While many countries have made progress in increasing tax transparency over the past few years, some countries continue to have “serious deficiencies,” according to reports released by the Organisation for Economic Co-operation and Development’s Global Forum on Transparency and Exchange of Information for Tax Purposes. The reports came soon after Luxembourg announced a relaxation of its bank secrecy rules and five large European economies agreed to an expanded information exchange programme.
The OECD’s Global Forum released 14 peer review reports on Tuesday. Eight of the reports evaluate the tax information exchange systems in Belize, Finland, Iceland, Nauru, Poland, Portugal, Sweden and Turkey. Another four reports assess the information exchange practices of Belgium, the Cayman Islands, Guernsey and Singapore. The Global Forum also released supplementary reports for Costa Rica and the United Kingdom.
The Global Forum began a programme of in-depth peer reviews in 2010. The reviews are designed to monitor global implementation of an internationally agreed standard on transparency and exchange of information. Under the standard, countries agree to exchange on request information that is foreseeably relevant for the administration or assessment of the taxes of the requesting party, regardless of bank secrecy or domestic tax consequences. (This standard is reflected in the 2002 Model Tax Information Exchange Agreement and in Article 26 of the OECD Model Tax Convention.)
So far, the Global Forum has reviewed 96 jurisdictions. In Phase 1, the Global Forum evaluates whether member states have in place laws that will permit exchange of information. Phase 1 reviews have been completed for almost all Global Forum members.
In Phase 2, which started in the second half of 2012, countries are rated on the individual elements of the international standard of information exchange and are awarded an overall rating of “compliant,” “largely compliant,” “partially compliant,” or “non-compliant.” However, although their Phase 2 reviews were released, Phase 2 ratings have not yet been assigned to Belgium, the Cayman Islands, Guernsey or Singapore because a representative subset of Phase 2 reviews has not yet been completed.
Phase 2 reviews have been completed for 30 countries, and the Global Forum expects to complete more than 50 Phase 2 reviews by the end of 2013.
While the reviews released Tuesday found that most countries were generally in compliance with the standard, some deficiencies were found in these Phase 1 countries:
Belize: The review identified serious deficiencies concerning information related to accounting information and underlying documentation.
Nauru: The review reported that Nauru currently has insufficient mechanisms in place to identify the owners of bearer shares/warrants in all cases. In addition, Nauru accounting requirements do not meet the international standard. Finally, Nauru has no powers to obtain ownership, identity, accounting or bank information for tax purposes.
Poland: The review noted that where an entity has issued bearer shares, the owners of these shares may not be identified in all cases. Also, there are uncertainties regarding the availability of ownership information of foreign trusts managed by Polish residents.
Portugal: The review cited a lack of exception to the prior notification requirement in Portuguese law when the competent authority seeks to obtain banking information of a family member or a person otherwise related to a taxpayer under investigation.
Costa Rica: The supplementary review found that ownership and identity information is still not available in all cases.
Other bank secrecy developments
The release of the Global Forum reports follows by one week the news that Luxembourg will relax its bank secrecy rules, starting in 2015. Under Luxembourg’s changes, the United States and EU member states will be able to obtain information on individual depositors through automatic exchange of information. However, Luxembourg’s bank secrecy rules will still protect foreign companies.
This change will leave Austria as the last EU member state that does not allow for automatic exchange of information with other countries.
Meanwhile, the United Kingdom, France, Germany, Italy and Spain agreed last week to expand their information exchange agreements, using the US Foreign Account Tax Compliance Act as a model.
—Alistair M. Nevius (email@example.com) is CGMA Magazine’s editor-in-chief, tax.