OECD claims tax transparency initiative delivers ‘impressive results’

Organisation for Economic Cooperation and Development

The automatic exchange of tax information under the common reporting standard are improving tax compliance and delivering concrete results for governments worldwide, the OECD said, citing new data released last week.

More than 90 jurisdictions, including the Cayman Islands, are participating in the global tax transparency initiative through 4,500 bilateral relationships since 2018. They have now exchanged information on 47 million offshore accounts with a total value of approximately 4.9 trillion euros.

The automatic exchange of information initiative has thus resulted in the largest exchange of tax information in history.

“The international community has brought about an unprecedented level of transparency in tax matters, which will bring concrete results for government revenues and services in the years to come,” according to OECD Secretary-General Angel Gurria, who unveiled the data last week before the meeting of G-20 finance ministers in Fukuoka, Japan.

“The transparency initiatives we have designed and implemented through the G-20 have uncovered a deep pool of offshore funds that can now be effectively taxed by authorities worldwide,” Gurria said. “Continuing analysis of cross-border financial activity is already demonstrating the extent that international standards on automatic exchange of information have strengthened tax compliance, and we expect to see even stronger results moving forward.”

Voluntary disclosure of offshore accounts, financial assets and income in the run-up to full implementation of the AEOI initiative had resulted in more than 95 billion euros in additional revenue in terms of tax, interest and penalties for OECD and G-20 countries over the 10-year period from 2009 to 2019. This cumulative amount is higher by 2 billion euros since the last reporting by the organisation in November 2018.

The OECD said the preliminary analysis, which draws on a methodology used in previous studies, showed the “very substantial impact AEOI is having on bank deposits in international financial centres”.

Deposits held by companies or individuals in more than 40 key international financial centres increased substantially over the 2000 to 2008 period, reaching a peak of US$1.6 trillion by mid-2008. But these deposits had fallen by 34%, or US$551 billion, over the past ten years as countries adhered to tighter transparency standards.

The automatic exchange of tax information accounted for about two thirds of the decrease, the OECD said. It also caused a decline of 20% to 25% in bank deposits in international financial centres, according to preliminary data.

The study, however, noted that the extent to which the decline can be attributed to decreased tax evasion in response to tax transparency and exchange of information, reduced base erosion and profit shifting activity, or other non-tax factors such as changes in financial regulation, cannot be established with precision. The study also focussed only on one kind of financial asset.

Nevertheless, the authors said, the changes in financial flows suggested that tax transparency and exchange of information mechanisms played a material role.

“These impressive results are only the first stock-taking of our collective efforts,” Gurria said. “Even more tax revenue is expected as countries continue to process the information received through data-matching and other investigation tools. We really are moving closer to a world where there is nowhere left to hide.”

The complete study is expected to be published later this year.