By Jason Bramwell
Government leaders of eight of the world's largest economies pledged on June 18 to take a tougher stance on fighting tax evasion.
The Group of Eight (G8) leaders, who met in Northern Ireland, developed a ten-point plan, the Lough Erne Declaration, which calls for more information sharing between tax authorities and improved transparency to prevent tax avoidance. It also includes elements that promote open trade between countries and cut wasteful bureaucracy.
The declaration states",Governments have a special responsibility to make proper rules and promote good governance. Fair taxes, increased transparency, and open trade are vital drivers of this."
The ten elements of the plan include:
- Tax authorities across the world should automatically share information to fight the scourge of tax evasion.
- Countries should change rules that let companies shift their profits across borders to avoid taxes, and multinationals should report to tax authorities what tax they pay where.
- Companies should know who really owns them, and tax collectors and law enforcers should be able to obtain this information easily.
- Developing countries should have the information and capacity to collect the taxes owed them – and other countries have a duty to help them.
- Extractive companies should report payments to all governments – and governments should publish income from such companies.
- Minerals should be sourced legitimately, not plundered from conflict zones.
- Land transactions should be transparent, respecting the property rights of local communities.
- Governments should roll back protectionism and agree [to] new trade deals that boost jobs and growth worldwide.
- Governments should cut wasteful bureaucracy at borders and make it easier and quicker to move goods between developing countries.
- Governments should publish information on laws, budgets, spending, national statistics, elections, and government contracts in a way that is easy to read and re-use so that citizens can hold them to account.
OECD Report to G8 Leaders
The Organisation for Economic Co-operation and Development (OECD), which works with governments to promote policies that will improve the economic and social well-being of people around the world, recently presented to G8 leaders a report that includes four key steps needed to create a fairer and more transparent global tax system.
The report, A Step Change in Tax Transparency, which was prepared at the request of the G8 Summit in Lough Erne, Northern Ireland, puts in place a global, secure, and cost-effective model of automatic exchange of tax information.
The report follows the Group of Twenty (G20) Finance Minister's endorsement this past April of the automatic exchange of information for tax purposes as the expected new standard. It states, because tax evasion is a global issue, the model needs to have worldwide reach to avoid merely relocating the problem elsewhere. The process also needs to be standardized to minimize costs for businesses and governments and to improve effectiveness.
The four steps needed to create a fairer and more transparent global tax system include:
- Enacting broad framework legislation to facilitate the expansion of a country's network of partner jurisdictions.
- Selecting the legal basis for the exchange of information.
- Adapting the scope of reporting and due diligence requirements and coordinating guidance.
- Developing common or compatible IT standards.
The report also provides potential time frames for each step and notes that much of this work is already underway at the OECD. It also stresses that more jurisdictions are joining the Convention on Mutual Administrative Assistance in Tax Matters, which provides a legal basis for automatic exchange of information and underlines the role of the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes. The forum has been mandated by the G20 to monitor implementation of the new standard.
"I congratulate the G8 for putting its full force behind international efforts to bolster sustainable growth through global solutions for tax evasion and avoidance", Angel GurrÃa, secretary general of the OECD, said in a written statement before the G8 leaders met on June 18. "Tax systems must be fair and be seen to be fair. The OECD is helping countries work together to put an end to offshore tax evasion by delivering a secure and cost-effective system of a single global standard for automatic exchange of information."