Since the G20 summit in London on 2nd April 2009 when world leaders threatened sanctions against non co-operative jurisdictions, around 300 tax agreements have been signed to meet the Organisation for Economic Co-Operation and Development’s (OECD) standards on tax transparency and effective exchange of information. All OECD and G20 countries are committed to these standards.
According to the OECD, 2009 saw more progress toward full effective exchange of information than has been made in the past decade.
The OECD’s progress report on jurisdictions implementing the internationally agreed tax standard, published on 19th January 2010, revealed that between the G20 summit in Washington in November 2008 and the run-up to the G20 summit in London, Tax Information Exchange Agreements (TIEA) signings “skyrocketed” as well as the negotiation of new Double Tax Conventions (DTCs) or protocols to existing DTCs that incorporated the standard on exchange.
In “one of the big success stories of the G20”, a further 21 TIEAs/DTCs were agreed in just four months, and between the London summit and the G20 meeting in Pittsburgh in September, 164 more agreements were in place. The pace continued and by the end of the year 195 jurisdictions had signed TIEAs and 110 had upgraded DTCs. In 2008, just 22 tax agreements were signed.
The report showed that there were 63 jurisdictions which had “substantially implemented” the internationally agreed tax standard and 23 which have “committed” to the tax standard but “not yet substantially implemented” it. Of more than 40 offshore financial centres identified as tax havens in 2000, all but six now have one or more agreements which meet the standards. Head of the OECD’s tax centre, Jeffrey Owens, said he expected the “vast majority” of these countries to have at least one agreement by March.
New legislation in major financial centres such as Hong Kong and Singapore enables them to implement the standards as well. Already some emerging economies have entered into negotiations of tax information exchange instruments, in particular Argentina, China, India, and South Africa. The OECD wants to extend the benefits of tax transparency more to developing countries.
OECD Secretary General, Angel Gurría, claimed that: “What we are witnessing is nothing short of a revolution. By addressing the challenges posed by the dark side of the tax world, the campaign for global tax transparency is in full flow. We have equipped ourselves with the institutional means to continue the campaign. With the crisis, global public opinion’s expectations are high, their tolerance of non-compliance is zero and we must deliver.”
The OECD’s internationally agreed tax standard requires exchange of information on request in all tax matters for the administration and enforcement of domestic tax law. The focus will now shift from commitments and agreements to achieving effective implementation of the standards.
Stolen bank data
The OECD has backed the somewhat controversial practice of using stolen bank data to target tax evaders. In February 2008 a former employee of LGT bank in Liechtenstein sold stolen data to German and UK authorities following which many other countries received information on potential tax evaders. In 2007 a US informant provided similar data on US clients of Swiss bank UBS who were suspected tax evaders. In 2009 a former employee of private bank HSBC Holdings in Geneva stole data from the bank and supplied France with 3,000 names of potential tax evaders.
When asked if the OECD condoned governments using stolen data in this way Owens replied that what they did not condone was taxpayers who do not comply with their obligations. "If you have to get information from informants or other means that is just the way of making sure that these citizens are not able to shift the tax burden ... onto honest taxpayers," he said, adding that almost all OECD countries are ready to take information from a variety of sources.
More recently, at the beginning of February the German government admitted it is looking into buying stolen Swiss account data detailing alleged tax evasion by around 1,500 taxpayers. Chancellor Angela Merkel told a news conference that Germany should do "everything to get this data… if it is relevant" to fighting tax evasion. The authorities believe the information could help them retrieve as much as €200 million in back taxes.
Liechtenstein offers co-operation with Germany
Liechtenstein is keen to show its willingness to co-operate fully in tax matters and has offered to negotiate an agreement with Germany. After the “stolen data” scandal two years ago, such an agreement will lead to exposing more accounts hidden by German citizens in the former renowned tax haven.
A similar tax accord was set up last year between the UK and Liechtenstein which provided a voluntary disclosure facility for UK taxpayers with undeclared accounts in Liechtenstein to disclose them to the tax authority by 2015.
Liechtenstein’s Prime Minister, Klaus Tschütscher, said that although he is keen for an agreement with Germany, he has also proposed levying a withholding tax as an alternative. The taxes would then be returned to Germany, he confirmed.
More EU co-operation
On the day the OECD’s Progress Report was published, EU finance ministers discussed a package of measures whereby Members States could improve co-operation in cross border tax collection. The talks aim to follow up on the 2005 Savings Tax Directive (STD). Most EU countries would like the STD to extend to a broader range of financial products outside the EU and for automatic exchange of tax information to be the norm.
Organisations like the OECD, the G20 and the EU are mighty forces that will stop at nothing to achieve full tax co-operation. The year 2009 saw great strides made in international tax co-operation and ways of hiding assets from the taxman are virtually all blocked. Seek advice from a tax and financial specialist such as Blevins Franks for advice on legitimate tax planning and mitigation.
By Bill Blevins, Managing Director, Blevins Franks
28th January 2010
