Automatic Global Information Sharing in Tax Matters

oecd  may 6, 2014

Forty-seven countries, including the Group of 20 and some prominent tax havens, [adopted a declaration–Declaration on Automatic Exchange
of Information in Tax Matters] on May 6, 2014 that will shake up the sharing of tax information. Under the present system, countries have to file requests with each other for data on suspected cheats…In the future the states will automatically exchange information once a year. This will include bank balances, interest income, dividends and the proceeds of sales, which can be used to assess capital-gains tax…The deal also increases pressure on banks to identify the ultimate owners of shell companies and trusts, behind which tax evaders often hide.

The catalyst for the agreement was America’s Foreign Account Tax Compliance Act (FATCA). The law, passed in 2010, will soon impose stiff penalties on foreign financial firms that fail to declare their American clients. Once America began pushing for automatic declarations, other big countries did the same.

The most eye-catching signatory to the accord is Switzerland, whose banks were at the centre of the scandals that gave rise to FATCA. The world’s most famous offshore wealth-management centre was built on supposedly ironclad bank secrecy, but it has been forced to buckle under international pressure. (The American authorities, for instance, are currently leaning on Credit Suisse to plead guilty to charges of aiding American tax dodgers.) This is momentous: for the Swiss, agreeing to swap client data systematically is the cultural equivalent of Americans giving up guns. Singapore, which has earned a reputation as the Switzerland of the East, is also a party to the deal.  Britain’s offshore satellites, such as Jersey and the Cayman Islands, are grudgingly on board. But it will be harder to corral Panama, Dubai and the havens dotted around the Indian and Pacific Oceans (although blacklisting can be a powerful tool). Until they sign up, the likes of Switzerland and Luxembourg may have an excuse to drag their feet in implementing the new rules.

Still, the pace of change has been remarkable. Global information exchange, unthinkable a decade ago, is within reach. Tax evaders can be ingenious, but their options are narrowing fast.

Tax evasion: The data revolution, Economist, May 10, 2014, at 74

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