The IFC Review speaks to Pascal Saint-Amans, Director for the Centre of Tax Policy and Administration about the progress and objectives of the OECD’s policies.
IFC Review: The OECD began its campaign for transparency in the late 1990s – how successful in your opinion has that campaign been?
Pascal Saint-Amans: After years of stalling, this campaign has been highly successful in recent years following what we all know as the Liechtenstein scandal in 2008. In the context of the financial crisis, the G20 has made transparency one of its key priorities and the London Summit in 2009 led to a new momentum. Following the London Summit, the Global Forum on Transparency and Exchange of Information for Tax purposes was restructured with all its members, now over 115 jurisdictions, on an equal footing and committed to international standards of tax transparency and subject to a rigorous peer review process. Over 800 tax information exchange agreements have been concluded in the last few years. The Multilateral Convention on Mutual Assistance was opened to signature to non OECD, non Council of Europe countries. It has now been signed by more than 40 countries and many have expressed interest in signing. Banking secrecy is no longer acceptable as grounds to refuse to share information with tax authorities. We are creating a new compliance culture within a cooperative international tax environment.
IFC: How important is a level tax playing field?
PSA: A level playing field is very important as it is fundamentally about fairness – equity and fair competition. The broad membership of the Global Forum is a good illustration of how seriously we take it! All Global forum members are on an equal footing and the peer review mechanism precisely relies on peers’ inputs. Whether small or big, financial centres or not, high tax jurisdictions or no tax jurisdictions, all countries are treated equally. This is of critical importance because jurisdictions that meet the high standards of transparency and exchange of information should not be disadvantaged by jurisdictions that are not part of the process and the latter should not be permitted to profit from the promotion of their position of being on the outside.
IFC: How important do you believe the black, grey and white ‘listing’ of jurisdictions has been in encouraging tax transparency and regulation in former tax havens?
PSA: In 2009, at the request of the G20, the OECD was asked to report on progress towards transparency made by jurisdictions. Leveraging on the work of the sub-group on the level playing field (made of eight former ‘tax havens’ and eight OECD countries), the OECD was in a position to identify (i) the countries which had not committed to implementing the standard and (ii) those which had committed to but had not made significant progress. The sub-group had agreed that signing 12 agreements to the standard was a fair benchmark of progress. It is important to note that the ‘list’ provided to the G20 and issued on 2 April 2009 covered all countries, OECD and non OECD! There is no doubt that it played its part in pushing some major financial centres to adopt the standard (four OECD countries did so on 13 March 2008). More importantly, beyond committing, all countries have made major progress in signing agreements. However, this ‘list’ is now outdated and has been replaced by the peer review mechanism which has its own, much more in-depth criteria: (i) having a good legal framework and (ii) exchanging information in practice. This is a more sophisticated process that objectively assesses jurisdictions against clear criteria and makes recommendations for improvements to meet the standards. All the evidence shows that jurisdictions act on those recommendations and the result is greater transparency and better tax compliance. What matters now for a jurisdiction is to be part of the process (unlike Lebanon which has refused to join the Global forum) and then to have its legal framework in place to be able to move to the phase 2 (assessment of the actual information exchange). At the end of the phase 2, countries will receive an overall rating on their performance.
IFC: What is the OECD’s long term objective with regard to IFCs?
PSA: The goal of the OECD and now of all Global Forum members is to promote transparency and level the playing field.
IFC: How successful has the tax treaty programme been?
PSA: The treaty programme has been very successful. There has been widespread adoption of the standard of exchange of information set out in Article 26 of the OECD Model Tax Convention (the standard is contained in the UN Model, TIEA and the Multilateral Convention and is incorporated in the Global Forum terms of reference).
An update to Article 26 was approved by the OECD Council in July 2012, which provides for group requests. The Global forum will have to decide whether this improved standard will be incorporated in its own terms of reference..
IFC: How important is the automatic exchange of information?
PSA: Automatic exchange as a tool to counter offshore non-compliance has a number of benefits. It can provide timely information on non-compliance where tax has been evaded either on investment return or the underlying capital sum. It can help detect cases of non-compliance even where tax administrations have had no previous indications of non-compliance. Other benefits include its deterrent effect, increasing voluntary compliance and encouraging taxpayers to report all relevant information. G20 has also recognised its importance encouraging countries to consider exchanging information automatically on a voluntary basis under the Multilateral Convention. We can see automatic exchange of information becoming a growing practice, though not being a standard.
IFC: What was the objective behind the peer review process – has it proved successful?
PSA: The aim of the peer review process is to ensure that international standards of transparency and exchange of information, to which all members have made a commitment, are implemented by all jurisdictions across the globe so that the free movement of capital is complemented by exchange of information to ensure that tax is paid in the place where it is due and it is no longer possible to hide income or assets from the relevant tax authorities.
The peer review process has benefitted from the active involvement of all its members including IFCs and has delivered fair, transparent results. The success of the process is reflected in the wide sweeping changes that have been brought about in the regulatory environment across the globe. As the process moves to evaluating exchange of information practices, there will be increased pressure to make sure promises are delivered and there is real change on the ground.
IFC: In what way do you feel the business of international tax has changed since the OECD began its campaign against harmful tax competition?
PSA: There is a greater awareness that tax cooperation goes hand in hand with globalisation, both by governments and business as well as the general public. It is recognised that while countries may have different tax rates, which play a part in economic competitiveness, this cannot be seen in isolation. There is also a need for countries to be able to collect their legitimate tax revenues. This applies to OECD countries and also to developing countries. There is now a much greater recognition of these inter-relationships and the need for common standards to ensure fairness and effectiveness in global taxation. There is increased realisation that there is no longer a place for businesses that rely on secrecy and that the new environment is here to stay. In fact, many countries are moving to automatic exchange of information and that will result in more cooperation. FATCA is another game changer. Businesses which can adapt themselves to the new environment based on transparency will be the ones which will survive.
IFC: What impact will FATCA have?
PSA: As said earlier, FATCA is a game changer. Model 1 and Model 2 intergovernmental agreements (IGA) are likely to foster the dynamic towards transparency. FATCA Development of a common model for automatic exchange, including the development of reporting and due diligence standards for financial institutions, would avoid a proliferation of different models and reduce costs for both governments and business. On the one hand, FATCA, being a unilateral, extraterritorial legislation, raises a number of serious concerns. On the other hand, the fact that bilateral agreements can be concluded and then articulated through a multilateral platform to operate the information exchange makes it much more acceptable by all players. The OECD, in particular with its Global forum, can help in that sense and direction.
IFC: Should we be considering a future with no financial privacy?
PSA: It is important to distinguish between taxpayer confidentiality and banking secrecy. The former is a legitimate expectation of compliant taxpayers. Indeed the international standards require it. Transparency and exchange of information is about cooperation between tax authorities who have a duty to protect the confidentiality of the information they receive. Our aim is to promote transparency for tax purposes, which means that countries and financial institutions must share information with tax authorities, which is different from public disclosure of private information. Interestingly, the OECD, followed by the Global Forum, has adopted a manual on taxpayers’ confidentiality. The ability to protect confidentiality is also a condition to access the multilateral convention. We take this very seriously. The more progress towards transparency, the more we need to protect taxpayers confidentiality.
IFC: Do you feel that the traditional offshore jurisdictions have been treated fairly by supra national bodies when compared to treatment of more traditional ‘onshore’ finance centres?
PSA: The Global Forum members participate in its working on an equal footing and have been involved actively. The process is designed to ensure fair and equal treatment for all members. All financial centres are playing their part in the new cooperative tax environment. Financial centres contribute assessors to the peer review process and work closely with other Global Forum members to ensure that standards are applied fairly and consistently across all jurisdictions. This inclusive process means that traditional offshore centres are now much more part of mainstream tax cooperation and are themselves helping to ensure the process works fairly.
IFC: The Tax Justice Network feels that the OECD and other international bodies are not doing enough to track offshore wealth – what is your response to such accusations?
PSA: I think the changes we have seen over the last few years in the international cooperation environment are nothing short of revolutionary. What has been achieved was unthinkable a few years ago. We are creating an environment where countries and tax authorities are much better placed than before to trace off shore wealth and collect tax revenues. Over the last few years the framework for tax cooperation has been transformed. However the process is far from over and there is still much to do.
IFC: Should we dispel with differentiating between offshore and onshore/tax havens and financial centres and acknowledge that tax evasion and its unsavoury companions can be found throughout the financial system as a whole and not just in IFCs?
PSA: The OECD and Global Forum aim to combat tax evasion wherever it occurs. We promote tax cooperation by all jurisdictions based on common standards. The international standard for transparency and exchange of information does not distinguish between different types of jurisdiction in the standard that must be applied. It recognises the different characteristics and economic circumstances of the wide range of Global Forum members. This is one of its greatest strengths, that large and small financial centres, non-financial centres, emerging markets, developed and developing countries, have been able to come together in pursuit of common standards. The Global Forum has done much to break down barriers between different jurisdictions and will continue in that vein.
Mr Saint-Amans, a French national, joined the OECD in September 2007 as Head of the International Cooperation and Tax Competition Division in the CTPA. He was responsible for the OECD’s work on harmful tax practices, money laundering and tax crimes, the tax aspects of countering bribery of foreign officials and administrative cooperation between tax authorities, while playing a key role in the advancement of the OECD tax transparency agenda in the context of the G20. In October 2009 he was appointed Head of the Global Forum Division, created to service the Global Forum on Transparency and Exchange of Information for Tax Purposes, a program with the participation today of over 120 countries and jurisdictions.