OECD – Fighting Tax Crime: The Ten Global Principles. This is the first comprehensive guide to fighting tax crimes. It sets out ten global principles, covering the legal, strategic, administrative and operational aspects of addressing tax crimes. The guide has been prepared by the OECD Task Force on Tax Crimes and Other Crimes (TFTC). It draws on the experience of the members of the TFTC as well as additional survey data provided by 31 jurisdictions: Australia, Austria, Brazil, Canada, Czech Republic, Denmark, El Salvador, Finland, France, Georgia, Germany, Greece, Iceland, Indonesia, Italy, Japan, Lithuania, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, the United Kingdom and the United States. The guide shows that the fight against tax crime is being actively pursued by governments around the world. Jurisdictions have comprehensive laws that criminalise tax offences, and the ability to apply strong penalties, including lengthy prison sentences, substantial fines, asset forfeiture and a range of alternative sanctions. Jurisdictions generally have a wide range of investigative and enforcement powers as well as access to relevant data and intelligence. Suspects’ rights are nearly universally understood in the same way and enshrined in law. Increasingly, jurisdictions are taking a strategic approach to addressing tax offences, which includes targeting key risks and leveraging the tools for co-operation with other law enforcement agencies, both domestically and internationally. At the same time, tax crime investigations increasingly need to be undertaken with greater efficiency and fewer resources. However, data shows that the investment is worthwhile, with some jurisdictions being able to calculate the return on investment from the criminal tax investigation teams and reporting recovery of funds well in excess of the expenditure, ranging from 150% to 1500% return on investment. The role played by criminal tax investigators thus contributes significantly to jurisdiction’s overall tax compliance efforts. The implementation of the 10 global principles around the world is critical in addressing the tax gap and supporting domestic resource mobilisation. Recommendations: This guide recommends that jurisdictions benchmark themselves against each of the ten global principles. This includes identifying areas where changes in law or operational aspects are needed, such as increasing the type of investigative or enforcement powers, expanding access to other government-held data, devising or updating the strategy for addressing tax offences, and taking greater efforts to measure the impact of the work they do. In particular, developing jurisdictions are encouraged to use the guide as a diagnostic tool to identify principles which may not yet be in place. Jurisdictions which have made commitments to capacity building for developing jurisdictions in tax matters (such as the Addis Tax Initiative or the G7 Bari Declaration) are recommended to consider how they can work with developing jurisdictions to enhance tax crime investigation based on this guide, including through providing support for the OECD International Academy for Tax Crime Investigation and other regional initiatives. The TFTC will continue its work in facilitating international co-operation on fighting tax crime, particularly on issues where multilateral action is required to address common challenges. This could also include collaborating to create an agreed strategy for addressing tax crimes that have cross-border elements. Such a strategy could include identifying the risks of such tax crimes, defining the additional data and other mechanisms that are needed to more effectively combat such tax crimes and working towards ensuring that data and mechanisms are available and efficient in practice.
OECD – Improving Co-operation between Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption
OECD – Improving Co-operation between Tax Authorities and Anti-Corruption Authorities in Combating Tax Crime and Corruption. 1. Countries around the globe are facing a common threat posed by increasingly complex and innovative forms of financial crime. By exploiting modern technology and weaknesses in local legislation, criminals can now covertly move substantial sums between multiple jurisdictions with relative ease and great speed. As a consequence, criminal activity such as tax evasion, bribery and other forms of corruption are becoming ever more sophisticated. Meanwhile, law enforcement structures have, in many cases, not evolved at the same speed and the international community has struggled to keep up with this threat. 2. While viewed as distinct crimes, tax crime and corruption are often intrinsically linked, as criminals fail to report income derived from corrupt activities for tax purposes, or over-report in an attempt to launder the proceeds of corruption. A World Bank study of 25 000 firms in 57 countries found that firms that pay more bribes also evade more taxes. 1 More broadly, where corruption is prevalent in society, this can foster tax evasion. A recent IFC Enterprise Survey found that 13.3% of businesses globally report that “firms are expected to give gifts in meetings with tax officials”, with the frequency of this ranging across countries from nil to 62.6%. 2 3. The links between tax crime and corruption mean that tax authorities and law enforcement authorities can benefit greatly from more effective co-operation and sharing of information. Tax authorities hold a wealth of personal and company information such as income, assets, financial transactions and banking information, that can be a valuable source of intelligence to anti-corruption investigators. Similarly, anticorruption authorities can provide tax administrations with important information about ongoing and completed corruption investigations that could assist a decision to reopen a tax assessment, initiate a tax crime investigation, or more generally promote integrity among tax officials. The investigation into Brazilian majority-state-owned oil company, Petrobras, initiated in 2014, is a prime example of this. Civil tax auditors played a critical role in this transnational corruption investigation by analysing suspects’ tax and customs data and sharing this with the police and public prosecutor as permitted by law. As a result, officials were able to uncover evidence of money laundering, tax evasion, and hidden assets, and to track financial flows. While criminal investigations and prosecutions are still ongoing, as of August 2018, the operation has resulted in dozens of charges against high profile public officials and politicians and billions of dollars in criminal fines, tax penalties, and recovered assets. 4. However, there remains significant room for improvement in co-operation between tax authorities and anti-corruption authorities. Despite success stories, anecdotal evidence provided by many jurisdictions involved in this report suggests that reporting and information sharing between authorities often occurs on ad-hoc basis rather than systematically. This is reinforced by the OECD’s 2017 study on the Detection of Foreign Bribery, which provides that only 2% of concluded foreign bribery cases between 1999 and 2017 were detected by tax authorities.3 5. These issues are at the heart of the current global agenda. In 2015, the United Nations agreed 17 Sustainable Development Goals, including a specific target of substantially reducing corruption in all of its forms. 4 The World Bank and OECD strongly support these goals and recognise the importance of dealing with corruption and tax evasion at a policy and technical level. In this context, for many years, international organisations including the OECD and World Bank have been active in supporting countries to strengthen their legal and institutional frameworks for the prevention, detection, investigation, and prosecution of tax crime and corruption, and the recovery of the proceeds of these crimes. In 2012, the Financial Action Task Force (FATF) recognised these links by including corruption, bribery, and tax crimes in the list of designated predicate offences for money laundering purposes in its International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation. 5 6. In 20096 and 20107 , the OECD issued two Council Recommendations calling for greater co-operation and better information sharing between different government agencies involved in combating financial crimes. These are supported by the Oslo Dialogue, an initiative which encourages a whole of government approach to tackling all forms of financial crime. 8 As part of this initiative, in 2017, the OECD published its third edition of Effective Inter-Agency Co-operation in Fighting Tax Crimes and Other Financial Crimes (the Rome Report) which analyses the legal gateways and mechanisms for inter-agency co-operation between authorities responsible for investigating tax and other financial crimes. At the same time, the OECD published Ten Global Principles for Fighting Tax Crime, the first report of its kind which allows countries to benchmark their legal and operational frameworks for tackling tax crime, and identify areas where improvements can be made. 7. The OECD continues to advance practical tools and training to combat tax crime and corruption. OECD Handbooks on Money Laundering Awareness and Bribery and Corruption Awareness provide practical guidance to help tax officials identify indicators of possible criminal activity in the course of their work. In 2013, the OECD International Academy for Tax Crime Investigation was launched in co-operation with Italy’s Guardia di Finanza to strengthen developing countries’ capacity to tackle illicit financial flows. In 2017, a sister Academy was piloted in Kenya and will be formally launched in Nairobi, in late 2018. In July 2018, OECD and Argentina’s Federal Administration of Public Revenue (AFIP) signed a MoU to establish a Latin American centre of the OECD Academy in Buenos Aires, Argentina, with the first programme planned for late 2018. 8. The World Bank is also helping strengthen developing countries’ capacity to stem tax evasion. In 2015, the World Bank and the International Monetary Fund (IMF) launched the Joint Initiative to Support Developing Countries in Strengthening Tax Systems to give greater voice to developing countries in the global debate on tax issues. 9 Through this joint initiative, the World Bank and the IMF are assembling a set of tools and guidance aimed at addressing developing economy needs. As part of this work, the World Bank has also partnered with the governments of Norway and Denmark to launch the Tax Evasion Initiative to enable enforcement agencies in developing countries to more effectively combat tax crimes and other financial crimes. Under the Tax Evasion Initiative, the World Bank is developing a set of tools, including a handbook on tax evasion schemes and red flags for tax investigators and auditors, as well as a methodology for assessing the performance of criminal tax investigation units which is currently being piloted. 9. In researching, developing, and publishing this joint report on the legal, strategic, and operational aspects of co-operation between tax authorities and anti-corruption authorities, the World Bank and OECD aim to complement their existing work and advance the shared objective of improving the capacity of all countries to effectively combat financial crime.
OECD/UNDP – Tax Inspectors Without Borders. Annual Report 2017/18. This Annual Report from Tax Inspectors Without Borders (TIWB) covers the period May 2017 to April 2018. TIWB’s practical and results-oriented approach to supporting domestic resource mobilisation is proving increasingly relevant in a fast moving international environment. TIWB is contributing to the United Nations’ Financing for Development agenda, and supporting progress towards attaining the Sustainable Development Goals (SDGs). It is also underpinning the Base Erosion and Profit Shifting (BEPS) actions, strengthening developing countries ability to effectively tax multinational enterprises (MNEs), while offering increased certainty and predictability to taxpayers. TIWB increasingly operates in close partnership with a diverse range of stakeholders and partners. Demand for TIWB is growing. There are 29 programmes currently operational and 7 have been completed, together exceeding the target of 35 programmes by April 2018 set by the TIWB Governing Board. Over 20 programmes are in the pipeline. New South-South opportunities are being identified, with India, Nigeria, and South Africa now offering expertise. These developments are, in part, due to increased active participation from Partner Administrations (those providing experts), with 11 countries deploying their serving tax officials and a United Nations Development Programme (UNDP) managed roster of 40 tax audit experts up and running. To date, USD 414 million in increased tax revenues is attributable to TIWB and TIWB-style support offered in partnership with the African Tax Administration Forum (ATAF) and the World Bank Group (WBG). TIWB represents excellent value for money with over USD 100 in additional tax revenues recovered for every USD 1 spent on operating costs. Whilst revenue impact is important, in the last year TIWB has gathered evidence of other long-term outcomes, including on skills transfer, organisational change and taxpayer compliance. The TIWB Secretariat has developed new tools to help with the measurement challenge. In 2017, an Experts’ Roundtable and a Stakeholders’ Workshop, involving stakeholders from 28 countries and 6 international and regional organisations, gathered lessons on how TIWB’s unique role could be strengthened and how the target of 100 tax expert deployments by 2020 should best be achieved. A mentorship programme was proposed. Other lessons include the finding that TIWB programmes with full access to taxpayer information have advantages over anonymised case reviews and can help with tax reforms by illuminating possible legislative shortcomings in international taxation. The importance of a whole-of-government approach by Partner Administrations, which could improve the efficiency of expert deployment processes with institutionalised funding arrangements, was also highlighted. The partnership between the Organisation for Economic Co-operation and Development (OECD) and UNDP, which delivers TIWB, is becoming stronger with an agreed division of labour. UNDP country offices are able to facilitate national-level discussions on domestic resource mobilisation (DRM), raise awareness and build national support for TIWB programmes. The TIWB Secretariat has launched its first e-newsletter and community of practice for its Experts. TIWB has also updated its multilingual website. The year ahead will see the TIWB Secretariat pursue the implementation of the 2016- 2019 Objectives (Annex A). Priorities will include cementing partnerships with regional tax organisations, expanding the scope of TIWB to new areas such as tax and crime, continuing to build South-South programmes and building a pool of industry expertise to assist developing countries address audit challenges in key business sectors. A major international conference on TIWB and possible future directions is being considered for 2019.
United Nations Practical Manual on Transfer Pricing for Developing Countries (2017). This second edition of the United Nations Practical Manual on Transfer Pricing for Developing Countries (the Manual) is intended to draw upon the experience of the first edition (2013) including feedback on that version, but it is also intended to reflect developments in the area of transfer pricing analysis and administration since that time. At the Ninth Session of the United Nations Committee of Experts on International Cooperation in Tax Matters in October 2013, a Subcommittee was formed with the task, among others, of updating this Manual. The mandate of the reconstituted Subcommittee on Article 9 (Associated Enterprises): Transfer Pricing in relation to this Manual was as follows: Update and enhancement of the United Nations Practical Manual on Transfer Pricing for Developing Countries, The Subcommittee as a Whole is mandated to update the United Nations Practical Manual on Transfer Pricing for Developing Countries, based on the following principles: ¾ That it reflects the operation of Article 9 of the United Nations Model Convention, and the Arm’s Length Principle embodied in it, and is consistent with relevant Commentaries of the U.N. Model; ¾ That it reflects the realities for developing countries, at their relevant stages of capacity development; ¾ That special attention should be paid to the experience of developing countries; and ¾ That it draws upon the work being done in other fora. In carrying out its mandate, the Subcommittee shall in particular consider comments and proposals for amendments to the Manual and provide draft additional chapters on intra-group services and management fees and intangibles, as well as a draft annex on available technical assistance and capacity building resources such as may assist developing countries. The Subcommittee shall give due consideration to the outcome of the OECD/Group of Twenty (G20) Action Plan on Base Erosion and Profit Shifting as concerns transfer pricing and the Manual shall reflect the special situation of less developed economies. The Subcommittee shall report on its progress at the annual sessions of the Committee and provide its final updated draft Manual for discussion and adoption at the twelfth annual session of the Committee in 2016. The Committee at its twelfth session recognized that the Subcommittee’s mandate had been met and approved the proposed update to the Manual. The Manual is improved, and made more responsive to issues of current country concern and also more in tune with rapid developments in this area, including those relating to the OECD/ G20 Action Plan on Base Erosion and Profit Shifting mentioned in the Subcommittee mandate. It was decided by the Subcommittee, and agreed by the Committee, that the Manual was not the best place for a draft annex on available technical assistance and capacity building resources such as may assist developing countries, as mentioned in the mandate. This was considered better addressed by a webpage updated and managed by the UN Secretariat. The changes in this edition of the Manual include: ¾ A revised format and a rearrangement of some parts of the Manual for clarity and ease of understanding, including a reorganization into four parts as follows: h Part A relates to transfer pricing in a global environment; h Part B contains guidance on design principles and policy considerations; this Part covers the substantive guidance on the arm’s length principle, with Chapter B.1. providing an overview, while Chapters B.2. to B.7. provide detailed discussion on the key topics. Chapter B.8. then demonstrates how some countries have established a legal framework to apply these principles; h Part C addresses practical implementation of a transfer pricing regime in developing countries; and h Part D contains country practices, similarly to Chapter 10 of the previous edition of the Manual. A new statement of Mexican country practices is included and other statements are updated; ¾ A new chapter on intra-group services; ¾ A new chapter on cost contribution arrangements; ¾ A new chapter on the treatment of intangibles; ¾ Significant updating of other chapters; and ¾ An index to make the contents more easily accessible The Foreword to the First Edition of this Manual, which is included below, remains relevant as to its substance. In particular, its recognition that: “While consensus has been sought as far as possible, it was considered most in accord with a practical manual to include some elements where consensus could not be reached, and it follows that specific views expressed in this Manual should not be ascribed to any particular persons involved in its drafting. [Part D]1 is different from other chapters in its conception, however. It represents an outline of particular country administrative practices as described in some detail by representatives from those countries, and it was not considered feasible or appropriate to seek a consensus on how such country practices were described.
OECD Taxation Working Papers N. 39 – Simplified registration and collection mechanisms for taxpayers that are not located in the jurisdiction of taxation
OECD Taxation Working Papers N. 39 – SIMPLIFIED REGISTRATION AND COLLECTION MECHANISMS FOR TAXPAYERS THAT ARE NOT LOCATED IN THE JURISDICTION OF TAXATION. A REVIEW AND ASSESSMENT. This paper reviews and evaluates the efficacy of simplified tax registration and collection mechanisms for securing compliance of taxpayers over which the jurisdiction with taxing rights has limited or no authority to effectively enforce a tax collection or other compliance obligation. Although the experience of jurisdictions in addressing this problem has involved primarily consumption taxes, that experience, and the lessons that can be learned from it, are applicable as well to other tax regimes that confront the same problem. Many jurisdictions have implemented (and are in the process of implementing) simplified registration and collection regimes in the business-to-consumer (B2C) context for taxpayers that are not located in the jurisdiction of taxation. Although the evidence regarding the performance of the simplified regimes adopted by jurisdictions is still quite limited, the best available evidence at present (in the European Union) indicates that simplified regimes can work well in practice and a high level of compliance can be achieved since there is a concentration of the overwhelming proportion of the revenues at stake in a relatively small proportion of large businesses and since the compliance burden has been reduced as far as possible. It also indicates that the adoption of thresholds may be an appropriate solution to avoid imposing a disproportionate administrative burden with respect to the collection of tax from small and micro-businesses in light of the relatively modest amount of revenues at stake and that a good communications strategy is essential to the success of a simplified regime (including appropriate lead time for implementation). In sum, simplified registration and collection regimes represent an effective approach to securing tax compliance when the jurisdiction has limited or no authority effectively to enforce a tax collection or other compliance obligation upon a taxpayer.
OECD SECRETARY-GENERAL REPORT TO G20 LEADERS – Since 2008, the G20 has made the fight against international tax fraud and avoidance a priority. Thanks to the support of Leaders and Finance Ministers, major progress has been achieved, demonstrating that international co-operation in a multilateral framework can support and strengthen national sovereignty. In my last report to you, at your meeting in Hamburg in 2017, I told you that we were about to bring to fruition the G20 mandate for the automatic exchange of financial account information (AEOI) with first exchanges to start in September 2017. It is estimated that by June 2018, jurisdictions around the globe have identified EUR 93 billion in additional revenue (tax, interest, penalties) as a result of voluntary compliance mechanisms and other offshore investigations put in place since 2009. AEOI is now happening in 83 jurisdictions that committed to exchange by 2018. Moreover, details on hundreds of billions of euros of accounts have been exchanged in 2017, the first year of operation of the OECD’s Common Reporting Standard. I reported on the outcome of your request to establish objective criteria to identify jurisdictions that were not implementing the tax transparency standards and the significant impact that this process had on encouraging jurisdictions to make changes. The OECD has now delivered strengthened criteria to be applied at the time of next year’s Summit and can report today that 15 jurisdictions are at risk of being identified. We are working with these jurisdictions and I will report to you at your Summit in 2019 on the progress made, along with a list of any jurisdictions that have not made enough progress. After the delivery of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Package of 15 Actions, the key issue for the international tax community in 2018 remains how to address the tax challenges arising from digitalisation. In March, I delivered an Interim Report to Finance Ministers, providing an economic analysis of the features of the highly digitalised business models. It was agreed that, in spite of divergences on the consequences to draw, countries would seek a consensus based solution in a context where a number of governments feel urged to move to short term interim measures. Since March, the 124 members of the Inclusive Framework for BEPS Implementation, steered by G20 countries, have made significant progress to bridge the gaps in their position. Following the US tax reform, the United States has in particular agreed to engage in the search of a global solution which would address further challenges. Equally, France and Germany have now proposed to explore the feasibility of a global anti-base erosion mechanism. The United Kingdom made a proposal focussed on a reallocation of taxing rights based on active user contribution in some business models. Many other countries are now involved actively in this discussion. The G20 has an opportunity to seize the moment by maintaining the political focus on reaching a global, consensus-based solution. The Task Force will meet in December and the Inclusive Framework then meets in January to take these proposals further. A strong showing of unity and commitment to work together at the highest political level will be a key ingredient in finding the common ground that we are seeking. The Inclusive Framework will hold a second meeting in 2019 just before your next Leaders’ Summit. My hope is that at that Summit you will be able to celebrate an agreement on the what and how of a long-term solution to be delivered in 2020. These discussions are taking place against the back-drop of wide-spread implantation of the BEPS Package. In July last year the OECD/G20 Inclusive Framework on BEPS was up and running and the peer reviews of the minimum standards had begun. The first results from the peer reviews of the OECD/G20 BEPS Project are in and show strong implementation by the members of the BEPS Inclusive Framework. While the BEPS Project addresses double non-taxation, ensuring that international trade and investment does not face double taxation remains a priority. The OECD, in collaboration with the IMF, had produced a first report on tax certainty. In July we delivered an update on that report and look forward to taking this work forward with renewed emphasis. Our work on building capacity in developing countries is on-going, including support for the G20 Compact with Africa and our work through the Platform for Collaboration on Tax. We have continued to deliver a strong program of work in supporting capacity building in developing countries, particularly through the Platform for Collaboration (PCT) on Tax. Buenos Aires, Argentina. December 2018.
This report focuses on aggressive tax planning (ATP) schemes based on after-tax hedging. In general terms, after-tax hedging consists of taking opposite positions for an amount which takes into account the tax treatment of the results from those positions (gains or losses) so that, on an after-tax basis, the risk associated with one position is neutralised by the results from the opposite position. While after-tax hedging is not, of itself, aggressive – being generally a straightforward risk management technique – the report recognises that it can also be used as a feature of ATP schemes. ATP schemes based on after-tax hedging pose a threat to countries’ revenue base: empirical evidence suggests that hundreds of millions of USD are at stake, with a number of multi-billion USD transactions identified by certain countries. ATP schemes based on after-tax hedging originated in the banking sector, but experience shows that they are also used in other industries and, in some instances, also by medium-sized enterprises, thus generating an even bigger threat to tax revenue. It is therefore important that governments are aware of arrangements that use hedging for ATP purposes. The Report follows on from the 2011 OECD Report Corporate Loss Utilisation through Aggressive Tax Planning which recommends countries analyse the policy and compliance implications of after-tax hedges in order to evaluate the appropriate options available to address them. It was prepared by the ATP Steering Group of Working Party No. 10 on Exchange of Information and Tax Compliance of the Committee on Fiscal Affairs (CFA). The report builds on a number of country submissions to the OECD Directory on Aggressive Tax Planning where several ATP schemes based on after-tax hedging have been posted. After having discussed in general terms the notion of hedging as a risk management tool and the effect of taxation on hedging transactions, the report describes the features of ATP schemes based on after-tax hedging that have been encountered by a number of countries. In those schemes, taxpayers use after-tax hedging to earn a premium return, without actually bearing the associated risks, which is in effect passed on to the government. In all of these schemes there is generally no pre-existing exposure to hedge against but rather the exposure is created as part of the relevant scheme. ATP schemes based on after-tax hedging exploit the disparate tax treatment between the results (gain or loss) from the hedged transaction/risk on the one hand, and the results (gain or loss) from the hedging instrument on the other. In some of these schemes, the tax treatment of gains and losses arising from each transaction is symmetrical, while in others the tax treatment is asymmetrical. Other schemes rely on similar building blocks and are often structured around asymmetric swaps or other derivatives. ATP schemes based on after-tax hedging can exploit differences in tax treatment within one tax system and are in that sense mostly a domestic law issue. Any country that taxes the results of a hedging instrument differently from the results of the hedged transaction/risk is potentially exposed. The issue of after-tax hedging also arises in a cross-border context with groups of companies operating across different tax systems, which gives rise to additional challenges for tax administrations.
OECD – Standard for Automatic Exchange of Financial Account Information in Tax Matters: Implementation Handbook. SECOND EDITION
The purpose of the CRS Handbook is to assist government officials in the implementation of the Standard for the Automatic Exchange of Financial Account Information in Tax Matters (“Standard”) and to provide a practical overview of the Standard to both the financial sector and the public at-large. The Handbook provides a guide on the necessary steps to take in order to implement the Standard. Against that background, the Handbook is drafted in plain language, with a view of making the content of the Standard as accessible as possible to readers. The Handbook provides an overview of the legislative, technical and operational issues and a more detailed discussion of the key definitions and procedures contained in the Standard. This second edition of the Handbook is intended to be a living document and will be further updated and completed over time. Changes reflected in the second edition of the Handbook provide additional and more up-to-date guidance on certain areas related to the effective implementation of the Standard. This includes revisions to sections pertinent to the legal framework for implementation of the AEOI, data protection, IT and administrative infrastructures as well as compliance measures. More clarity has been provided in the trust section of the Handbook relation to the identification of Controlling Persons. The objective of the Handbook is to assist stakeholders in the understanding and implementation of the Standard and should not be seen as supplementing or expanding on the Standard itself. Cross references to the Standard and its Commentary are therefore included throughout the document. The page numbers refer to the pages in the consolidated second edition of the Standard. Background to the creation of the Standard for Automatic Exchange 1. In 2014, the OECD together with G20 countries and in close cooperation with the EU as well as other stakeholders developed the Standard for Automatic Exchange of Financial Account Information in Tax Matters, or the Standard. This was in response to the call of the G20 leaders on international community to facilitate cross-border tax transparency on financial accounts held abroad. The Standard intends to equip tax authorities with an effective tool to tackle offshore tax evasion by providing a greater level of information on their residents’ wealth held abroad. In order to maximise efficiency and minimise costs the Standard builds on the automated and standardised solutions that jurisdictions previously developed for the purposes of the intergovernmental operationalisation of the US laws commonly known as FATCA. 2. The Standard has now moved from the design to implementation and application phase with the first exchanges having taken place in September 2017. There are over 100 jurisdictions representing all the major international financial centres that have committed to commence automatic exchange of information in 2017 or 2018. Within that group there is a small group of jurisdictions that have yet to pass domestic legislation to impose reporting obligations on their financial institutions. Many jurisdictions have also made significant progress in adopting the necessary international legal frameworks enabling cross-border exchanges. 3. The commitment process is monitored by the Global Forum on Transparency and Exchange of Information for Tax Purposes (“Global Forum”) whose role is to ensure timely and effective implementation of the Standard based on a level playing field. In parallel, the OECD continues its work on the practicalities of the Standard by seeking stakeholder input and clarifying its application through the regular publication of Frequently Asked Questions (FAQs) on the AEOI Portal as well as updates to this Handbook.
OECD – INTERNATIONAL TAX PLANNING AND FIXED INVESTMENT ECONOMICS DEPARTMENTS WORKING PAPERS N. 1361. This paper assesses how international tax planning affects real business investment by multinationals. Earlier studies have shown that corporate taxes reduce business investment. This paper shows that tax planning multinationals are less sensitive to corporate taxes than other firms in their investment decisions. This is presumably because tax planning multinationals do not face the full tax burden associated with their investments, since they shift part of the resulting profits to lower-tax rate countries. On average across industries, a 5 percentage point corporate tax rate increase is found to reduce investment by 5% in the long term. In industries with a strong presence of multinationals with profit-shifting opportunities, this effect is halved. These results obtained with industry-level data are confirmed by a firm-level analysis. Consistently with these results, the investment of tax planning multinationals is found to be more sensitive to taxes when strong rules against tax planning are in place.
OECD Taxation Working Papers N. 34 – STATUTORY TAX RATES ON DIVIDENDS, INTEREST AND CAPITAL GAINS. THE DEBT EQUITY BIAS AT THE PERSONAL LEVEL
OECD Taxation Working Papers N. 34 – STATUTORY TAX RATES ON DIVIDENDS, INTEREST AND CAPITAL GAINS. THE DEBT EQUITY BIAS AT THE PERSONAL LEVEL. This paper presents statutory tax rates on several forms of capital income, including dividends, interest on bonds and bank accounts, and capital gains on shares and real property, including integration between the corporate and personal levels. It updates the rates from an earlier tax working paper (Harding, 2013) and extends the analysis to consider the debt-equity bias of the tax system when the personal level of taxation is considered. 1. In addition to labour and business income, many individuals also receive capital income, for example, from holding funds in deposit accounts or bonds, or from the ownership of shares or real property. The tax rules applied to these forms of income differ within and across countries according to the nature, timing and source of the revenue, and the income level and characteristics of the income-earner. 2. Taxation of Dividends, Interest and Capital Gain Income (Harding, 2013) provides an analytical framework and the statutory tax treatment of three simple types of capital income earned by resident individuals in a domestic setting: dividend income from ordinary shares; interest income from cash deposits; and capital gains realised on long-term real property and shares. The paper traced the impact of different tax treatments from pre-tax corporate income, through the relevant corporate and personal tax systems, to the post-tax income received by an illustrative top-rate taxpayer. The descriptions were supplemented with diagrammatic and algebraic presentations and illustrative examples for each OECD country as at 1 July 2012. 3. This paper draws on responses to a questionnaire distributed in February 2016 (Questionnaire for Tax and Debt Bias in Corporate Financing Analysis). It updates the information presented in Harding (2013) to 1 July 2016 and extends the analysis to two new types of capital income: interest income from corporate bonds, and capital gains on short-held shares. As in the previous paper, the tax rates represent the maximum possible burden on capital income under the relevant tax systems and are statutory, rather than effective, tax rates. Finally, the paper compares the tax treatment of the returns to debt and equity at both the corporate and individual levels to determine whether there is a tax-created bias toward debt when personal taxation is taken into account. Assumptions 4. The paper discusses five types of capital income from personal savings. For each, the most basic form of the income type has been considered, as the tax treatment of these sets the foundation from which the tax treatment of more complex forms of the same type of income may vary. The pre-tax nominal rate of return on corporate equity is assumed to be 4%, which affects the tax rates shown for Belgium, Italy and Turkey (for new equity only), the Netherlands, and Norway. The report considers taxes on the income from these assets but not taxes on the value of the investment (wealth taxes), which would increase the tax burden on these assets. 5. The paper makes a number of assumptions about the investor. First, it assumes that the investor is resident in the particular country; secondly, that they are not a substantive shareholder; and finally that the income is not related-party income. The investor considered is assumed to pay the top rate of any progressive rate scale applicable. Financial assets are assumed to be held outside tax-preferred accounts (such as pensions, retirement accounts or investment funds). As the importance of these accounts varies across countries, cross-country comparisons should be made with this in mind. The impact of inflation on the real amount of the post-tax return is described but not taken into account in the calculation of the combined rates. The impact of the holding period test on the combined rates is not considered. Capital gains on shares are assumed to derive entirely from retained profits, whereas capital gains on property are assumed to derive from property that is directly held by the investor. For federal countries, personal and corporate tax rates encompass both federal and state rates (the latter on a weighted or representative basis), as provided in the questionnaire responses. 6. The paper draws on responses to the questionnaire distributed in February 2016, supplemented by the IBFD Tax Database; consultations with member countries; reference to the previous working paper; and where necessary, country-specific data. 2. Dividend income 7. Dividends are typically taxed first as corporate income and then distributed to the shareholder where they may be taxed again as personal income. The integration between the amount of corporate tax paid and the tax paid at the individual level is thus a critical factor in determining the combined statutory tax rate on dividend income. Countries that replied to the questionnaire use a range of approaches to integrate corporate and personal tax systems. (Michelle Harding, Melanie Marten, 2018).