As published on law360.com, Thursday 28 May, 2020.
Law360 (May 28, 2020, 6:05 PM EDT) -- Developing nations seeking revenue to respond to the novel coronavirus pandemic face data-processing challenges with their residents' offshore tax information after obtaining it through a global exchange system, a specialist with the Organization for Economic Cooperation and Development said Thursday.
Implementing an automatic exchange of information, or AEOI, is more complex for most developing countries, according to Hakim Hamadi, head of the technical assistance unit at the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes. He spoke about taxation and transparency in the wake of the pandemic during a webinar organized by the Independent Commission for the Reform of International Corporate Taxation.
The crisis around the virus — which causes the respiratory disease COVID-19 — is creating momentum for the tax transparency agenda, according to Hamadi. However, one of the biggest challenges is ensuring that developing nations benefit from the automatic exchange of information, he said. In terms of assisting these countries with the AEOI, Hamadi said the OECD was helping to ensure data protection and establish a system to process the information.
"What do you do with these megabytes of information if you cannot identify the taxpayer, if you cannot use it appropriately?" he asked. "You will end up with information you cannot use."
Hamadi said the OECD was working with 20 developing countries in this area, and depending on those countries' circumstances, "this is a longer path, which can be started now."
The AEOI involves a standardized system for countries to access information on the offshore financial accounts of their residents. In 2017, countries began automatically exchanging a predetermined set of information on financial accounts, a process that has "strengthened the ability of tax authorities to detect tax evasion," according to a report published in November by the Paris-based OECD.
The countries that use the AEOI belong to the Global Forum, a group that now counts 161 jurisdictions among its members. Nearly 100 members in 2018 automatically exchanged information on 47 million financial accounts, according to the OECD's report. In addition, the report found that more than €100 billion ($111 billion) in additional revenue had been identified since 2009.
Hamadi cited this €100 billion figure during Thursday's webinar, noting that €27 billion of that amount had gone to developing countries, also referred to as the global south.
"The potential in terms of domestic resource mobilization is there," he said.
Automatic exchanges of information are "absolutely essential" in the absence of a global wealth tax, according to Ingrid Woolard, professor and dean of the faculty of economic and management sciences at Stellenbosch University in South Africa.
Speaking during the webinar, Woolard said it's also important to build the capacity within revenue authorities to actually use the information they receive.
"I think we assume that the capacity is there, but it isn't yet," she said.