Declaring “game over for CRS avoidance,” the OECD announced adoption of model disclosure rules for lawyers, accountants, financial advisors, banks, and other service providers. The report, Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structure, fulfilled a request of the G7 and represents the latest in a disturbing trend whaereby tax collectors not only impose convoluted and burdensome rules in pursuit of diminishing returns, but also make it the obligation of the private sector to report why the results fail to match political expectations.
Building on its Action 1 Report, the Inclusive Framework on BEPS released the Interim Report on the Tax Challenges Arising from Digitalization. It sets out their plan to “work towards a consensus-based solution by 2020.” Notably, the report found that there was no consensus on the need for interim measures. Perhaps indicating a future point of major contention, the report also warned that blockchain technology “could present new transparency risks which if unchecked may undermine progress over the last decade to tackle offshore tax evasion.” Saint Lucia, Bahrain, the United Arab Emirates, and the Former Yugoslav Republic of Macedonia also joined the Inclusive Framework and brought its membership to 117.
At the July G20 meeting, French finance minister Bruno Lemaire stated that EU countries want common rules for digital taxation by the end of 2018 or beginning of 2019. The post-summit communique states that the G20 remains “committed to work together to seek a consensus-based solution to address the impacts of the digitalization of the economy on the international tax system by 2020.” In the OECD Secretary-General Report to the G20, digitalization was called “one [of] the most urgent issues in the international tax agenda,” and reiterated that crypto-currencies “pose risks to the gains made on tax transparency in the last decade.” The report promised an update in June 2019 and a final report for 2020.
Automatic Country-by-Country (CbC) exchanges began in June between the 72 signatories of the CbC Multilateral Competent, EU member states, and signatories to bilateral competent authority agreements for exchanges under Double Tax Conventions or Tax Information Exchange Agreements. Before that, the OECD released the first CbC peer reviews, boasting that “practically all countries that serve as headquarters to the large MNEs [multinational enterprises] covered by the initiative have introduced new reporting obligations compliant with transparency requirements.” Later, they provided additional interpretative guidance on the implementation of CbC reporting, answering questions on “the treatment of dividends received and the number of employees to be reported in cases where an MNE uses proportional consolidation in preparing its consolidated financial statements,” among other things.
Then in September, tax officials from 21 jurisdictions met in Yangzhou, China for a joint workshop organized by the OECD and Chinese State Administration of Taxes to consider lessons to date from the implementation of CbC reporting. Results from the workshop will be incorporated into future BEPS work, including a review of the CbC reporting minimum standard. One notable concern is that the workshop represents the first attempt to weaponize the trove of data provided by CbC reporting in the never-ending fight between tax collectors and economic producers.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosions and Profit Shifting entered into force on July 1 after the deposit of the fifth instrument of ratification by Slovenia. Slovenia joined the Republic of Austria, the Isle of Man, Jersey, and Poland as having ratified the treaty, and it will begin to have an effect for existing tax treaties for these jurisdictions in 2019. The Convention allows jurisdictions to transpose results from the BEPS project into their existing bilateral tax treaties. Additional new signatories include Kazakhstan, Peru, the United Arab Emirates, Estonia, Ukraine, and Saudi Arabia as the 84th to join.
Beyond BEPS, Serbia, Bosnia and Herzegovina, Cabo Verde, and Swaziland joined the Global Forum on Transparency and Exchange of Information for Tax Purposes, bringing it to 153 jurisdictions. The Global Forum also published (second round) peer review reports grading jurisdictions on compliance with the standard for exchange of information on request.
Estonia, France, Monaco, New Zealand, Guernsey, and San Marino were given overall ratings of Compliant. The Bahamas, Belgium, Hungary, Indonesia, Japan, the Philippines, and the United States were rated Largely Compliant. Ghana and Kazakhstan were rated Partially Compliant. A supplementary report also upgraded Jamaica to Largely Complaint from its 2017 rating of Partially Compliant.
Paraguay signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, becoming the 119th jurisdiction to do so. The OECD further announced new sets of bilateral exchange relationships under the Common Reporting Standard Multilateral Competent Authority Agreement, including activations by Panama for the first time. It also published the second edition of the Common Reporting Standard Implementation Handbook.
New economic surveys were released for Tunisia, Ireland, Israel, Poland, Costa Rica, Greece, Turkey, Korea, Lithuania, Canada. Tunisia’s taxes were observed to be high, but it was encouraged to focus on “tax justice” by increasing tax inspections to fight evasion in an apparent failure to recognize that high taxes and evasion go hand in hand. Ireland was said to have high regulator barriers to entrepreneurship, and Brexit was declared a “serious risk” to its economic outlook. Israel’s economy was acknowledged as performing strongly, but the nation was said to have “weak public spending on education and infrastructure.”
Poland was recognized for a strong economy and a relatively low tax burden. Unfortunately, it was encouraged to produce “higher tax revenues” to meet planned spending by “increasing environmentally related taxes and giving a stronger role to the progressive personal income tax.” Turkey was credited with a fast-growing economy despite adverse shocks that have weakened confidence in the rule of law. And in Costa Rica, efforts to increase tax collection have not reduced the budget deficit. This should come as little surprise given the strong historical evidence that spending restraint is the preferable strategy for eliminating red ink.
Unfortunately, three OECD reports exemplified the organization’s obsession with raising taxes by examining the use of taxes on personal savings and wealth as a means for “reducing inequalities and bringing about more inclusive growth,” and the advancement of carbon taxes.
Taxation of Household Savings examines the different approaches that countries take to taxing household savings and concludes that “while countries do not necessarily need to tax savings more … there may also be opportunities for many countries to increase progressivity in their taxation of savings.”
Similarly, The Role and Design of Net Wealth Taxes looks at the historical use of wealth taxes in OECD countries, as well as current trends, and “argues that there is a strong case for addressing wealth inequality through the tax system.” It concludes that “there are limited arguments for having a net wealth tax on top of broad-based personal capital income taxes and well-designed inheritance and gift taxes. However, there are stronger arguments for having a net wealth tax in the absence of broad-based capital income tax and taxes on wealth transfers.”
Effective Carbon Rates 2018: Pricing Carbon Emissions Through Taxes and Emissions Trading extols the virtues of carbon taxation and gleefully reports “there are signs that carbon pricing is gaining momentum.” Nevertheless, the top line message is that “governments need to raise carbon prices much fast if they are to meet their commitments on cutting emissions.”
The 2018 OECD Forum held in May, under the theme “What Brings Us Together,” focused on what it described as three interconnected issues: international cooperation, inclusive growth, and digitalization. As usual, the issue of inclusive growth provided opportunity to push a variety of leftwing causes, primarily those obsessing about inequality and gender issues. And in July, more than 70 participants from 20 European and Central Asian countries met in Tbilisi, Georgia, for a regional event on Developments in International Tax Co-operation: Fighting Tax Evasion and Avoidance. Among other things, it provided yet another opportunity to perpetuate the conflation of legal tax avoidance and illegal evasion that has been at the heart of the OECD’s anti-tax competition work.