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Automatic exchange will be the new standard, say G20 finance ministers

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G20 finance ministers have urged ‘all jurisdictions’ to move towards exchanging tax information automatically with treaty partners after the OECD warned that the recent ‘offshore leaks and other scandals’ showed that more needed to be done to combat offshore tax evasion. Automatic exchange is expected to become the standard, they said at the end of last week’s meeting in Washington DC.

Ministers also welcomed the OECD’s progress in developing an action plan on tax base erosion and profit shifting.

OECD secretary-general Angel Gurría presented a report to ministers, highlighting measures to ensure that ‘all taxpayers pay their fair share’.

The report outlined the OECD’s efforts to strengthen automatic exchange of information as well as progress on the rating of jurisdictions’ compliance with existing standards on exchange of information on request.

‘The recent “offshore leaks” disclosures and other scandals are clear indications that more remains to be done to combat offshore tax evasion,’ it said.

‘Rapid acceptance’

Gurría said: ‘The political support for automatic exchange information on investment income has never been greater. Luxembourg has changed its position and the US FATCA legislation is triggering rapid acceptance of automatic exchange and propelling European countries to adopt this approach among themselves.

‘In response to the G20 mandate to make automatic exchange of information the new standard, the OECD is developing a standardised, secure and effective system of automatic exchange.’

The OECD report identified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters as ‘the ideal legal instrument for multilateralising automatic exchange of information’.

More than 50 countries have signed or committed to sign the convention, and more are expected to sign next month, the OECD said.

G8 presidency

George Osborne said he wanted to put tax reform at the centre of Britain's presidency of the G8 this year and turn bilateral deals on tax transparency into multilateral agreements, The Guardian reported on Saturday.

The paper quoted a Treasury spokesperson as saying: ‘Britain's approach is clear: we want competitive taxes that boost growth, investment and jobs and Britain will have lowest corporate tax rate in the G20; but taxes that are owed must be paid. That is why we are leading global action to strengthen the international rules and automatic exchange of information is an important part of that.’


The Guardian quoted Emma Seery, Oxfam's head of development finance, as saying: ‘We're delighted that George Osborne is committed to bring tax havens to heel. Now he needs to do the hard work to get British overseas territories and crown dependencies signed up without delay.’

The Washington-based group Global Financial Integrity (GFI) welcomed the G20’s focus on tax haven secrecy and the declaration that automatic exchange of tax information was ‘expected to be the standard’ moving forward.

But GFI expressed disappointment in what it called a ‘failure to sufficiently address the issue of anonymous shell companies’.

GFI director Raymond Baker, citing the organisation’s own research, said: ‘Tax haven secrecy and anonymous shell companies facilitate crime, corruption and tax evasion, costing the developing world roughly US $1 trillion in illicit outflows every year.’

He added: ‘This secrecy costs the U.S. Treasury $150 billion annually in lost tax revenue, it siphoned $261 billion out of the Greek economy in the run-up to the euro crisis, and it drained $212 billion from Russia ­– the current chair of the G20 – in the years following the collapse of the Soviet Union.  Automatically exchanging tax information between countries and getting rid of anonymous shell companies would significantly curtail these illicit flows, bolstering government revenues in poor and rich nations alike.’

GFI’s legal counsel and director of government affairs, Heather Lowe, said: ‘We are thrilled to see the G20 declare that the automatic exchange of tax information is expected to be the new global standard. Automatic exchange ensures that tax authorities and law enforcement have the necessary records they required to detect and deter billions of dollars in tax evading money.’

She called on the G20 to open ‘explicitly endorse automatic exchange on multilateral basis as the global standard, moving beyond the significantly less effective system of bilateral exchange’.

GFI claimed that the G20 had failed to make any meaningful progress on the issue of anonymous shell companies. ‘FATF standards are insufficient to eliminate anonymous shell companies and their abuse,’ it said. Lowe warned that ‘phantom firms pose a systemic risk to our financial system, and they enable the most heinous crimes’.

G20 finance ministers’ communiqué

A joint communiqué, signed by the G20 finance ministers and central bank governors and  published last Friday, said:

‘More needs to be done to address the issues of international tax avoidance and evasion, in particular through tax havens, as well as non-cooperative jurisdictions. We welcome the Global Forum's report on the effectiveness of information exchange. We commend the progress made by many jurisdictions, but urge all jurisdictions to quickly implement the recommendations made, in particular the 14 jurisdictions, where the legal framework fails to comply with the standard.

‘Moreover, we are looking forward to overall ratings to be allocated by year end to jurisdictions reviewed on their effective practice of information exchange and monitoring to be made on a continuous basis. In view of the next G20 Summit, we also strongly encourage all jurisdictions to sign or express interest in signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on progress.

‘We welcome progress made towards automatic exchange of information which is expected to be the standard and urge all jurisdictions to move towards exchanging information automatically with their treaty partners, as appropriate. We look forward to the OECD working with G20 countries to report back on the progress in developing of a new multilateral standard on automatic exchange of information, taking into account country-specific characteristics. The Global Forum will be in charge of monitoring.

‘We welcome the progress made in the development of an action plan on tax base erosion and profit shifting by the OECD and look forward to a comprehensive proposal and a substantial discussion at our next meeting in July.

‘We reiterate our support for FATF [Financial Action Task Force] work, notably the identification and monitoring of high-risk jurisdictions with strategic AML/CFT [anti-money laundering / countering the financing of terrorism] deficiencies. We must tackle the risks raised by opacity of legal persons and legal arrangements, and encourage all countries to take measures to ensure they meet the FATF standards regarding the identification of the beneficial owners of legal persons, other corporate vehicles and trusts, that is also relevant for tax purposes.’