Advocates of stronger financial transparency measures are lauding the move, announced Thursday by the
Indeed, the new standard has yet to offer clarity on how it would include poor countries, despite the fact that developing economies are among the hardest-hit by global tax evasion.
“This is a real game changer. Globalisation of the world’s financial system has made it increasingly simple for people to make, hold and manage investments outside their country of residence,” OECD Secretary-General
“This new standard on automatic exchange of information will ramp up international tax cooperation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.”
The new proposal comes in the context of rising public frustration around the world, particularly in the aftermath of the global financial crisis, with reports of rich companies and individuals stashing as much as
The OECD developed the new standard after being requested to do so last fall by the Group of 20 (G20) of developed and emerging economies. It will now be formally presented to a G20 ministerial meeting in
The top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2009 were: •
If adopted, the changes would mark a sea change in global financial transparency, and one that advocates say came about with astounding speed.
“Just five years ago you couldn’t get anyone to talk about this issue – most people called it a pipedream,”
“So it’s fantastic and amazing that we’ve gotten to the point where everybody recognises that the automatic exchange of tax information is necessary in order to fill those holes in the international financial system that allow illicit money to hide out.”
The OECD common reporting standard would see participating countries automatically share information on foreign bank accounts, capital gains and other interest earned. Previously, such information would have needed to be formally requested by governments, an often cumbersome process that could be easily stonewalled.
Significant parts of the new standard reflect landmark U.S. legislation, known as the Foreign Account Tax Compliance Act (FATCA), which the OECD says played a “catalytic role” in the creation of the new model. Since its enactment in 2010, FATCA has been roiling international discussions by requiring overseas financial institutions to turn over information about U.S. customers.
“Today’s announcement underscores that promoting tax transparency is a global priority and we are proud to lead the charge on this pressing issue by implementing FATCA and collaborating closely with our G20 partners,” the U.S. Treasury told IPS in a statement.
“We expect the G20’s endorsement of the common reporting standard to add further momentum to our network of intergovernmental agreements, as countries see the extent to which our model agreements reflect this new international standard.”
Already, the OECD says more than 40 countries have agreed to adopt the new standard. Yet poor countries have thus far been largely left outside of the process, despite a high-level summit last year declaring that a prime motivation for any strengthened exchange of tax information would be to assist developing countries collect the taxes due to them.
“This model is being billed as a global standard, but it won’t be global unless all countries can sign up to it, and that includes developing countries,” GFI’s Lowe says. “Otherwise, we could easily create a system in which rich countries get richer and poor countries get poorer, because their wealthy officials and businesspeople continue putting money abroad where tax authorities can’t reach it.”
Other groups are decrying the fact that developing countries were excluded from the negotiating process surrounding the new OECD model.
“We want to see the
Reciprocity and reluctance
The OECD plan outlines two G20-directed processes mandated to figure out how to bring developing countries in under the tax information-sharing umbrella. The first of these blueprints are to be released in September, and will show “how developing countries can overcome obstacles to participation in the automatic exchange standard and to assist them in meeting the standard”.
While necessary, there will likely be at least two obstacles in the attempt to begin regular exchange of tax information with developing countries.
First and foremost, while the OECD model calls for information-sharing “reciprocity”, many developing countries currently lack the basic technical capacity to make such information available. While programs to offer both financial and training assistance are already going forward, GFI and other groups are calling on multilateral institutions and G20 donors to prioritise such work as the model goes forward.
A second obstacle could be reluctance on the part of certain governments or individual officials in developing countries to open their systems up to greater scrutiny, over concerns of past or future corruption.
“This is clearly a very tricky issue, but in certain cases it won’t be a question of what a government wants but, rather, what’s right for the people in developing countries,” GFI’s Lowe says.
“Fortunately, I think there’s a growing movement among populations around the world about illicit money and tracing it and returning it to developing countries. So as that continues to grow, the pressure will be on developing country governments to take part, and it will be up to others to support those grassroots movements.”
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