Tackling tax transparency
Pascal Saint-Amans, director of the Center for Tax Policy and Administration, tells director of the G20 Research Group John Kirton about the progress in strengthening global tax frameworks and the next phase of work
What progress have the G20 and the Organisation for Economic Co-operation and Development made towards tax transparency?
Ten years ago there was hardly any tax cooperation; bank secrecy and lack of cooperation were the rule. Today there are more than 5,000 legal relationships between countries. We have the Global Forum on Transparency and Exchange of Information for Tax Purposes with 154 countries. We have the automatic exchange of information among 100 countries. There is no longer any country with bank secrecy rules – people can no longer hide their money.
Before, there was absolutely no form of cooperation on how multinational companies were taxed, so companies put a lot of their profits in tax havens. Multinational companies must now account for legal risks and also reputational risk when tax planning.
The G20 has been instrumental in changing all this, and tax has been instrumental to the success of the G20.
How is implementation coming?
The Organisation for Economic Co-operation and Development develops standards. Countries are morally but not legally bound by them. But given the high profile of the tax work and its critical support, we have developed legal instruments, such as the Convention on Mutual Administrative Assistance in Tax Matters, with 128 members, and the BEPS Multilateral Instrument, which almost 90 countries have signed. Thousands of tax bilateral treaties will be modified once all countries have ratified.
We need to do more, such as set minimum standards. Countries agree to implement measures and to be reviewed against those standards. That’s been the case for dismantling harmful tax practices, with more than 250 regimes reviewed, with most of them having been abolished or changed in member countries. It’s been true for implementing country-by-country reporting, with thousands of exchange-of-information agreements and 80 countries that have implemented legislation.
A movement across the world has translated a political agreement on technical rules at the OECD, into massive changes in domestic legislation and new international instruments, supported by peer review mechanisms. This is structural, big and long-standing, with its institutional backing.
What are the economic and other, broader impacts?
It’s a tax system that works for all. AEOI has allowed for governments to identify more than €95 billion in additional tax revenues that are now being collected. This will continue because of the information being exchanged.
It’s about making sure there is no fraud, which means you collect more money, which allows you to be softer on those who comply. And if people feel the system is unfair, compliance is not as high as it should be.
It’s about competition, so small and medium-sized enterprises or domestic companies can compete equally with the multinationals. Countries can also reduce their corporate income tax rate, because if you broaden the tax base and make sure everybody pays, you can reduce the tax burden.
What new challenges does digitalisation bring?
It points to the remaining weaknesses of the international framework including BEPS, on the allocation of taxing rights and on nexus – which has to do with whether to start taxing a company when there is a physical presence or not.
Digitalisation means more activity in the market that is not properly remunerated. Also we may need to be more aggressive with structures that give more return where you have a few thousand employees and not enough return to where you have millions of customers.
There is an appetite to revisit these weaknesses, which extend to all companies. The challenge is to agree to revisit these fundamentals. I am optimistic because the United States, which was the roadblock, is now the facilitator.
What progress is coming for the Osaka Summit?
We are going to deliver a detailed programme of work to the G20 finance ministers in Fukuoka in early June and to the leaders a few weeks later in Osaka. It will address the tax challenges of digitalisation of the economy and stabilise the international tax system, through new rules we will deliver by the end of 2020.
How can the G20 leaders best advance this work?
They can do three things. One is to take stock of the progress. We will be reporting quite amazing numbers on the exchange of information. We have a real success story! So the leaders can show the world that where you have political will, and countries work together, we can change the world. This should be the response to any doubts about multilateralism.
Two, we expect the leaders to endorse the programme of work to deliver a solution to address the tax challenges arising from digitalisation by the end of 2020.
Three, and the most important, we expect them to bring their political support to make sure we can easily and quickly move from several options to one single long-term solution, so that we deliver the rules on time.
