G7 leaders move toward automatic exchange of tax information

At their summit in Bavaria on Monday evening, leaders of the G7 nations issued a joint statement confirming their intention to implement the automatic exchange of tax information, and finalise the related regulations. At the same time, they also committed themselves to making the beneficial ownership of companies transparent. I would just like to add two short comments to this:

1. It was only just over a year ago that the G7 was the G8. They now take decisions without the participation of the world’s largest country. Bypassing Russia in this matter is a huge mistake. It is a little known fact that Russia is one of the largest shareholders in the bank set up jointly by the BRICS nations, and at the same time Russia is in the process of developing a credit and debit card system independent from the USA. If they go on to introduce a new currency to go with it, then it would be very easy to dodge the rules by using this new system.

2. Transparency is a very nice idea. However, the stricter the related regulations, the more likely it is that the „major players” will try to avoid them. There will always be people who make use of the „help of others.” To put it bluntly, it won’t be the details of the true beneficial owners which appear in the banks’ records. All that the legislators will achieve with the introduction of these regulations will be to encourage certain businessmen to follow a less legal path. And it certainly won’t be the small fish, but the big sharks…


The Commented News

G7 leaders move toward automatic exchange of tax information

Heads of state meeting at the G7 Summit in Bavaria, Germany committed to promoting automatic exchange of tax information and tax rulings to discourage multinational companies from shifting profits from country to country to avoid taxes, reports Accounting Today.

In a joint declaration, the G7 leaders reaffirmed their commitment to finalize recommendations from the larger group of G20 finance ministers and the Organization of Economic Cooperation and Development on their Base Erosion and Profit Shifting, or BEPS, Action Plan by the end of this year. The OECD and the Group of 20 finance ministers unveiled the action plan last September (see OECD Recommends Approach to Combating Corporate Tax Avoidance). They also plan to implement a new global standard for automatic exchange of tax information and cross-border tax rulings to curb tax avoidance.

“Going forward, it will be crucial to ensure its effective implementation, and we encourage the G20 and the OECD to establish a targeted monitoring process to that end,” said a joint statement Monday from the G7 leaders. “We commit to strongly promoting automatic exchange of information on cross-border tax rulings. Moreover, we look forward to the rapid implementation of the new single global standard for automatic exchange of information by the end of 2017 or 2018, including by all financial centers subject to completing necessary legislative procedures. We also urge jurisdictions that have not yet, or not adequately, implemented the international standard for the exchange of information on request to do so expeditiously.”

In addition, the G7 leaders said they would work to promote greater transparency about the beneficial owners of business entities. Shell companies with vague names are often used to facilitate transfers of funds for tax evasion or illicit activities, making it difficult for authorities in one country to trace the sources of funds from another, particularly in countries where tax regulators are not as well equipped to monitor these types of transactions.

“We recognize the importance of beneficial ownership transparency for combatting tax evasion, corruption and other activities generating illicit flows of finance and commit to providing updates on the implementation of our national action plans,” said the G7 leaders. “We reiterate our commitment to work with developing countries on the international tax agenda and will continue to assist them in building their tax administration capacities.”

At the same time, the G7 leaders recognize the need to avoid double taxation on the profits of multinationals and said they would work to establish binding mandatory arbitration mechanisms to safeguard trade and investment.

“Moreover, we will strive to improve existing international information networks and cross-border cooperation on tax matters, including through a commitment to establish binding mandatory arbitration in order to ensure that the risk of double taxation does not act as a barrier to cross-border trade and investment,” said the G7 statement. “We support work done on binding arbitration as part of the BEPS project and we encourage others to join us in this important endeavor.”

The summit also focused on rising debt levels and risks to global economic stability amid geopolitical tension around the world, as well as the risk of a debt default in Greece. The G7 leaders called for halting corruption and tax avoidance, reducing debt to more sustainable levels and increased transparency.

“We support the words of the G7 to address tax and debt issues to build a more stable and transparent global economy,” said Eric LeCompte, executive director of the religious development organization Jubilee USA Network, in a statement. “‎We now need the G7 to turn those words into action. Behind closed doors, G7 conversations focused on Greece. If the G7 is unwilling to address debt and tax policies head-on in Greece, how will they do it in the global economy? Clearly the G7 wants to tackle the risky world of anonymous shell companies. The developing world loses nearly a trillion dollars each year to corruption, crime and tax evasion and these anonymous companies are partly to blame. The FIFA scandal is a perfect example of the problem.”

However, some observers believe the G7 is not going far enough. “We are very disappointed in the G7’s inaction on the issue of illicit financial flows,” said Tom Cardamone, managing director of the group Global Financial Integrity. “While crime, corruption, and tax evasion pose a serious threat to advanced economies—such as those represented in the G7—they have an outsized impact on the poorest countries in the world. With the UN’s Financing for Development Conference just over a month away, failing to take a strong position on illicit flows—the most damaging economic problem plaguing the developing world—is a huge opportunity missed.”

His group would like to see the G7 deal with trade “misinvoicing,” a form of trade fraud, which GFI contends is responsible for 80 per cent of all measurable illicit outflows from developing countries.

photo credit: 美ら海水族館 2004/05 via photopin (license)

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