Q&A with the OECD’s Monica Bhatia – Head of the Global Forum on Transparency and Exchange of Information for Tax Purposes

IFC Review: How would you define the Global Forum’s main objective?

Monica Bhatia: The main objective of the Global Forum is to fight international tax evasion through the promotion of transparency and cooperation with respect to tax information between jurisdictions worldwide.

In a world of sovereign states that administer their tax revenues autonomously, tight international cooperation is the key tool available to domestic tax administration attempting to stop tax dodgers who hide wealth offshore. The G8 and the G20 have been strong supporters of this approach for long time.

The cooperation is set up though the international standard of transparency and exchange of information for tax purposes as agreed by Global Forum members and to which all Global Forum members have committed. Through an in-depth monitoring and peer review process, the Global Forum seeks to ensure that all jurisdictions actually implement the standard. Throughout the peer reviews, the Global Forum spots deficiencies in a jurisdiction’s legal framework or practices, makes recommendations to improve these shortcomings, and evaluates the follow-up actions taken.

IFC: Further to the Forum’s report to the G20 in April, how effective has the strategy of Peer Reviews been?

MB: The objective of the peer review process is to ensure that all jurisdictions implement the international standard of transparency and exchange of information for tax purposes. The process works on a peer-pressure basis. A crucial moment will be the publication of ratings for about 50 jurisdictions, which will take place at the end of 2013. The pressure has, however, always been very strong as the G20 has constantly supported the Global Forum and has continuously called on all jurisdictions to implement the standard. The outcomes are proof of the effectiveness of the peer review process.

IFC: Have the goals of improved transparency and effective exchange of information been achieved?

MB: Jurisdictions have taken concrete actions to improve their legal framework and practices to ensure transparency and effective exchange of information. Though there is still room for improvement, the current results are impressive. As mentioned in the April 2013 report to the G20, the peer review process is having tangible effects. Jurisdictions are acting upon around 300 recommendations and have established hundreds of new EOI relationships, including through the OECD’s multilateral assistance convention. For example, secrecy instruments like bearer shares or anonymous bank accounts have been generally abolished jurisdictions have acted swiftly to ensure that the owners are identified.

In addition, transparency and exchange of information have significantly improved. Jurisdictions are using EOI mechanisms more frequently to send EOI requests to their partners. The Global Forum has organised meetings of the competent authorities in order to help its members handle current and future increase of international tax cooperation.

IFC: In the report to the G20 it states that the Forum’s work has been having an impact and that ‘jurisdictions are implementing the standards by changing both their legal frameworks and their practices.’ Is the move now to tackle tax avoidance a further step or a new direction in the Forum’s work?

MB: The work of the Global Forum and its impact will certainly help to tackle tax avoidance, as will the OECD’s work to address the issue of Base Erosion and Profit Shifting (BEPS).

The Global Forum seeks to tackle the illegal use of opaque financial centres and jurisdictions by promoting transparency and exchange of information which can help tax authorities better administer the tax revenues of multinational companies.

IFC: Could it be said that ‘legal tax avoidance’ is the new ‘tax evasion’?

MB: There has been increased political and public attention to the issue of tax avoidance by multinationals. Countries have come together to develop a coordinated and collaborated approach to the issue through the OECD work on BEPS. G8 leaders and G20 Finance Ministries have endorsed the BEPS Action Plan and it is expected that the G20 leaders will follow suit when they meet in September.

IFC: Is it possible that in the future any type of tax ‘planning’ will be considered unfair, immoral or even illegal?

MB: While corporate tax planning strategies may be technically legal, they rely on carefully planned interactions of tax rules and principles. The overall effect is to erode the corporate tax base of many countries in ways that domestic policy does not intend. These results have received increased media attention and have affected how tax planning is perceived. Decisions about tax planning structures will increasingly take into account reputational risks and corporate social responsibility.

IFC: How can trust in the tax system be restored?

MB: Trust in the international tax system can be restored by revisiting the tax rules as well as ensuring stability and certainty. The OECD work on tax matters - recent developments on the multilateral Convention on Mutual Administrative Assistance in Tax Matters, automatic exchange of information and BEPS - support governments’ efforts to restore trust by setting the standards and providing the instruments to combat tax evasion, improve tax compliance and ensure the fairness of their tax systems.

IFC: The Peer Review process will move towards rating the jurisdictions that have taken part in the process later in the year – how is the ratings process different from the listing (white, black, grey etc) system?

MB: The white, grey and black list published in 2009 was based on the number of signed EOI agreements.

Since then the process has evolved. The Peer Review process analyses a country’s compliance with the international standard – notes whether it has 10 essential elements which comprise an effective exchange of information framework. The extent and quality of the treaty network is one of the elements and others cover a wide range of aspects such as availability of information, and the access powers of Competent Authorities. The Peer Review process assesses both the laws and the actual practices of jurisdictions. The ratings will be based on the assessments carried out by a team of experts, with the involvement of the assessed jurisdictions and the approval of the Global Forum members themselves.

The rating exercise aims at assessing which jurisdictions have complied with the standard and which ones are falling behind. Though rating is a sensitive issue, the ultimate aim of the peer review is to make sure that the standards are effectively implemented by everyone.

IFC: Regarding exchange of information – with almost 800 TIEAs worldwide why is it felt necessary to move to automatic exchange of information?

MB: Even though the number of bilateral EOI relationships is increasing, many countries have expressed interest in more integrated forms of tax cooperation. These include automatic exchange of information.

IFC: Why do you think that so few ‘offshore’ jurisdictions have signed up to the Convention on Mutual Administrative Assistance n Tax Matters?

MB: Jurisdictions that have no or little EOI experience may be leery of joining a Convention that prescribes EOI with many other jurisdictions. For some it might be a question of resources, although other reasons may intervene in specific cases. Under the G20 pressure the number of signatures to the MAC is increasing and recently reached more than 60 jurisdictions, covering thousands of bilateral relationships. Among them is also Singapore, which reaffirmed once again its commitment to tax cooperation based on international standards. Aruba, Curaçao and Sint Maarten have recently joined. At the last G8 Summit, the British Crown Dependencies and Overseas Territories also agreed to join the Convention. The G20 is strongly encouraging all jurisdictions to sign the MAC and I am confident that other offshore jurisdictions will join.

IFC: With the automatic exchange of information being encouraged – how can taxpayer confidentiality be protected?

MB: To engage in exchange of information, and in particular automatic exchange of information, countries need a high degree of comfort that the information is kept confidential both in law and in practice and is only used for the purposes allowed under the applicable exchange instrument.

To protect the confidentiality of information sent automatically, the records are sent encrypted or via a secure platform. Once decrypted by the receiving competent authority the records are kept in a dedicated data base accessible only to authorised staff. 

IFC: Has the recent public outcry about the tax affairs of corporate giants such as Starbucks and Google been the driving force behind the OECD’s push against profit shifting?

MB: The OECD has been actively providing solutions to tackle aggressive tax planning for years. The debate over BEPS has now reached the highest political level and is an issue on the agenda of several OECD and non-OECD countries. At the request of the G20, the OECD acted quickly to produce first a report on concerns about BEPS and then a few months later an Action Plan to address those concerns.

IFC: Do corporations not have a responsibility to their shareholders to seek out the most tax efficient means of doing business – how can this responsibility align with the increasing demands for international corporation to apply what is an inherently subjective measure of ‘morality’ to corporate tax planning?

MB: For a corporation, being competitive means selling the best product at the best price in order to increase profits and shareholder value. In this respect, it is natural that investments will be made where profitability is the highest. Tax is one of the factors of profitability, and as such affects corporations’ decisions on where and how to invest. However, a company’s aggressive tax position does not necessarily enhance shareholder value. It can also increase risk, including the reputational risk, if the tax planning becomes public or is the subject of litigation.

IFC: Beyond 2015 what will be the next step for the Global Forum?

MB: The Global Forum’s second mandate extends to 2015 and it is already thinking of its future. Certainly, there will be more peer reviews – both for new members and for the members that have not completed their Phase 2 reviews. The pace at which jurisdictions are amending their legal framework and practices foretells that supplementary reviews will be undertaken to assess the changes made. The Global Forum will continue its monitoring role so as to ensure that jurisdictions do not back track on their commitments and that they consolidate the achievements made so far. The Global Forum will also be considering whether any changes to its terms of reference are required in light of experience gained with the reviews.

The G20 has invited the Global Forum to monitor a new standard for automatic exchange of information being developed by OECD and G20 countries. Many Global Forum members are supportive of automatic exchange of information and the issue will be at the forefront of the agenda of the Global Forum. Things are moving rapidly and I can say with confidence that the Global Forum will be actively engaged in shaping the international tax cooperation environment.

Monica Bhatia
Monica Bhatia has over 20 years of experience in the Indian Ministry of Finance. She serves as the Director in the Department of Personnel and Training of the Government of India. In 2012, she was appointed Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes.