Tuesday, 18 June 2013

Tax transparency: a step change or climate change?

The OECD has another new report out today on tax transparency, this time to tie in to the G8 meeting in Enniskillen. Formally, this report was commissioned by the G8, though any impression given that the G8 are driving OECD activity in this area may be misplaced.

So what’s in this one? Well, an ambitious title for a start – “A Step Change in Tax Transparency” which is calculated to raise expectations and signal a serious commitment to change. The content focuses on reassuringly practical aspects of automatic exchange of tax information between jurisdictions. Anyone who has ever worked in a large organisation knows how difficult it can be to persuade computer systems or databases on one side of the building to talk to those on the other, so you can imagine the difficulties inherent in exchanging taxpayer information automatically between, say, the UK and Mozambique. This report seems to have been written by someone who has thought about the issues and is genuinely trying to work them out. The recommendations are practical, and focus on establishing relationships, getting the legal basis clear, defining the scope of information to be exchanged and lining up IT systems to receive the information.

Notably, the use of a common multilateral convention on information exchange is proposed as a practical solution. This has echoes of the idea floated by the OECD in April of a single multi-lateral tax treaty to replace all or part of the 3,000+ bilateral tax treaties currently in force around the world.  The latter is of course a far bigger proposition, and one which has serious potential to close off aggressive “treaty shopping” activities – the kind of artificial channelling of funds around the tax treaty network designed to avoid withholding taxes. It would be interesting if information exchange opened up the real possibility of this kind of close coordination.

There are obvious issues to be overcome, not least building the capacity of taxing authorities in less developed countries not only to gather and provide the information but to securely store and process it, and in setting the scope of information to be reported and defining what entities provide that information. Calling this one report a step-change may be gilding the lily, but taken with the OECD’s work on BEPS, recent UN guidance on transfer pricing for developing countries and more widespread developments on capacity development for taxing authorities in the Global South, this is certainly part of a shift in the climate around international tax avoidance.

Maybe not a step change just yet, but definite signs of climate change.

Sheila Killian

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