Your Taxes: Tax authorities gang up

The OECD submitted to the G20 ahead of the summit a report that gave some interesting facts and statistics. Below are a few highlights.

money (photo credit: REUTERS)
(photo credit: REUTERS)
Last weekend, G20 finance ministers and Central Bank governors met in Fukuoka, Japan. Taxation was high on their agenda. Vast amounts are at stake, so the G20 deliberations affect us all.
The OECD submitted to the G20 ahead of the summit a report that gave some interesting facts and statistics. Below are a few highlights.
Bank secrecy
According to the OECD, bank secrecy for tax purposes no longer exists, and all financial centers are now engaged in the automatic exchange of financial information (through the OECD’s Common Reporting Standard – CRS). In 2008, only 40 exchange of information agreements between secretive jurisdictions and other countries had been put in place. Today, more than 4,500 exchange of information agreements are in force, with 90 jurisdictions implementing the CRS in 2018. Consequently, 47 million offshore accounts – with a total value of around 4.9 trillion euros – have been disclosed to tax administrations.
Does it work?
Deposits held by companies or individuals in more than 40 key international financial centers (IFCs) reached $1.6 trillion by mid-2008. These deposits have fallen by 34% over the past 10 years, representing a decline of $551 billion, as countries adhere to tighter transparency standards.
What about Israel?
According to the OECD report to the G20, Israel is exchanging information for the first time now, and is “largely compliant” with the exchange of information rules.
Israel has also ratified the Convention on Mutual Administrative Assistance in Tax Matters, which means helping overseas tax authorities and being helped by them to collect tax.
Cozy tax rulings
The OECD reports that 21,000 previously secret tax rulings have now been exchanged. Large famous companies can no longer negotiate secret, sweetheart deals (e.g. with Ireland or Luxembourg).
Out of sight, out of tax?
The OECD reports that 80 countries have engaged in the exchange of Country-by-Country Reports (CBCR) on the activities, income and assets of large multinational enterprises (revenues over EUR750 million), which began in June 2018. In other words, onshore tax administrations are now less blinkered and are receiving information on offshore operations.
Harmful tax regimes
Since 2015, over 250 regimes have been reviewed and virtually all of the regimes that were identified as harmful have been amended or abolished. Israel amended its preferred enterprise regime, and it is now considered “not harmful.” The OECD does not discuss whether US investors in Israeli preferred enterprises don’t get to enjoy the Israeli tax breaks because of the new GILTI tax in the US.
MLI super treaty
With the advent of the Multilateral Instrument (aka MLI or super tax treaty), abuse of tax treaties (“treaty shopping”) which “deprives” countries of billions of Euros of tax revenue is coming to an end.
At this stage, all treaty shopping hub countries (e.g. the Netherlands) have signed the MLI. Tax administrations say they can see “meaningful behavioral changes” among taxpayers.
Outcome to be determined
The outcome of the G20 summit at Fukuoka was a general commitment to explore ways of tightening up international taxation of the digital economy and e-commerce. This is easier said than done – double tax or multiple tax could cripple international trade. And countries are competing for taxes. Ideas floated include taxation where there are customers, users, employees, assets, and so forth. Also under discussion are “non-routine” profits, losses and minimum tax rates.
Forum on Tax Administration
The OECD’s Forum on Tax Administration (FTA), the 53 leading global tax administrations, met in Chile in March.
The Israeli Tax Authority is one of the 53 tax administrations involved as are their counterparts in the US, UK, Australia, Canada, France, Russia, Switzerland and South Africa.
“FTA members collectively bring in over EUR 11 trillion for government revenue,” said Hans Christian Holte, chairman of the FTA and head of the Norwegian Tax Administration. “Our plenary meeting showed our collective determination to progress an ambitious and strategic work program to enhance global tax administration.”
FTA members agreed:
• Standardized reporting requirements
• Work on effective use of the vast amount of CRS data
• Reduce compliance burdens for small and medium sized enterprises
• Co-ordinated international tax audits on multinationals
• Effective taxation of digital e-commerce platforms.
What should you do?
Anyone with international business or investments should re-assess their tax strategy. You can’t drive an old Model T (for tax) today. This is especially so in e-commerce.
Among the things to review are: where and how to report transparently and automatically, but still optimize things. Some are doing it.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
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The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd