Monica Bhatia provides an update on the OECDs work towards international tax cooperation.
At its meeting in London in April 2009, the G20 countries announced the end of bank secrecy and upped the ante in 2014 when they endorsed the automatic exchange of financial account information as the new global standard. From the outset, the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) became the body mandated to ensure that worldwide commitments to the international standards are made good.
This pre-eminent position of the Global Forum in assessing jurisdictions as regards their cooperation on matters of transparency and exchange of information for tax purposes was reaffirmed by its 129 members when the Global Forum met on 29-30 October in Bridgetown, Barbados for its 8th plenary meeting. This meeting was held on the eve of the commencement of a new five year mandate of the Global Forum, and served as a ripe opportunity to take stock of its contributions to the integrity of the global financial system since 2009 and to agree on concrete steps which would take the agenda of tax transparency forward in the coming years. Read the 8th Global Forum meeting Statement of Outcomes: http://www.oecd.org/tax/transparency/statement-of-outcomes-2015.pdf.
The Global Forum’s work to date has focussed on the implementation of the standard of exchange of information on request. This has been done through an objective and rigorous peer review process that has established its credibility and integrity time and again. Reviews of the legal frameworks of 116 jurisdictions have been finalised and compliance ratings have been assigned for 86 jurisdictions after assessing their practices in effective implementation of the standard. This is an impressive accomplishment in terms of both the quantity of work, and also its quality. Delivering results quickly has been crucial to maintaining the momentum and ensuring a level playing field.
The results may not always be to the liking of those being assessed, but the Global Forum has never compromised its principles in the interests of convenience and the results have always been respected. This is made most evident by the fact that those jurisdictions that were rated Non-Compliant (British Virgin Islands, Cyprus, Luxembourg and the Seychelles) have quickly made the recommended changes and improved their ratings to Largely Compliant. In addition, up to the end of 2014, as many as 25 jurisdictions had been found too deficient in their legal frameworks to qualify for a review of practice. The recommendations had good effect, with 15 of these making changes to their legal frameworks and moving on in the process.
To incentivise jurisdictions which had not demonstrated the necessary resolve to address the recommendations made, the Global Forum, in 2014, agreed that if they do not qualify for a Phase 2 review within a specified time, they would be rated Non-Compliant. This was a hard policy choice to make, but the message was clear: time’s up, the world of tax transparency is moving on – to the next round of reviews with enhanced standards, to automatic exchange of information – and there is no more patience for jurisdictions which are falling behind. This decision had its impact – 5 jurisdictions (Brunei Darussalam, Dominica, Marshall Islands, Switzerland and Panama) have already made the necessary changes and for many others, the process of evaluation of the changes is under way.
At the Barbados plenary, the Global Forum agreed to strengthen its standard for exchange of information on request for its next round of reviews which will cover all members and jurisdictions of relevance. The improvements include new requirements for the availability of beneficial ownership information (drawing on the work of the Financial Action Task Force), incorporating the update to article 26 of the OECD Model Tax Convention and its Commentary to include requests relating to a group of persons and now evaluating the quality of exchanges.
The success of the Global Forum in forging consensus on sensitive issues without compromise in its work establishes its reviews as the gold standard when it comes to evaluating tax cooperation. All its members are fully engaged and participate in the peer reviews, which are transparent, efficient and effective. They have committed to address any recommendations made by their peers and have actually done so. This stands testimony to the robustness of its processes. The work accomplished by the Global Forum over the past 6 years has not disappointed, and the opportunities for tax evaders to hide their wealth from the eyes of tax authorities are fast disappearing. This success could only be possible through the unwavering commitment of governments to this important goal and the exceptional level of cooperation by all stakeholders in this endeavour.
This commitment and cooperation will be on full display in January 2016 when more than 50 jurisdictions around the world begin to collect financial account information as a first step in the automatic exchange of information between tax authorities globally. As the members of the Global Forum met in Bridgetown, the focus was clearly on the preparations for the historic steps to be taken by the New Year with governments around the world quickly changing their domestic laws to ensure financial institutions report information on financial assets held for non-residents. While automatic exchange of information is not new and has existed in various forms and between various partners over the years - the implementation of a truly global, multilateral process ushers in a new age in transparency and cooperation.
The Barbados meeting also marked 13 new signings of the Multilateral Competent Authority Agreement (see: http://www.oecd.org/newsroom/global-forum-on-tax-transparency-pushes-forward-international-co-operation-against-tax-evasion.htm) – Antigua and Barbuda, Barbados, Belize, Bulgaria, Cook Islands, Grenada, Japan, Marshall Islands, Niue, Saint Lucia, Saint Vincent and the Grenadines, Sint Maarten and Samoa – which strengthens the international operational framework for the exchanges and brings the total number of signatories to 74.
The Global Forum it well-placed to push forward the move toward AEOI given its success in ensuring effective implementation of the standard of exchange of information on request, and its wide membership, with as many as six new countries voluntarily joining the Global Forum within the last year. To make good on the mandate of the G20 requires the buy-in of all jurisdictions that make up the global financial system. This is where the Global Forum has truly made its mark in the international community and set the example as the multilateral, consensus-driven policy institution par excellence.
To date, more than 90 Global Forum members have committed to implementing AEOI in either 2017 or 2018. The Global Forum is actively encouraging and working with its developing country members to ensure their participation in the new enhanced environment of tax transparency. Developing countries are increasingly eager to benefit from the new standard and have come forward to engage in pilot projects with partner countries and avail of the technical assistance offered by the Global Forum and other international organizations such as the World Bank Group. As a reflection of the growing interest of developing countries to participate fully in the benefits of enhanced tax transparency, Ghana also announced its intention to engage in automatic exchange of information starting in 2018.
The Global Forum has already established a real-time monitoring process to keep track of the delivery of the commitments made and to identify areas where support is needed, as well as started preliminary assessments of the confidentiality standards and data safeguards in all the committed jurisdictions.
As they have since 2009, the G20 continues to support and rely on the Global Forum’s efforts. In their Communiqué issued on 16 November 2015, G20 Leaders declared: “We are progressing towards enhancing the transparency of our tax systems and we reaffirm our previous commitments to information exchange on-request as well as to automatic exchange of information by 2017 or end-2018. We invite other jurisdictions to join us. We support the efforts for strengthening developing economies' engagement in the international tax agenda” (for full communiqué: http://www.g20.utoronto.ca/2015/151116-communique.html).
The Global Forum has made terrific strides over the past six years to strengthen the integrity and transparency of the global financial system. Its work on exchange of information on request has been nothing short of astonishing, both in terms of its scope and its impact and could not have been imagined possible six years ago. The work on AEOI, which marks a step change in international tax cooperation, is also well underway with governments set to collect information beginning in January 2016. As the vehicle for this great progress, the Global Forum has established itself as an integral and indispensable institution in the fight against tax evasion. There is more work ahead, but the foundations laid in these past years are solid all stakeholders alike should be very proud of these accomplishments.
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.