New Methods Needed for Tax Transparency, French Finance Chief Says at Global Forum

By Rick Mitchell

PARIS--The Group of 20 countries and their partners need to develop “new methods” to ensure tax jurisdictions follow through on agreements they have made to effectively and transparently exchange tax information with other countries, including sanctions if necessary, the French finance minister said Oct. 26.

At a time when many governments are struggling with budget deficits, and some developing countries may be tempted to establish offshore financial centers, jurisdictions need to know they will be held to their commitments to exchange tax information with their partners, or that otherwise they can risk sanctions, said Francois Baroin, French minister of economy, finance, and industry.

“We need to reflect on new methods, and the implementation of resolute actions, to ensure better transparence in the matter of exchange of tax information,” Baroin said.

The French official made his comments at the Paris headquarters of the Organization for Economic Cooperation and Development, at the closing session of the Oct. 25-26 Global Forum on Transparency and Exchange of Information for Tax Purposes, which OECD hosts.

France holds the 2011 presidency of the G-20, which will hold its Leader's Summit Nov. 3-4 in the French Mediterranean resort town of Cannes.

Among other things, the forum put the finishing touches on a report to G-20 leaders on progress the forum has made since 2009 in improving global tax information exchange, OECD Secretary-General Angel Gurria said.

Thirteen Peer Reviews Released

The forum has 105 member countries and territories, including OECD's 34 advanced country members, as well as the European Union and non-OECD G-20 countries.

At the close of the forum, OECD released 13 new peer reviews evaluating jurisdictions' commitment to tax information exchange on request and transparency standards as set out in Article 26 of OECD's Model Tax Convention and making recommendations for regulatory and other changes to enable them to do this.

The reports, produced by the forum's peer review group, among other things made recommendations for the Chinese jurisdictions Hong Kong and Macau, as well such financial centers as Gibraltar, Malaysia, and Uruguay, some of which the organization has previously cited as tax havens.

The group also released reports on Japan, the Netherlands, and Spain.

Gurria said the peer review group has, in 18 months, produced 59 reports assessing the capacity of members' legislative frameworks to implement these agreements, leading 32 countries to make regulatory changes to implement the reports' recommendations.

The forum also has released seven update reports assessing progress that seven jurisdictions made since the forum declined to pass them on in earlier reviews, making a total of 66 reports, said Pascal Saint-Amans, head of the Global Forum secretariat.

Hong Kong Law Bars TIEAs

According to the peer review of the Hong Kong Special Administrative Region of the People's Republic of China, Hong Kong has rebuffed other jurisdictions that want to sign TIEAs with it, because its current law does not allow such agreements.

Saint-Amans said Hong Kong two years ago passed a law allowing it to share tax information with jurisdictions with which it has a bi-national double tax agreement, but barring it from signing TIEAs.

“They have been pretty successful convincing countries to sign double tax conventions with them,” Saint-Amans told BNA, noting that Hong Kong has concluded 20 or 21 DTCs, and has more in the pipeline, although only a handful of these are actually in force to date.

“Hong Kong has DTCs with most of its relevant partners, with the exception of one or two,” he said.

Nevertheless, the Global Forum said Hong Kong's refusal to sign TIEAs “doesn't fly” and asked it to change its law to allow them, Saint-Amans said.

Annex 2 of the peer review includes a statement from the Hong Kong government vowing to do this. “They will present that plan to the business community very soon,” Saint-Amans said.

“They will present that plan to the business community very soon,” Saint-Amans said.

Three-Year Process

OECD has called the peer reviews the first step in a three-year process to ensure member jurisdictions implement and comply with agreements they have signed and that signed agreements meet the OECD standard.

Francois d'Aubert, an auditor at the French Court of Audit who heads the peer review group, said the group has made hundreds of recommendations in its reports.

Among other things, the latest reports advised Macau, one of China's two international free ports, to make its documentation rules clearer and to change its treatment of bearer shares to make it easier for its tax administration to comply with information requests.

Macau has 13 tax information exchange agreements, but only three are in force, the report said.

The group said input from Japan's peers indicates that in many cases Japan does not respond to requests for information within 90 days, as required by the OECD standard agreement.

It advised Japan's tax authority to set internal deadlines for responding to requests for tax information exchange and provide status updates to requesting jurisdictions when it is unable to timely respond within 90 days.

More Than 700 Agreements Signed

Gurria said the Global Forum has yielded more than 700 new tax information exchange agreements since the 2009 London G-20 Leader's Summit asked OECD to lead its campaign to improve global tax compliance.

These agreements require tax administration to provide information upon request by other administrations, with which their countries have signed agreements.

The London-based Tax Justice Network and Christian Aid have said that TIEAs based on the information-on-request standard do not work, especially for developing countries, because they require tax authorities to already know what they are looking for.

TJN said most of the TIEAs signed since 2009 are between OECD countries, or between OECD and developing countries, not between developing countries.

Consequently, this effort benefits wealthy OECD countries much more than developing countries, TJN said.

Mike Rawstron, chairman of the Global Forum, said the forum had discussed measures to help developing countries benefit from the forum's work and will continue to push to bring them into the forum.

Rawstron said it also agreed to hold a meeting of competent authorities from forum members, in May 2012, to discuss best practices and other information exchange issues.

(Appeared Oct. 27, 2011)