Over the past 10 years, with support from the G20 leaders and finance ministers, major progress has been achieved to fight against tax avoidance – through the now well-known Base Erosion and Profit Shifting (BEPS) project, which is now being implemented – and enhance tax transparency through implementing the exchange of information standards. Multilateralism has been the key.
However, more needs to be done to address the challenges arising from digitalisation and to ensure that the automatic exchange of information (AEOI) on financial accounts is implemented. On these issues and beyond, the leadership of the G20 is necessary to keep the global community together.
Pressure on existing rules
It is widely recognised that the new technologies have facilitated new business models and are putting the existing international tax rules under pressure. In March 2018, the Organisation for Economic Co-operation and Development/G20 Inclusive Framework on BEPS and its now 119 members adopted Tax Challenges Arising from Digitalisation – Interim Report 2018, which was presented to the G20 finance ministers. The report underlined that although there was general consensus on the characteristics of digitalisation, divergence existed on the way international tax rules should (or should not) be affected. The report also provided recommendations for countries considering immediate actions – to limit any adverse effect of interim measures, recognising the political pressure associated with the topic. However, and more importantly, countries agreed to continue working together towards a long-term solution that would be based on consensus.
The OECD’s Task Force on the Digital Economy met in July 2018 to take the discussion forward. Countries recognised the need for a long-term solution and have further refined their positions in an effort to bridge the gaps. Some countries would like to build on the concept of user contribution, while others favour a broader solution to take into account the fact that features of the digitalised economy are also increasingly present in all business models. There was also a proposal to establish a minimum tax for situations where investment decisions are distorted by very low effective tax rates.
In addition, digitalisation is offering new opportunities as well as some challenges for tax policy and administration purposes. Blockchain technology gives rise to new, secure methods of record-keeping while facilitating cryptocurrencies, which can present a risk to tax transparency. Work is underway to better understand and address these developments, including regarding the tax treatment of cryptocurrencies and how to investigate tax crimes involving them.
An update on the interim report will be presented to the G20 in June 2019. We are confident that the 2020 final report should bring a common position.
Encouraging further progress
This year is also important in the area of tax transparency, with around 50 jurisdictions starting AEOI. Since September 2017, AEOI is now well under way and bank secrecy for tax purposes is coming to an end.
The impact of this is significant. Countries have identified – before AEOI began – €93 billion in additional tax revenues due to voluntary disclosure programmes and offshore investigations. A methodology is currently being developed to start the first peer reviews of AEOI in 2020.
Establishing a level playing field has been a key strategic objective for years in the area of tax transparency. In 2016, responding to a call from the G20, the OECD delivered objective criteria in July 2016 and presented the outcomes to the G20 leaders in 2017. As a result of significant progress made by those jurisdictions at risk of being listed, only one jurisdiction was identified. The objective criteria were a vital tool to push jurisdictions over the finish line as the first round of peer reviews for exchange for information on request (EOIR) and the AEOI commitment process were coming to a close. As circumstances evolved, with a second round of reviews under way for EOIR and the implementation of AEOI, and in response to the G20’s call, the OECD presented strengthened criteria to the G20 finance ministers’ meeting in July 2018 to encourage further progress.
The number of jurisdictions at risk of failing to comply with the tax transparency standards will be presented at the G20 leaders’ meeting in Buenos Aires, and a progress report will be delivered to their summit at Osaka in 2019 with the actual jurisdictions that have not made sufficient progress.