More international tax cooperation to fight against off shore tax evasion

Alfredo CollosaAlfredo Collosa    01 July 2020
More international tax cooperation to fight against off shore tax evasion

The existing COVID-19 crisis is a worldwide concern requiring a global response. International tax cooperation must be part and parcel of a set of effective and very well-coordinated multilateral initiatives to respond to the crisis.

Coordination between tax administrations (TA) is extremely important in combating tax evasion in general and tax evasion offshore.

First off, it is very crucial for every country to be aware of the effects of a phenomenon as complicated as tax evasion, because it is the only way to find a measure to counter it. The problem is hugely complex, but it is undeniably an activity that all countries must pursue.

Presently, many of the causes of tax evasion are clearly connected to the globalization of economic activity and new ways of doing business in the digital economy. Among many other causes, we have outlined the following:

  • The presence of multinational corporations with aggressive tax planning.
  • Tax havens and/or jurisdictions with no or reduced taxes or non-cooperative jurisdictions.
  • The large weight of intangibles, making it nearly impossible to determine the true worth of assets and the place of their generation.
  • A complicated financial structure of numerous figures capable of mobilizing capital rapidly and easily.
  • Proliferation of special tax schemes to encourage investment (e.g. tax rulings)
  • The challenge of regulating the transfer pricing of international firms linked together: more than 60% of global trade is actually carried out by these firms, and 50% are intra-group operations.
  • The digital economy: advanced technology development, e-commerce, sharing networks, digital currencies, and innovative ways to sell products and services raise tax and control difficulties.

The problem is that there is no institutionalized and systematized estimate of evasion in many countries, with sufficient periodicity and distribution of data.

As far as the causes of evasion are concerned, it is generally said that there are as many causes as the authors who have written on the subject. But on the other hand, it is important to point out that the reasons differ from country to country, and even within the same country through the times and moments of its history. Therefore, the TA needs to continue to promote international cooperation to fight fraud more than ever before.

Whilst underlining the required internal co-operation between TAs themselves, but also between each State's various agencies. Currently, the TAs, and other international organisations, are guiding cooperation and controlling it according to international rules on tax. The CIAT Model Tax Code (2015) considers the issue of Mutual Tax Assistance in its Section 7 to this effect. Article 101 specifies in that section existing forms of mutual administrative assistance in the field of taxation.

Article 101 states that the TA can require or request the International Tax Law Agreements:

  • Exchange of information actions, whether by request, automatic, or spontaneous.
  • Assistance in the collection of the tax debt.
  • Various actions or initiatives that are admitted or referred to in these Conventions.

The BEPS Action Plan marks a milestone in TA cooperation. These problems affect developing and equally developed countries; according to recent information collected, it is estimated that countries lose around $100 to $240 billion from 4 to 10 percent in income tax per year.

After the BEPS package was published in October 2015, the G-20 leaders called for implementation and the OECD, involving interested non- G-20 member countries and developing economies, to develop a more inclusive framework.

In January 2016, the OECD, therefore, established an integrated BEPS framework for updating international tax rules and resolving BEPS issues. Nearly 130 jurisdictions and countries joined the BEPS norm production in 2019 and tracked their uniform implementation.

The exchange of knowledge is currently one of the most significant aspects of international cooperation between TA. In this context, the 2019 OECD Global Forum on Transparency and Knowledge Exchange Groups in 161 countries successfully supported on-demand knowledge exchange.

In 2014, the G20 developed the Universal Reporting Standard (CRS) for the automatic sharing of financial information.

In a recent study[1], the OECD concludes that the international community is making considerable progress on combating offshore tax evasion, with countries moving closer to the goal of eradicating banking privacy for fiscal purposes through the Global Forum on Transparency and Tax Information.

In 2019, almost 100 countries carried out automatic information exchanges that allow their tax authorities, covering a total of EUR 10 billion in assets, to obtain data on the 84 million offshore financial accounts held by their citizens.

This reflects a significant increase compared to 2018 – the first year of this kind of knowledge exchange – when knowledge was exchanged on EUR 5 trillion for 47 million financial accounts. The rise results from an increase in information-receiving jurisdictions and from a broader variety of exchanges of information.

The CRS allows countries and territories to share information from non-residents voluntarily on an annual basis, reducing the possibility of offshore tax evasion. The cycle is being joined by several developed countries and more are needed in the years ahead.

The OECD Secretary-General Angel Gurría said on the eve of the OECD / G20 plenary session of the Inclusive BEPS System. "Automated knowledge sharing is a game-changer." "This OECD-created, Global Forum network of multilateral exchanges offers countries around the world, including many developing countries, new knowledge and empowers their tax administrations to ensure their accounts are reported properly offshore. Countries, particularly now critical of the current COVID-19 crisis, are going to increase their much-needed revenues while heading closer to a world where nothing can be concealed.

The International Community has made strong and ongoing progress in combating offshore tax evasion since the G20 has declared the end of bank secrecy in 2009. Under the leadership of the Global Forum, which gathers 161 OECD tax standard countries and jurisdictions, the countries have enhanced global cooperation by exchanging information on request and automatically exchanging information since 2017 by more than 6.000 bilateral ties worldwide in 2019 (4.500 in 2018).ld., where there is no place to hide. Even before the exchanges started, the benefits were seen.

Research by the OECD in November 2019 shows that the Global Forum 's wider exchange of information has resulted in the global reduction in deposits in foreign-owned financial institutions (IFC) between 2008 and 2019 by 24% (USD 410 billion). Before automatic trade started in 2017 and thereafter, voluntary publication programmes, offshore tax investigations, and related measures already led to the identification of additional global tax revenues of more than EUR 100 billion.

Finally, while cooperation and administrative aid between tax administrations are increasingly necessary, we still have a long way to go before we can achieve optimal cooperation both at the global and internal level for individual countries.

A global issue needing a global solution is the current crisis. In order to respond to the crisis, international tax cooperation must form part of a set of efficient and well-coordinated multilateral measures. It is more urgent than ever to collaborate to combat tax evasion and avoidance, including illicit financial flows, in order to expand the fiscal space.

International tax cooperation should be extended to take account of all countries' diverse needs and capabilitiesin an approach and reach that is universal.

The road is not simple, but we must certainly go through it, as the fruits can be seen in many of the topics discussed in this article.



Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax. 

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