TRANSPARENCY AND EXCHANGE OF INFORMATION SOME NUMBERS INTRODUCTION The Global Forum on Transparency and Exchange of Information for Tax Purposes (The Global Forum) comprises 126 members all of which are on an equal footing. Members include all OECD countries, all G20 countries, international financial centers and an increasingly large number of developing countries. Currently, around 50% of its members are developing countries. The Global Forum s mandate is to ensure the effective implementation of the international standards of transparency and exchange of information for tax purposes. It does this through a robust peer review process, which commenced in 2010, and which covers all members and relevant nonmembers. It also supports efforts to address tax evasion by providing technical assistance to members in implementing the standard and in making effective use of the global infrastructure for information exchange. The peer review is a two stage process. During Phase 1, a jurisdiction s legal framework for transparency and exchange of information is assessed. In Phase 2, the application of this framework in practice is analysed. Where deficiencies are identified recommendations for improvement are made. After completion of both Phases of the peer reviews, a rating is assigned which ranges from Compliant, Largely Compliant, Partially Complaint or Non-Compliant. The Global Forum s peer reviews have had a substantial impact on the implementation of the international standards around the world. Their effects can be seen in different areas: improvements in transparency through better domestic legislation; a significant increase in the volume of information exchanged and in the quality and speed at which it is exchanged; a rapid expansion in the network of agreements for international co-operation and in resources devoted to exchange of information; and a substantive impact on tax revenues. Undergoing a peer review process has several spin off benefits in the domestic context also. The reviewed countries are under pressure to examine their domestic legislation, network of agreements and infrastructure available for effective exchange of information and in most cases spurs much needed reform which may be otherwise stuck. Improvements in the framework and infrastructure enables better information is available and accessible to tax administrations regarding entities and taxpayers in their own jurisdiction even as it opens doors for international cooperation. These improvements affect both the supply side of international tax co-operation with more and more jurisdictions improving their legislation and practices to make more and higher quality information available over a larger network of treaty partners and the demand side reflected in
the growing number of requests which many jurisdictions are making. Taken together these developments have enhanced many countries abilities to combat tax evasion and have resulted in the recovery of large amounts of tax. This note looks at these developments from a supply and demand perspective and outlines some of the results achieved by countries that actively leverage the improvements in global transparency that have occurred in the last five years.
THE SUPPLY SIDE IMPROVING DOMESTIC TRANSPARENCY To date 105 jurisdictions have completed their Phase 1 reviews and 71 have undergone Phase 2 reviews. Jurisdictions are following-up on the Global Forum recommendations by amending or introducing appropriate legislation. A significant number of jurisdictions have improved their laws to ensure the availability of accounting and ownership information, including abolishing bearer shares (e.g. Belgium, Seychelles, the UK) immobilizing them, or, in the case of Uruguay, requiring the liquidation of bearer share companies that do not comply with shareholder identification requirements. As a result the veil of corporate secrecy is being lifted and it is no longer possible to hide behind anonymous shell companies with impunity. Jurisdictions have also acted to improve access powers to information under domestic laws, for example by improving their access to bank information, and have improved procedures or strengthened exchange of information units to ensure timely exchanges. For example, Switzerland and Luxembourg, among others, have ended bank secrecy for EOI purposes and are now able to exchange bank information with their treaty partners. THE BOTTOM LINE Overall, out of the 968 recommendations made, 92 Global Forum members jurisdictions have reported having enacted, or proposed, changes to their laws and practices to implement around 500 recommendations. These improvements in domestic transparency around the world have paved the way for increased international cooperation and a rapid growth in exchange of information in tax matters.
EXPANDING EXCHANGE OF INFORMATION NETWORKS The network of international agreements providing for cross-border tax co-operation has also expanded greatly over the past 5 years. TIES THAT BIND The network of international agreements providing for cross-border tax cooperation has expanded greatly over the past ten years. The table below shows the number of agreements signed by Global Forum members that are based on the Model Tax Information Exchange Agreement (TIEA) or updated Article 26 of the OECD Model Tax Convention 2005. As the table shows, members of the Global Forum have signed more than 1600 bilateral agreements since 2005. The number of EOI relationships has also increased due to the growing number of jurisdictions which have joined the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and other regional multilateral instruments resulting in more than 3000 new EOI relationships to the standard. With this vast network of EOI agreements in place, there now exists a robust infrastructure for information exchange which jurisdictions can use to enhance co-operation and facilitate timely and effective EOI. Figure 1: EOI relationships established since 2005 by Global Forum members
Many international finance centres are members of the Global Forum and are playing a full part in this expansion of the international EOI network and in enhancing domestic transparency. BEING A GOOD PARTNER The Cayman Islands, Jersey and the British Virgin Islands (BVI) had less than 20 international EOI relationships between them at the end of 2008 and now have more than 200. 250 EOI RELATIONSHIPS: CAYMAN ISLANDS, JERSEY and BVI 200 150 180 212 100 50 16 50 64 81 89 103 106 0 2008 2009 2010 2011 2012 2013 2014 The improvements in countries domestic laws and the expansion in the international network of agreements mean that more information is now available from more countries than ever before. Moreover, information is now available from jurisdictions which traditionally had not been willing to share information or certain types of information. Further, having an exchange of information relationship does not require a Double Taxation Convention as this can also be achieved quickly and efficiently through a TIEA or multilateral exchange of information instrument such as the MAC. Despite this progress, many developing countries are still not sufficiently well connected into this network. For example, African countries have on average only one quarter of the number of EOI relationships that European countries have.
THE DEMAND SIDE Many jurisdictions have geared up to make use of this new more robust structure for information exchange and this is reflected in the fact that the volume of requests is increasing and the time taken to respond to these is reducing, reflecting the increased emphasis and resources many members are putting on exchange of information. ADD IT UP Taking a sample of 23 jurisdictions for which comparable data is available, the number of EOI requests received increased by 81%, from just over 1500 to just under 3000, in the period from 2009 to 2012. This figure is even more pronounced for those jurisdictions that have smaller volumes of requests. Those jurisdictions with fewer than 100 requests in the first year of review saw an average increase of almost 267% over the three years (sample of 16 jurisdictions). Figure 2: number of EOI requests received by 23 jurisdictions for which comparative data are available
ON THE MOVE Five jurisdictions have recently undergone, or are undergoing, Supplementary reviews after their Phase 2 reviews (Cyprus, Jersey, Luxembourg, Mauritius and the British Virgin Islands). In these cases it is possible to measure the number of requests received at the first review and again at the supplementary stage. For these jurisdictions the number of EOI requests received increased sharply from one review to the other from a total of just over 2000 to just under 3500. Figure 3: Comparison of EOI requests received by BVI, Cyprus, Jersey, Luxembourg, and Mauritius in first review and in Supplementary review 4000 3500 3000 2500 2000 1500 1000 500 0 No. of EOI request received (BVI, Cyprus, Jersey, Luxembourg, Mauritius) First review Suppl. review A number of jurisdictions especially developing countries have indicated making their first requests only very recently. The Philippines sent its first EOI requests in 2013 and Uganda in 2014. Other developing countries such as India have started to use EOI much more intensively to combat tax evasion.
Figure 4: Number of EOI requests made by India over time India: outgoing EOI requests over time Number of Requests 900 800 700 600 500 400 300 200 100 0 884 647 385 29 46 92 2008 2009 2010 2011 2012 2013 Financial Year Unfortunately some other developing countries have been slower to take advantage of the improved international environment. India made more requests in 2013 that the whole of Africa has made since the Global Forum commenced its peer review process in 2009. BOTH SIDES NOW! SHOW ME THE MONEY A large number of EOI agreements have recently come into force and are only now starting to be used. The full effect of these agreements will only become apparent over time. Moreover, statistics on the impact of these agreements are hard to come by as only a handful of countries make this data public. However, some members of the Global Forum are already reporting that the use of EOI agreements has enabled them to recover significant amounts of tax which had been previously been evaded. For example, Sweden has been very active in using its new EOI agreements to combat international tax evasion with impressive results as shown below. Swedish results (2010-2014) No. of EOI requests 396 Tax revenue recovered due to EOI requests EUR 130 million Total tax effects due to EOI requests and EUR 330 million. (of which EUR 200 million. in Voluntary Disclosure voluntary disclosure)
SEK million In addition Sweden has been able to track funds flowing back to Sweden from a number of jurisdictions after it signed EOI agreements with them in line with the international standard ( licit flows!). The table below gives information on funds flowing back to Sweden from Luxembourg and Switzerland, among others, after EOI arrangements in line with the international standard were put in place in 2010 and 2011. 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0-500 Net cash inflow to Sweden from EOI countries, Switzerland and Luxembourg 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year TIEA countries Switzerland Luxembourg Australia is another jurisdiction which has sought to measure the impact of its EOI programme. The panel below shows the results for 2013. No. of EOI requests Total tax recovered Australian results (2013) 400 from ten countries 459 million Australian dollars (about 326 million euros) (equals approx. 800 000 per exchange) A number of developing countries are also beginning to report success stories. The Philippines recovered more that $1 million in tax in 2014 from just two requests. South Africa, meanwhile, collected $62 million in a settlement from just one taxpayer as a result of exchange of information AEOI - WE RE NOT FINISHED YET The increase in the use of voluntary disclosure programs by taxpayers is also linked to the increase in tax transparency worldwide and the deterrent effect of improved transparency and exchange of information. It is expected that the success of voluntary disclosure programs will continue to grow with the adoption and the implementation of the new international automatic exchange of information standard (AEOI) worldwide.
In France, as at mid-september 2014, 31 000 cases had been processed under the voluntary disclosure program, resulting in the recovery of EUR 1.85 billion. In the Netherlands, in the ten months up to 1 July 2014, more than 12 000 taxpayers have voluntarily disclosed an estimated total amount of EUR 6 billion to avoid penalties. Approximately EUR 900 million in taxes is expected to be recovered. Reasons provided for disclosure include increased transparency and the move towards AEOI. CONCLUSION There is a significant focus on the problem illicit flows in the literature and much less emphasis on solutions. EOI offers a practical way of combatting these flows and bringing some of this money home. However, there are still too few requests being made, particularly by developing countries. Many of these countries are missing an opportunity to supplement their audit and transfer pricing work with requests for information which may lead to significant tax recoveries. Several myths regarding secrecy jurisdictions and the cost of EOI persist to this day and need to be challenged. The new global EOI infrastructure, reflecting improvements in transparency worldwide and a massive expansion of EOI networks, is ready to be used and some impressive results are already emerging. The success stories described here demonstrate the real impact of EOI where countries fully exploit this new international infrastructure. The implementation the new standard on AEOI around the world will pave the way for even greater improvements in international cooperation and provide further support for countries efforts to control illicit flows and prevent tax evasion. Together with other international organisations such as the World Bank Group the Global Forum is already assisting a number of developing countries to implement the new standard so that all countries can participate in its benefits.