“We must stop thinking of tax evasion as some sort of harmless sport,” John Christensen, of the Tax Justice Network (TJN), told an International Tax Review conference on tax and transparency last week, adding that developed countries had to do more to help developing countries combat the problem.
“There is an inexorable movement towards automatic exchange of information (EoI) as the global standard, ” he said.
In his view, automatic EoI has now been accepted as the standard to work towards. He said leaders such as Indian prime minister Manmohan Singh had called for it at the G20 summit in Cannes last November.
“Automatic exchange of information makes it possible to tax capital and not just income and capital gains,” he said.
Christensen was speaking at a rare, if not unique, event, which also featured a keynote speech by Pascal Saint-Amans, recently-appointed director of the OECD’s Centre for Tax Policy and Administration.
The International Tax Review conference brought together tax executives from multinational companies, officials, campaigners, tax practitioners and the media to discuss attitudes to tax transparency and how it might be achieved. Panels covered topics such as country-by-country reporting, transparency challenges for international companies and how and if more transparency could be brought to the issues of transfer pricing and dispute resolution.
Christensen described tax evasion as “corrosive” and said that some of its harmful effects are it “clearly facilitates economic free-riding and damages trust and institutional quality”. He was critical of the leadership provided by OECD’s Global Forum on Transparency and Exchange of Information against tax evasion, particularly through the promotion of bilateral tax information exchange agreements.
“The on-request model of tax information exchange agreements is not sufficiently strong to tackle tax evasion,” he said.
Priorities for G20
The TJN’s recommendations to the G20 about ensuring automatic information exchange becomes the international standard including helping developing and transition countries with building capacity to handle information exchange and the role of banks and law firms “as facilitators of tax evasion” had to be clarified.
Christensen said the TJN supports America’s Foreign Account Tax Compliance Act (FATCA) as a step towards automatic EoI but the legislation is not its preferred approach as it is unilateral rather than multilateral. The law, which comes into force on a phased basis from January 1 next year, requires foreign financial institutions to provide the Internal Revenue Service with information about their US accountholders or pay a withholding tax of 30%.
Referring to other attempts to recover tax and penalties arising from evasion, he said there were too many loopholes in the agreement dealing with the undeclared income of UK taxpayers in Switzerland. In March this year the governments of both countries had to add a protocol to the original agreement signed on October 6 2011, after objections from the EU.
The agreement means if UK taxpayers do not disclose details of their Swiss accounts holding undeclared income they will have to pay a one-off charge of between 21% and 41% if the account is open between December 31 2010 and May 31 2013.
And from 2013 income and gains from investments in Swiss accounts will be subject to different rates of withholding tax, unless they are disclosed.
Christensen said TJN supporters had challenged each other to come up as many loopholes as possible and they had quickly come up with 15.
“The withholding approach delegates tax collection to the foreign entity,” Christensen said.
“Now is the time to move forward much faster and recognise automatic information exchange as the international standard, and to strengthen existing arrangements to cover a wider range of incomes and entities,” Christensen added.
© 2021 Euromoney Institutional Investor PLC. For help please see our FAQ.