Maintenance. We are currently updating the site. Please check back shortly

Thomson Reuters Foundation

Inform - Connect - Empower

Developing countries not ready to join tax evasion crackdown - OECD

Source: Thomson Reuters Foundation - Mon, 26 May 2014 09:15 GMT
cor-gov
A lock icon, signifying an encrypted Internet connection. REUTERS/Mal Langsdon
Tweet Recommend Google + LinkedIn Email Print
Leave us a comment

LONDON (Thomson Reuters Foundation) – Most developing countries do not have tax systems sophisticated enough for them to join a new OECD-led transnational project for countries to automatically exchange tax information in an effort to tackle evasion and offshore financial havens, said an official from the OECD.

The Paris-based Organisation for Economic Development and Cooperation announced earlier this month that 47 countries have committed to automatically share on an annual basis the financial information of account holders in their jurisdictions.

The information will include taxpayers' bank balances, dividends, interest income and sales proceeds used to calculate capital gains tax. Financial companies will also be required to identify the ultimate beneficiaries of shell companies, trusts and similar legal arrangements. 

While the OECD’s new standard should make it more difficult for companies and individuals to dodge taxes by shifting their money abroad, only relatively rich countries will take part in the automatic exchange of financial information.

“Most (developing countries) are not yet ready and most of them don’t want it,” Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration said.  “When we talk to them, and we’re deeply involved with them, a significant number of them say ‘we don’t see any interest for us in there.’”

However, campaign groups say that developing countries are hit particularly hard by opaque offshore financial centres and secretive banking laws, which hold back their economies and increase inequality globally.

Fraudulent trade invoicing in five African countries cheated taxpayers out of a combined $14.4 billion in revenue in the 10 years to 2011, according to a report this month by Global Financial Integrity, a Washington DC-based research and advocacy organisation.

A February report by campaign group Tax Justice Network - Africa and international development agency Christian Aid noted that while a number of African countries are achieving high economic growth rates, those figures mask widening inequality. 

The report highlighted poor tax policy, tax evasion and the growth of illicit financial flows from Africa as key factors in increasing inequality on the continent. 

Saint-Amans said that the reason developing countries were not ready to automatically exchange financial information with other countries was because their domestic tax systems were not sufficiently sophisticated. 

“Some don’t have an automatic exchange of information internally. They don’t have access automatically to the information of their own citizens, their own taxpayers,” Saint-Amans said.

The OECD and the G20 are working to establish “a road map” that will set conditions for developing countries to progress towards automatic exchange of information, Saint-Amans said, adding that while developing countries would face challenges meeting some of the conditions, the OECD would provide help where it could. 

PROTECTING CONFIDENTIALITY

The ability of a developing country to safeguard confidentiality of the financial information it receives from abroad was one challenge that Saint-Amans highlighted.

Currently, a country requests the financial details of an individual or company from another country, which in turn can decide not to respond if they choose, Saint-Amans said, giving the example of requests for information that may be used for political gains.

“You have a request from the government on the main opponent in the country… in that case, you know there are risks of leakage of the information or misuse of the information,” Saint Amans said. 

“Automatic exchange of information is radically different because the bank collects the information and sends it automatically to other countries; therefore the risks of misuse of the information are pretty high.

“That’s why you shouldn’t engage with automatic exchange of information with a country unless that country has ‘Chinese Walls’ in all its procedures to protect the confidentiality of the information,” Saint-Amans added. 

While it may take time for a developing country to build up its tax systems to the point that it can share financial information on an automatic basis, the process could have very good spillover effects, enhancing the capacity of a country’s domestic collection of information, Saint-Amans said.

The countries that have committed to automatic exchange of information are all 34 OECD member countries, plus Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa. 

Although the signatories did not officially commit to a specific deadline, the UK, France, Germany, Italy and Spain have agreed to become early adopters and aim to have exchange of information up and running by 2017 using tax data collected from the end of 2015.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of the Thomson Reuters Foundation. For more information see our Acceptable Use Policy.

comments powered by Disqus
RELATED CONTENT
Related Content
Most Popular
TOPICAL CONTENT
Topical content
LATEST SLIDESHOW

Latest slideshow

See allSee all
FEATURED JOBS
Featured jobs