In the recent G20 meeting, there was a statement about an agreement to make sure large multi national companies (Google and Apple are mentioned in the article) are paying their fair share of taxes. While the headlines talk about giant corporations, it is always important to dig below the surface on things like this.
Major reforms to make taxpayers more transparent to the global authorities are a form of potential system change. How major the changes are is still an unknown right now. Based on what we found in our research for this article, the changes might be quite exensive.
We all see news reports that Corporation XYZ paid little or no income taxes this year. At a time when the average citizen is asked to make sacrifices for "the good of the whole" these news reports naturally stir up resentment in many people.
As we see here, the IMF has not overlooked this situation. Here is a link to their recent web posting asking for public comments about tax reforms. On this web page is also a link to an IMF Executive Summary on the role of the IMF in international taxation. If you look at this Summary, the first thing you see is the IMF intends to "complement the work of the OECD".
So who is the OECD? They are based in Paris, France. Here is some info from their web site on what they do. They "promote Economic Cooperation and Developement" to "improve the economic and social well being of people around the world."
The OECD was asked by the G20 to come up with a proposal on how to start dealing with tax avoidance around the world. This resulted in this proposal by the OECD calling for a "new single global standard on automatic exchange of information." This is what was endorsed at the recent G20 meeting in Australia in February.
Here are a couple of excerpts:
" Offshore tax evasion remains a serious problem for countries and jurisdictions worldwide, with vast amounts of funds deposited abroad and sheltered from taxation when taxpayers fail to comply with obligations in their home countries."
"Responding to a mandate from G20 leaders to reinforce action against tax avoidance and evasion and inject greater trust and fairness into the international tax system, the OECD has unveiled today a new single global standard for the automatic exchange of information between tax authorities worldwide." The link above takes you to a summary brief of the proposed new global standard.
We learn a few interesting things in this brief:
"To prevent taxpayers from circumventing the CRS (proposed regulation) it is specifically designed with a broad scope across three dimensions"
1- The financial information to be reported with respect to reportable accounts includes all types of investment income, but also account balances and sales proceeds from financial assets.
2- The financial institutions that are required to report and exchange this information include not only banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles, and certain insurance companies.
3- Reportable accounts include acccounts held by individuals and entities (which includes trusts and foundations), and the regulation includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.
The brief goes on to say that the legal framework for this regulation already exists and is agreed to by 64 signatories "including all G20 countries, and 13 jurisdictions are covered by way of territorial extension."
It also says there is strong political support from the EU, G8, and the G20. It mentions a "pilot project" already enacted in the US in 2010 called the Foreign Account Tax Compliance Act" (FATCA).
In the Q&A section of the brief we find this:
Q: What is the main difference in this new proposed standard and the US FATCA?
A: This new standard consists of a fully reciprocal automatic exchange system from which US specifics have been removed. For example, it is based on place of residence instead of place of citizenship. (the full answers lists some other differences)
Q: When will the standard be introduced at the domestic level?
A: The standard does not contain any particular timeline. However, over 40 countries have already committed to early adoption of the standard.
Q: When will the complete package be ready?
A: We expect the complete package to be ready in time for the September 2014 G20 Finance Ministers meeting.
Q: What is the automatice exchange of information for tax purposes?
A: Automatic exchange of information involves the systemic and periodic transmission of "bulk" taxpayer information by the source country of income to the country of residence of the taxpayer. The information which is exchanged automatically is normally collected in the source country on a routine basis, generally through reporting of the payments by the payer (financial institution, employer, etc).
In Conclusion:
Here we see a pretty serious ramp up in efforts to find hidden income and assets so they can be taxed. It calls for significant cooperation on a global scale to be able to enforce it. It is already endorsed by most major countries and the brief says more are expected to sign on.
We also note that this is clearly targeting much more than just giant corporations like Google and Apple. Those are mentioned in the media headlines, but the brief linked here obviously includes individuals, trusts, foundations and "individuals that control passive entities."
editors note: some of the quotes and Q&A from the OECD brief linked here were summarized for brevity. You can read the full brief for full context.
No comments:
Post a Comment