The OECD Secretary General submitted a report on tax issues to the G20 meeting on 5 and 6 September 2013. The first part of the report relates to progress made by the Global Forum on Transparency and Exchange of Information for Tax Purposes; and the second part of the report relates to the action plan on base erosion and profit shifting and measures to combat offshore tax evasion.
The OECD points out that the spotlight of public opinion has fallen on individual tax evaders and on multinational groups that achieve low effective tax rates through international tax planning. There are public demands for tax transparency and for taxpayers to pay their fair share. The OECD is involved in initiatives to achieve these objectives including the peer reviews by the Global Forum looking at the effectiveness of transparency measures in a number of jurisdictions; the work on base erosion and profit shifting; and the plans for the development of a global standard for the automatic exchange of tax information. The Multilateral Convention on Mutual Assistance in Tax Matters that was signed by China on 27 August 2013 is the instrument that serves as the legal basis for the international exchange of tax information.
The action plan on base erosion and profit shifting aims to align taxation with economic substance, prevent opportunities for double non-taxation and improve transparency. The project is open not only to OECD member states but to non-OECD members of the G20 and to developing countries through their participation in the Committee on Fiscal Affairs and through other channels. The OECD is to be involved in other initiatives in relation to developing countries including the “Tax Inspectors without Borders” project and an effort to assist with building up transfer pricing capacity within developing country tax administrations.
The report to the G20 emphasizes that the elements of the action plan have deadlines attached to them. The report points out that the political expectations are high and that the actions are to be delivered within a time frame of eighteen months to two years. To ensure that some changes are delivered in a timely fashion a multilateral instrument is being developed to amend bilateral treaties. This saves the time that would be required for each bilateral treaty to be amended by agreement between the contracting parties.
The report notes the progress made in the area of automatic exchange of information. The OECD is engaged in developing a global model for automatic information exchange. The essence of automatic information exchange is that there is systematic and periodic transmission of bulk taxpayer details. This can be done where the content of the information to be exchanged is clearly defined; due diligence and reporting rules are developed, together with a suitable technical platform for exchange; and the exchange of information is backed up by a network of bilateral or multilateral instruments to give it a legal basis. The domestic laws of the countries must be sufficient to ensure confidentiality of taxpayer information exchanged.
The automatic exchange of information enables jurisdictions to obtain details of financial information identified by financial institutions, including income such as interest, dividends, sale proceeds of financial assets and income from insurance products. The international standard developed by the OECD would require institutions to look through passive entities and hand over details in respect of the persons who have control of those entities.
In addition to the articles on information exchange in bilateral tax treaties the legal framework for information exchange would be provided by the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which already covers more than seventy countries. A standard competent authority agreement would be developed so that countries that are already signatories to the multilateral convention could opt into exchanging tax information automatically. The model competent authority agreement would be prepared before the end of 2013 and detailed guidance on using the agreement would be available in the first half of 2014.
