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Can triple Cobweb of Info Exchange Net Tax Evaders?
By Naresh Minocha
Nov 29, 2017

Naresh Minocha, a veteran journalist, specializes in telecom, energy, chemicals, agriculture, economic reforms and governance. In his over 32-years journalistic career, he has worked in different capacities for both Indian and foreign media organizations. These include Financial Express, Indian Express, Business Standard, Business India, Tehelka, the Pioneer, erstwhile Asian Chemical News, International Chemical Information Service and erstwhile

His current professional engagements include Consulting Editor, and Associate Editor, Gfiles Magazine. At, he has been writing a popular Column known as 'The Ice Cubes' since 2005.

IT is time to take a stock of ground covered by the world in tax transparency within the domain of tax administrations.

Organisation for Economic Co-operation and Development (OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes (Forum) released on 17th November its first report on the status of implementation of automatic exchange of information (AEOI) standard.

"With exchanges under the AEOI Standard having now commenced amongst almost 50 jurisdictions there has been a major shift in international tax transparency and the ability of jurisdictions to tackle offshore tax evasion”, says the report.

The 147-countries/jurisdiction Forum held its 10th plenary meeting over three days ending 17th November at Cameroon.

The Forum also released Plan of Action for Developing Countries Participation in AEOI (PADCP-AEOI), apart from six peer review reports. These reports take stock of implementation of Exchange of Information on request (EOIR) standard in India, Italy, Isle of Man, Denmark, Jersey and Curacao.

PADCP-AEOI claims: "The impact of AEOI has been felt in the jurisdictions which are committed to implement the AEOI Standard by 2018 even before any exchanges have occurred. As reported by the OECD to the G20, in response to disclosure initiatives and similar measures put in place prior to the start of exchanges approximately 500,000 individuals have already disclosed offshore assets worldwide, and some EUR 85 billion in additional tax revenue has been collected. The evidence is also emerging from several jurisdictions that the number of foreign financial accounts and the income from these account reported to tax authorities have increased significantly.”

The released reports show the ground to be covered by AEOI member countries including 40 developing countries that ducked the responsibility of fixing their respective timeline for complying with AEOI norms.

These are: Armenia, Benin, Botswana, Burkina Faso, Cambodia, Cameroon, Chad, Côte d'Ivoire, Djibouti, Dominican Republic, Ecuador, Egypt, El Salvador, Former Yugoslav Republic of Macedonia, Gabon, Georgia, Guatemala, Guyana, Haiti,

Jamaica, Kazakhstan, Kenya, Lesotho, Liberia, Madagascar, Mauritania, Moldova, Morocco, Niger, Papua New Guinea, Paraguay, Peru, Philippines, Rwanda, Senegal, Tanzania, Thailand, Togo, Tunisia, Uganda and Ukraine.

These countries' reluctance and OECD's zeal to make all countries AEOI's full-fledged stakeholders bring us to the issue of beneficiaries and losers of tax transparency among the nations.

Factor in the tax evasion and avoidance risks resulting from partial or largely compliant nations. And don't overlook possibility of a country slipping from compliant status to one or two ranks lower when results of latest peer review are compared with previous one.

Would OECD-engineered triple cobweb of information exchange thus leave manoeuvring space for tax evaders and avoiders?

Is secretive exchange of tax information among tax authorities serving as instrument for OECD to force flow of corporate capital back from tax havens to its member countries?

The picture about these issues should become clear in 10 years down the lane when enough peer reviews of networked nations are completed. The peer review is in regular flux as each cycle of review lead to revised terms of reference for the next cycle of review.

AEOI complements the first tax transparency standard named Exchange of Information on request (EOIR). Says PADCP-AEOI, "In certain instances, AEOI has driven group requests under the EOIR Standard, confirming that both standards are supplementary and mutually reinforcing in delivering greater transparency ”.

The third stream of information exchange is country-by-country (CbC) reporting under Action 13 of Base Erosion and Profit Shifting (BEPS) project.

Tax Transparency is one of three pillars BEPS's 15-point Action Plan. The other two pillars are introducing coherence in the domestic rules that affect cross-border activities and reinforcing substance requirements in the existing international standards.

As put by PADCP-AEOI, "The CbC Reporting attracts many developing countries which will be net recipients in such exchanges. There are several areas where the implementation steps for the AEOI and CbC Reporting standards overlap, for instance, in their reliance on the same confidentiality and data safeguards standards, making simultaneous progress more efficient ”.

EOIR standard's working is relatively better as it was launched earlier. The first cycle of peer review covering 119 jurisdictions was conducted during 2010-2016. The second cycle with new terms of reference started in 2016.

The first cycle of reviews found 18% of them ‘Compliant' (22 of them), while the majority (75%) was rated either as ‘Largely Compliant' (77) or as ‘Provisionally Largely Compliant' (13). The remaining 7% were found to be ‘Partially Compliant' (5), ‘Provisionally Partially Compliant' (1) or ‘Non-Compliant'.

It is here pertinent to point out that India slipped from complaint under first peer review conducted in 2013 to ‘largely compliant' in the second review.

The 2 nd Peer Review Report on India's EOIR is dated 17th November 2017. India was rated largely compliant on two out of the 10 parameters or elements. The two elements are: ‘Availability of Ownership and Identify Information' (of tax payers' assets) and ‘Quality and Timeliness of Requests and Responses' for exchange of information. Indian Government did not contest the downgrade in its formal response that is annexed to the report.

The Response says: "India has exchange of information relationship with around 150 jurisdictions. Significant gains have accrued to India in terms of detection of undisclosed income and assets and revenue collection on account of the valuable information provided by our treaty partners”.

The Response continues: "India is committed to working with all our treaty partners to ensure the quality of requests through sustained domestic efforts and continuous peer communication ”.

The EOIR standard has originated from the 2002 OECD Model Agreement on Exchange of Information on Tax Matters. EOIR is also reflected in OECD Model Tax Convention on Income and on Capital.

AEOI was adopted by 49 member countries of the Forum in 2014. After pilot projects, about 50 countries are already exchanging information. As many as 53 more countries are expected to start exchange information from September 2018. AEOI membership now stands at 147 countries.

The Forum's plenary meeting claimed : "A new powerful exchange of information infrastructure is emerging, with both the Global Forum standards of exchange of information on request (EOIR) and automatic exchange of information (AEOI) together providing an effective suite of international tax compliance tools, and with more and more jurisdictions participating and using them to great effect".

The meeting acknowledged the challenges associated with a strengthened EOIR Standard which includes requirements on beneficial ownership. As many as 130 peer reviews of EOIR are scheduled for 2018-2021. The Forum urged member countries to intensify the work aimed at tackling potential or already identified deficiencies. As for exchange of CbC reports of MNCs, it has not yet attained the stage for conducting maiden peer reviews.

An OECD update says that CbC reporting under the BEPS Action 13 minimum standard will apply to reporting fiscal years of MNE (multinational enterprise) groups commencing on or after 1 January 2016, and the first automatic exchanges of CbC reports will take place no later than June 2018.

As many as 65 jurisdictions have so far signed the CbC multilateral competent authority agreement. It specifies operational aspects for the exchange of CbC reports under the multilateral convention on mutual administrative assistance in tax matters. Over 40 jurisdictions have already provided notifications to the Co-ordinating Body Secretariat, setting out the other signatories with whom they intend to have an agreement for the exchange of CbC reports.

Adopted in 2015, the BEPS Action 13 provides a template for multinational corporations (MNCs) to report annually and for each tax jurisdiction in which they do business the information set out therein.

The BEPS Action 13 report includes a CbC Reporting Implementation Package which consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence including backup filing requirements and (ii) three model Competent Authority Agreements that could be used to facilitate implementation of the exchange of CbC Reports.

These are 1) Multilateral Convention on Administrative Assistance in Tax Matters; 2) Bilateral tax conventions; and 3) Tax Information Exchange Agreements (TIEAs).

Implementation and operation of three data exchange systems constitute a complex challenge for any developing country. What if data is leaked from the system? Would hackers facilitate corporate espionage especially of MNCs' CbC reports? And lastly, would tax evaders & aggressive tax planers have the last laugh?

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