There has been tremendous progress in the last few years in the efforts to fight tax evasion. The international community has universally acknowledged the importance of building a world where everyone pays their fair share of taxes.
One of the key steps that has been taken in this area is to end secrecy for tax purposes, by strengthening transparency and boosting the comprehensive exchange of information between governments worldwide.
Since 2009, when the Global Forum on Transparency and Exchange of Information (the Global Forum) was restructured, membership has increased to 121 jurisdictions, comprising many small jurisdictions, all major financial centres, OECD economies, as well as all G20 jurisdictions. Having all members working together, sharing the same objective is a turning point for progress towards a truly level playing field.
A big step forward towards comprehensive transparency was achieved on 21-22 November 2013, when over 200 delegates from 81 jurisdictions and 10 international organisations and regional groups came together at the sixth meeting of the Global Forum in Jakarta, Indonesia.
Participants took decisions which will have far reaching implications on the exchange of information environment. These were:
Publication of compliance ratings for 50 countries and jurisdictions on the practical implementation of the Global Forum’s information exchange on request standard. Eighteen jurisdictions were rated Compliant , 26 jurisdictions were rated Largely Compliant, two jurisdictions were rated Partially Compliant and four jurisdictions were rated Non-Compliant . Fourteen additional jurisdictions were not given compliance ratings, pending further improvements to their legal and regulatory frameworks for exchange of information in tax matters. See Figure 1.
Establishment of a new Automatic Exchange of Information (AEOI) Group, open to all interested countries and jurisdictions, to prepare the move towards AEOI implementation.
Agreement for further work aimed at strengthening the definition of beneficial ownership and the availability of this type of information.
Agreement that the Forum continue monitoring implementation of the transparency and information exchange standard, in particular through a new round of reviews starting in 2016, while further developing its Terms of Reference and review processes.
These achievements signal a great success for the Global Forum and a reaffirmation of the resolve to ensure full implement effective exchange of information on an ongoing basis.
The assignment of ratings to the first 50 jurisdictions marks the fulfilment of a major part of the original mandate of the Global Forum and a culmination of the peer review exercise. To date, 124 peer reviews have been completed, including 74 Phase 1 reviews, which assess the jurisdiction’s legal and regulatory framework and 50 Phase 2 reviews which assess the practical effectiveness of that framework.
The ratings exercise was carried out at one go for 50 jurisictions so as to have a representative cross section of Global Forum membership include G20 members, OECD countries, non-OECD countries, offshore financial centres and some developing countries and to allow for a comparative perspective. The ratings, which were discussed and approved by the entire membership of the Global Forum, have been largely accepted very positively by the jurisdictions rated and there have been commitments made to address recommendations. Many rated jurisdictions have already begun the process of making the required changes in order to be able to seek an upgrade of their ratings as soon as they are eligible.
While noting that 14 jurisdictions could not receive ratings because their Phase 2 reviews could not take place pending changes to their legal and regulatory framework to allow for effective exchange of information, the Global Forum agreed to undertake close, on-going monitoring so that these jurisdictions move forward expeditiously. It is encouraging that many of these jurisdictions have since made progress so that focus can be on those that lag behind.
What’s next after Peer Reviews?
Completion of peer reviews does not mean that nothing more needs to be done in implementing the standard. There was agreement that continued monitoring of the implementation of the standard on EoI is essential to ensure jurisdictions do not fall back on their commitments. To this effect, there will be another round of reviews for all Global Forum members and relevant non-members beginning in 2016.
For this purpose, the Global Forum will re-examine its Terms of Reference to identify and agree on any necessary changes. Key issues to be examined in this context include the issue of beneficial ownership of legal entities and arrangements, revisions to Article 26 of the OECD Model Convention and its commentary, which were part of its 2012 update, and other appropriate changes based on the experience gained from the present round of peer reviews.
Automatic Exchange of Information- The Next Frontier
The exchange of information environment has developed very rapidly over the past year, with strong support coming from the G20 to move towards automatic exchange of information that supports and enhances exchange on request.
The pilot project for multilateral information exchange started by the G5 countries (Italy, Spain, UK , France, Germany) has seen many other jurisdictions join in and the OECD, working with G20 countries has finalised the new standard.
Many Global Forum members are affected by these developments and are keen to make quick progress while ensuring a level playing field. In recognition of these developments, the Global Forum has taken on the challenge of reviewing and implementing the new AEOI standard. A sub group on AEOI has been established comprising 50 Global Forum members who wish to come together to work towards a common goal of engaging in AEOI. Apart from establishing criteria to to guide implementation of AEOI, it is tasked with identifying obstacles to AEOI and helping developing countries identify their needs for technical assistance and capacity building before engaging in AEOI.
All these are very good results but the Global Forum is now facing new challenges and needs to move forward quickly as global focus on preventing tax evasion continues unabated.
The immediate task is to complete the ongoing peer reviews, assessing the standard of exchange of information on request while laying the groundwork for the next round of peer reviews to being in 2016. The pace at which jurisdictions are amending their legal framework and practices foretells that many supplementary reviews will be undertaken to assess the changes made.
At the same time the Global Forum will be working towards developing effective ways to ensure implementation and review of the new standard on automatic exchange of information. The G20 countries have already committed to exchange information amongst themselves as early as 2015 and through a Joint Statement, 40 jurisdictions have indicated their commitment to be early adopters. Many other members are keen to understand the benefits of engaging in AEOI or moving towards implementing it in the near future.
The Global Forum, with its wide membership and expertise in exchange of information is uniquely placed to respond to the varied needs of its members.
 Botswana, Brunei, Dominica, Guatemala, Lebanon, Liberia, Marshall Islands, Nauru, Niue, Panama, Switzerland, Trinidad and Tobago, United Arab Emirates and Vanuatu.
Monica Bhatia, Head of the Global Forum on Transparency and Exchange of Information for Tax Purposes, OECD