Friday, June 22, 2012

OECD signs up to Automatic Info Exchange. Hooray.

For years the OECD, the club of rich countries that jealously guards its role as the arbiter of transparency (or information exchange) in the global economy, has insisted that its hopelessly flawed system of 'on request' information exchange is the 'internationally agreed standard,' and leaders of rich countries have fallen over themselves to endorse the position.

Now the OECD has just issued quite a dramatic statement, which moves them much closer to the position TJN and its allies have been pushing:
"Automatic exchange of information proves to be a useful way to implement enhanced international tax co-operation as shown in the attached report."
That is a tacit recognition that we were right all along: that the far better system of transparency is "automatic information exchange" (for a brief explanation of the differences, see our information exchange page and, more specifically, our briefing paper on it.). Whereas with the 'on request' system you have to already know what you are looking for before you ask for it, automatic information exchange, as the OECD now puts it,
"can help detect cases of non-compliance even where tax administrations have had no previous indications of non-compliance. "
A while ago our Senior Adviser David Spencer explained how - despite the OECD's insistence that 'on request' information exchange is the 'internationally agreed standard' - the much better automatic information exchange is in fact quite prevalent around the world, and is now the emerging standard.

In its latest report, the OECD has 'fessed up to this, saying that:
"Results of a recent survey on automatic exchange conducted by the OECD show widespread use of automatic exchange of information regarding country coverage and income types, transaction values and records exchanged."
Quite so. Automatic Information Exchange is a reality, and countries have shown that handling large volumes of data is quite possible:
  • 8 countries sent more than 1 million records in a particular year
  • One country (United States) sent 2.5 million records in a particular year
  • 31 countries combined sent 17.8 million records in a particular year
Considerable sums are involved too:
"The survey shows that the amounts represented by records received can range from as little as EUR several million to well over EUR 200 billion for a particular year."
And the OECD provides a useful graph of which countries are most interested in pursuing automatic information exchange.

The OECD is couple of years behind the curve in wholeheartedly endorsing AIE, but we warmly welcome this catch-up, and the depth of research firepower that they are able to bring to bear. The statement provides more detail:
"The OECD stands ready to develop a multilateral platform to facilitate that practice [automatic information exchange, AIE] for the countries interested in joining the Convention."
The Convention it is referring to is the Multilateral Convention on Mutual Administrative Assistance. We welcome that the OECD is ready to create a platform to make AIE work under the Convention: while it not perfect (read our analysis here, with a slightly different name for the Convention but it's the same thing). It is far better to have a co-ordinated platform developed instead of leaving it to countries to create a hotch-potch of bilateral agreements, which are always easy to avoid.

This OECD report clearly 'gets it' as regards automatic information exchange:
"Automatic exchange as a tool to counter offshore non-compliance has a number of benefits. It can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum."
This is precisely why anonymous withholding tax deals à la Swiss are so damaging and useless, as we have demonstrated, and no alternative to AIE. (For more detail on the intellectual, political and economic justifications for information exchange more generally, see the UK's previous endorsement of the concept.)

It is also good to hear that there is a network of offshore tax compliance experts led by France which is
"collating information from member countries about the types of structures, entities and territories they observe being used in offshore evasion into a practical guide to the basic “building blocks” of offshore structures. This will take the form of a catalogue of observed entities, with an explanation of their characteristics, how these vary according to the territory in which they are located and, critically, information about the techniques used to identify when taxpayers are exploiting these entities and how tax administration have been able to determine the beneficial ownership of the underlying assets."
This will constitute a most useful addition to our newish 'mechanics of secrecy' page, when it becomes available.


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