OECD oversees global cooperation on information exchanges

In the aftermath of the 2008 financial crisis, governments were forced to reduce public spending, increase taxes and implement a wide range of austerity measures, while many companies received taxpayer-funded bailouts.

At the same time, tax suddenly became a controversial political topic with headlines emphasizing the low global tax rates paid by some multinational enterprises.

Countries also confronted a growing perception that the tax burden is not equally shared among taxpayers and that international tax rules on corporate profits are being broken.

This perception became a serious political and social issue, casting doubts upon the fairness and integrity of countries' tax systems, but proved critical to crystallize an international consensus on the need to take action and make long-lasting changes to the international tax landscape.

The political debate on taxation went global and multilateral first in 2009, when the G20 declared that bank secrecy was over and committed to take action against non-cooperative jurisdictions, including tax havens.

Countries around the world agreed to meet international standards for exchange of tax information on request, the EOIR (Exchange Of Information on Request), developed by the OECD and joined the restructured Global Forum on Transparency and Exchange of Information for Tax Purposes - Global Forum.

The latter is today composed of 131 members participating on an equal footing, and has enabled rapid implementation of the standard through a comprehensive peer review process.

China plays a critical role in this monitoring activity, and is currently the vice-chair of the global forum. Moreover, it successfully passed the peer review process by obtaining the highest possible overall rating of "compliant".

With G20 support, global tax transparency was further enhanced in 2014 with the development of a global Common Reporting Standard, the CRS, for Automatic Exchange of Information Standard, the AEOI, which 96 jurisdictions have committed to implement and begin the first exchanges by 2017 and 2018.

From the outset, China has taken a leadership role in developing this standard at the OECD and the Global Forum, including through its commitment to implementing the standard by 2018.

Such exchanges minimize the compliance burdens for both governments and financial institutions and result in an increase in voluntary compliance initiatives and other similar programs, aimed at encouraging taxpayers to regularize income and wealth previously hidden from their tax authorities.

To duly implement the AEOI, the OECD is now working with G20 countries and the Global Forum to support jurisdictions with the tools and practical guidance necessary for globally consistent implementation, and China has been greatly supportive of strategies to ensure that developing countries can fully participate in and benefit from such enhanced transparent tax environment.

The global forum will undertake the review of implementation of this standard, and is developing the terms of reference for those reviews.

Parallel to the work on global tax transparency, another fundamental change has taken place over the last two years in the area of corporate taxes. Following a request in 2012 by G20 Leaders in Los Cabos, the OECD/G20 project to address Base Erosion and Profit Shifting was launched to shut down unintended loopholes in the international tax system that allow corporate profits to be shifted away from the location of economic activity and value creation.

After two years of strenuous work at the OECD which brought together 44 countries - all OECD and G20 members, as well as Colombia and Latvia, including China, working together in the relevant technical bodies of the OECD on an equal footing (for example, Working Party 1 responsible for policy setting on tax conventions and related questions, and Working Party 6 responsible for transfer pricing guidelines) - a comprehensive package of anti-BEPS measures was published and presented in October 2015 to the G20 Finance ministers, before being endorsed by G20 leaders at their summit in Antalya on Nov 15 and 16, 2015.

What looked a hazardous bet for many has now proven to be a success story, and China's active participation in the OECD's technical bodies proved several times to be decisive in achieving consensus on complex technical issues, while respecting different countries' perspectives.

The OECD and G20 partnership, 46 members equal to about 90 percent of the world's economy working together on an equal footing, has been the foundation of the BEPS project's success. Furthermore, OECD and G20 countries have now agreed to take forward the next phase of the BEPS project - implementation and monitoring - through a new inclusive framework permitting the direct involvement on an equal footing of all interested countries and jurisdictions that are ready to commit to the BEPS package.

A proposal of architecture for the new inclusive framework was endorsed by the G20 finance ministers at their Shanghai meeting in February 2016, and preparations are now underway for an inaugural meeting in Kyoto in June.

As the combined G20-OECD efforts to address these key tax priorities - the BEPS and AEOI - move to implementation, the role of tax administrations is becoming more critical than ever.

The FTA, which beyond all OECD and G20 countries brings together the commissioners of 46 tax administrations to share best practices, constitutes the ideal vehicle to discuss some challenges of the implementation phase, and the meeting in May 2016 which will be hosted by the Commissioner of the Chinese State Administration of Taxation Wang Jun, comes at the perfect moment to ensure that the solutions agreed upon globally are now turned into coordinated and acceptable solutions "on the ground" for taxpayers.

Unsurprisingly, recent activities of the FTA have largely focused on assisting tax administrations in organizing their implementation efforts on the AEOI and BEPS, and most deliverables that will be presented to commissioners in May relate to challenges in implementing the CRS standard or anti-BEPS measures.

To conclude, while unprecedented progress has been achieved on international tax cooperation, and concerns over certainty of tax rules are growing among some taxpayers, the Beijing FTA plenary is an occasion to mark a significant step towards building an harmonious and predictable international system which is acceptable for both governments and taxpayers. In a globalized world, cooperation among tax administrations is the only way to protect tax sovereignties without damaging cross-border trade and investment.

The author is director of the Center for Tax Policy and Administration, OECD.

(China Daily 05/11/2016 page6)