Paradise lost: The [626306]

Paradise lost: The
imminent fall of tax havens
Written by: Clara Young, OECD Observer
Last update: 19 June 2018
With the latest slew of financial scandals revealed in the
Paradise Papers, people may think it is business as usual for tax
avoiders and evaders. Not so, said OECD Secretary-General Angel
Gurría, who told the press that these tax practices are “a legacy
that is fast being dismantled.”
“It all started 10 years ago in February 2008 with the Liechtenstein leaks,” says
OECD’s tax chief Pascal Saint-Amans. “Because of that and the financial crisis we
were able to draw political attention to our work on transparency and cracking
down on tax avoidance addressed through the Base Erosion and Profit Shifting
Project (BEPS).”
The first thing the OECD did, in 2009, was focus on transparency, Mr Saint-Amans
says. The outcome of that was to marshal the countries and jurisdictions who are
members of the Global Forum on Transparency and Exchange of Information for
Tax Purposes (which has 147 members) into consenting to Exchange of
Information on Request. This meant that the tax authorities in Mexico, for
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example, could request information on your bank account in Switzerland and
obtain it. “But,” says Mr Saint-Amans, “they had to find you first.” Tax authorities
had to know where a person was operating to know which country to request
information from.
Now this system is being complemented by a mechanism that allows for
automatic exchange of information (AEoI). As many as 102 countries and
jurisdictions have publicly committed to implementing automatic exchange of
information, with 49 having started exchanges in September 2017 and a further 53
taking up exchanges in September 2018. From now on, if you have a bank account
in another country, this financial information will be reported automatically and
annually to your country of residence. You may be able to place your money
where you like, but will no longer be able to “hide” it, and certainly not in tax
havens. Even before automatic exchanges were activated, the mere threat of them
has recovered significant tax revenue: more than 500,000 taxpayers have
disclosed offshore assets over the past eight years with close to €85 billion
identified as a result of voluntary compliance mechanisms and offshore
investigations.
While the automatic exchange of information tackles the problem of secret bank
accounts belonging to individuals, the cross-border shifting of taxable profits by
multinational corporations to lower or eliminate taxation requires other
solutions. This is where the BEPS project comes in, comprising 15 measures to
tackle tax avoidance.
The Inclusive Framework on BEPS (which groups 106 members) is in charge of
implementing the BEPS measures, articulated around four minimum standards
that are closely monitored, with jurisdictions assessing each other’s
implementation through a peer review process. The four key elements of the BEPS
Project address harmful tax practices, treaty abuse, country-by-country reporting
and dispute resolution mechanisms, two of which form part of the “BEPS
multilateral instrument”. Also known as the Multilateral Convention to
Implement Tax Treaty Related Measures to Prevent BEPS, it was signed in June
2017 and now covers 71 countries. Mr Saint-Amans notes that it will modify most
of the existing 3,500 bilateral treaties once it is ratified domestically, a process
that is now under way. This will close loopholes in thousands of tax treaties
worldwide, thus reinforcing them against abuse while providing better certainty
for both tax administrators and taxpayers.
Revenue losses from BEPS are conservatively estimated at US$100-240 billion
annually, or the equivalent of 4-10% of global corporate income tax revenues. As
state pension reserves, tax credits for education and other such public services
are being jeopardised by the prospect of tax shortfalls in almost every country in
the world, recouping some of this money will bring relief, and more importantly,
fairness to taxpayers and citizens.
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These leaks have once again shone a light on the
role that intermediaries, such as certain
corporate and trust service providers, play in
promoting aggressive tax schemes. Countries
must continue to co-operate on tax issues in
order to close loopholes and tackle abusive tax
situations . With the OECD’s work on BEPS and exchange of information we may
be finally saying good-bye to lost taxes. And for tax dodgers, lost paradises, too.
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References
Read about the Inclusive Framework on BEPS www.oecd.org/tax/beps/beps-
about.htm
Read more about BEPS www.oecd.org/tax/beps/beps-actions.htm
Read about the Multilateral Convention to Implement Tax Treaty Related
Measures to Prevent BEPS http://oe.cd/mli
Global tax and transparency: We have the tools, now we must make them work
http://dx.doi.org/10.1787/51035059-en‘ ‘Countries must continue to
co-operate on tax issues in
order to close loopholes and
tackle abusive tax
situations
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