected, maybe there's $500 million — and these are really exciting numbers,” Wort said. “I do think we need to look beyond those numbers. I think it's important that we look at the importance of capacity processes — the law that lies beneath them — and that is where the success should be measured.” 

Wort added that the forum has played a major role in generating and sustaining the political will to make the reforms. “There's a lot underneath the signing of the deal here and if we don't get this right, there is a risk to the confidence in the process. I think the work of the Global Forum is very important in getting this right and I do think the Global Forum is on the right track in doing that, and that's good,” he said. 

Despite the challenges, at least one African country has already seen tangible benefits from automatic exchange of information, according to Mohamed Ridha Chalghoum, Tunisia’s minister of finance. “It has indeed enabled us, to date, to increase our tax revenues. And as minister of finance, you know that I can only be pleased with that,” he said.

A Reputational Issue 

Government officials representing Panama and Barbados said demonstrable compliance with international tax transparency standards is, at least in part, a reputational issue for their countries. While objecting to Panama's association with tax evasion since the Panama Papers scandal, Erika Mouynes, vice minister of multilateral affairs and cooperation, said the country’s new government has prioritized enforcement of existing law and is taking an aggressive approach to beneficial ownership that exceeds existing international standards. 

“I would be doing a disservice to my country, since I am from Panama and we've been mentioned several times, if I didn't say that ‘the Panama Papers’ is a misnomer,” because most of the companies and individuals involved were not Panamanian, Mouynes said. “But in spite of that, Panama has chosen to draw a line in the sand and to move forward and to use this unfortunate [amount] of attention that we've received to take a deep look into our own rules, into our own legislation. And I am part of a new government only five months in the administration where the president himself has taken the task of actually meeting every week with every single agency involved.” 

According to Barbados Minister of Finance Ryan Straughn, the international standards allow low-tax island jurisdictions to prove that they do not enable evasion of taxes imposed by other countries. The Barbados tax system was rated “not harmful” in a July report by the OECD’s Forum on Harmful Tax Practices and, after receiving a warning from the EU Code of Conduct Group, avoided the EU blacklist of uncooperative tax jurisdictions by committing to enforce stricter economic substance requirements by the end of 2019. 

“We certainly don't look at it simply as whether or not financial secrecy is dead, but really as an opportunity to engage this process in order to demonstrate to the world that our activities certainly are above board,” Straughn said. “But, having said that, the public policy space that we seek to create and provide social advancement for our citizens is no different from that of Norway and so . . . the level of taxation that we will levy on our citizens and those who wish to engage in Barbados is certainly within the sovereign right of the country."

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