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ON THE LEFT: Advantages of standardisation


ON THE LEFT: Advantages of standardisation

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As the world becomes increasingly globalised, it is becoming easier for all taxpayers to make, hold and manage investments through financial institutions outside of their country of residence.
Vast amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with tax obligations in their home jurisdiction.
Offshore tax evasion is a serious problem for jurisdictions all over the world, Organisation for Economic Cooperation and Development (OECD) and non-OECD, small and large, developing and developed.
Countries have a shared interest in maintaining the integrity of their tax systems. Cooperation between tax administrations is critical in the fight against tax evasion and in protecting the integrity of tax systems.
A key aspect of that cooperation is exchange of information. The OECD has a long history of working on all forms of exchange of information. Over the past few years much progress has been made by the OECD, European Union and the Global Forum on Transparency and Exchange of Information for Tax Purposes in improving transparency and exchange of information on request.
The global model of automatic exchange is drafted with respect to financial account information.
Many jurisdictions – OECD and non-OECD – already exchange information automatically with their exchange partners and also regionally (e.g. within the EU) on various categories of income and also transmit other types of information such as changes of residence, the purchase or disposition of immovable property, value added tax refunds, tax withheld at source, and so on.
The new global standard does not, nor is it intended to, restrict the other types or categories of automatic exchange of information. It sets out a minimum standard for the information to be exchanged. Jurisdictions may choose to exchange information beyond the minimum standard set out in this document.
For a model of automatic exchange of financial account information to be effective it must be specifically designed with residence jurisdictions’ tax compliance in mind rather than be a by?product of domestic reporting.
Further, it needs to be standardised so as to benefit the maximum number of residence jurisdictions and financial institutions while recognising that certain issues remain to be decided by local implementation.
The advantage of standardisation is process simplification, higher effectiveness and lower costs for all stakeholders concerned.
A proliferation of different and inconsistent models would potentially impose significant costs on both government and business to collect the necessary information and operate the different models.
It could lead to a fragmentation of standards, which may introduce conflicting requirements, further increasing the costs of compliance and reducing effectiveness.
Finally, because tax evasion is a global issue, the model needs to have a global reach so that it addresses the issue of offshore tax evasion and does not merely relocate the problem rather than solving it.
Mechanisms to encourage compliance may be also required to achieve this aim.
An effective model for automatic exchange of information requires a common standard on the information to be reported by financial institutions and exchanged with residence jurisdictions.
• The Organisation for Economic Cooperation and Development promotes policies that will improve the economic and social well-being of people worldwide.