Academic journal article Law, Social Justice and Global Development Journal

Developing Country Perspectives on Automatic Exchange of Tax Information

Academic journal article Law, Social Justice and Global Development Journal

Developing Country Perspectives on Automatic Exchange of Tax Information

Article excerpt

In April 2013, the G20 (1) made a major policy shift in international taxation by endorsing automatic exchange of information as a next global standard for tax information exchanges between states (Communique 2013, para.14). In September 2013, the G20 Leaders expressed their interest in working with the OECD to develop a new multilateral framework on automatic exchange of information and to present a new single standard in early 2014 (G20 Leaders' Declaration 2013, para.51). Within months, the OECD issued a report, which sets out the concrete steps to be undertaken to realize the new global standard (OECD 2013). In February 2014, the OECD introduced the standard entitled "Standard for automatic exchange of financial account information on tax matters" (OECD 2014). In the meantime, the 20 Leaders asked the Global Forum on Transparency and Exchange of Information for Tax Purposes to establish a mechanism to monitor and review the implementation of the new global standard on automatic exchange of information.

The Standard essentially requires financial institutions to take on the role of tax/information agents with respect to non-resident account-holders and in relation to these account-holders' countries of residence. The standard requires financial institutions in participating countries to report information on financial accounts held by non-resident individuals and entities to their local tax authorities on a regular basis. The tax authorities then securely transmit this information to these individuals and entities' countries of residence. Based on the information received, it is then possible for the residence country to verify whether its resident taxpayers have reported their income earned through offshore financial accounts.

The new standard will complement the earlier international tax rules on information exchange "upon request", attempting to address its many limitations (OECD 2009; OECD 2006, para.5). Overall, the new system attempts to address a long-endured problem in international taxation (i.e. offshore tax evasion) and help the states to better enforce their tax laws on the foreign-source income of their residents.

In 29 October 2014, soon after the OECD had introduced the rules of the standard, the representatives of over 51 jurisdictions came together in Berlin to sign a multilateral agreement, the Multilateral Competent Authority Agreement (MCAA), designed to implement the standard (OECD, MCAA 2014). This agreement marks one of the very few multilateral agreements that exist in the field of taxation. The signatory parties pledged to work together towards implementation of the standard by 2017, with the first international automatic exchanges to take place in 2017 (Global Forum, MCAA Signatories 2015).

Of the 140 developing countries around the world, only half a dozen have signed the MCAA (Global Forum, MCAA Signatories 2015). Surprisingly, even the BRIC countries: Brazil, China, India, and Russia, were missing in the signatory list. Further, only a small number of developing countries among another 42 jurisdictions are yet to sign the agreement, but have committed to join the regime by 2018 (Global Forum, Status of Commitments 2015).

This raises an important question: does the emerging international automatic exchange of information regime have anything to offer the developing world? This paper explores and analyses the automatic exchange of information system from the developing country perspective. It also studies the risks of not involving developing countries and the challenges and obstacles that developing countries may confront when participating in the system. Finally, it proposes some options to resolve these challenges.

1.1 Concept and purposes of automatic exchange of tax information

International automatic exchange of tax information generally involves a systematic and periodic transmission of a bulk of tax-relevant information of non-resident taxpayers by tax authorities of one country to the tax authorities of another country where these taxpayers reside (OECD 2012, p. …

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