G20 Foundation Publications Australia 2014 - Page 18

18 TRADE & FINANCE TRADE & FINANCE Reforming the international tax rules: the importance of a global approach Gabriela Ramos, OECD Chief of Staff and G20 Sherpa Taxation creates an essential element of trust between governments and the societies and citizens they serve. Moreover, fair and efficient tax systems underpin the social contract When used appropriately, taxation can be a powerful instrument to reduce inequality, and create opportunities for all citizens and companies to prosper in an increasingly competitive environment. However, when left unchecked, tax evasion and avoidance raise questions of economic fairness and efficiency, which are especially relevant in an environment plagued by fiscal consolidation, rising unemployment and social hardship. The problem has been getting worse over the years, as individuals and companies have honed their skills to exploit loopholes and inconsistencies in tax rules across countries. Led by G20 Leaders and supported by the OECD, the international tax agenda has advanced in two key policy areas: tax evasion, by improving the transparency of financial flows through the exchange of tax information on; and tax avoidance, by taking comprehensive action to address the gaps and mismatches in tax rules that can cause profits to ‘disappear’ for tax purposes or allow profits to be shifted to low tax jurisdictions where little or no company activities occur – shifting the tax burden to individual taxpayers and small domestic companies. Once, the objective of tax authorities was to avoid double taxation. It is time now to avoid double non-taxation. Tackling tax evasion through tax transparency In 2009, the G20 committed to eliminating bank secrecy, and in only 5 short years we have seen a quantum leap in the efforts to improve transparency. Developed and developing countries, including financial centres, have demonstrated how they can work hand in hand to effectively fight against a lack of transparency that can enable tax evasion. Individuals and companies have honed their skills to exploit loopholes and inconsistencies in tax rules across countries The first steps began with the reform of the Global Forum on Transparency and Exchange of Information for Tax Purposes, at the end of 2009. As a result, today the Global Forum has 122 members, including all financial centres and more than 60 developing countries, each of whom have committed to the international standard, exchange of information “on request”. The Global Forum is the largest existing Peer Review monitoring system which ensures that members have the appropriate legal and practical framework in place to effectively carry out their commitment to the standard. Again responding to a call from the G20 in 2013, the OECD delivered the “next generation” tool for effective cooperation between jurisdictions on tax transparency: a single common global standard for the automatic exchange of information (AEOI). The AEOI standard was endorsed at the February 2014 meeting of Finance Ministers and Central Bank Governors. At the Brisbane Summit, the OECD will deliver the full AEOI package, including all the technical guidance which will allow countries to take the next step and move towards effective implementation. The G20 and the OECD also recognise that developing countries face specific challenges to ensure AEOI, namely varying capacities to implement it in an effective and timely way. In February 2014, the G20 called on all financial centres to match G20 commitments to implement the AEOI standard in the short term, while noting that the timeline for other developing countries will depend on their ability to do so. The Global Forum is currently developing a roadmap to assist developing countries in overcoming obstacles to participation, allowing them to meet the standard and thereby accessing the benefits of improved global transparency. Already over 60 countries, including all OECD and G20 members, have committed to implement the AEOI standard. A large and growing number of jurisdictions a duplication of efforts and ensure complementarity of work streams. We are working closely with all stakeholders and have put in place a number of mechanisms to ensure a transparent process by undertaking a large number of public consultations, and providing access to discussion draft papers and webcasts. have further agreed to a detailed implementation timeline which will see the first exchanges taking place by September 2017. Further, as one of the main instruments to provide a legal framework for countries to participate in AEOI, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters has to date been signed by 66 countries, including more than 10 developing countries, with another 15 jurisdictions covered by way of territorial extension. If we are to be effective in tackling tax evasion, there must be no place left to hide. It is therefore critical that all countries, and in particular all financial centres, quickly commit and effectively implement the single global standard on AEOI. 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