Today is the launch of #AltAusterity, a new, international research collaboration of which Tax Justice Network is a partner. The project aims to stimulate public debate on the subject of austerity though high quality research. It is a response to the lack of evidence which has underpinned the current policy agenda on austerity.
The project comes together following a December, 2016 workshop which brought together national findings on the damage being done under the rubric of austerity – not least, the UK’s persistence with dramatic corporate tax cuts, despite the clear and unrefuted evidence of the lack of benefits the policy brings. (See our Alex Cobham’s presentation slides.)
Over the coming years we will explore austerity in terms of cuts to spending (‘fiscal consolidation’) and revenue (e.g. tax cuts), but also public sector restructuring and labour market reforms. Although there is substantial evidence that austerity harms rather than aids economic growth and that it disproportionately hurts the most vulnerable of society, it remains salient and prominent in everyday political and policy conversations in many countries. Despite the growing public dissatisfaction with the policy, as expressed through the ballot box and protests.
Whilst the eyes of the world focused on the isolation of the US from the ‘G19’ position on climate change, something remarkable played out elsewhere in the process. Following closely the common EU position that we highlighted a few days ago, the G20 communique devotes important space to tax justice.
It’s so good we quote it in full below. But the key point is in our added italics: the EU (and presumably others) have managed to get the US to sign up to the new international standard for automatic, multilateral exchange of tax information, the Common Reporting Standard (CRS).
The US is currently the only financial centre of any size not to sign up to the CRS.
Further on in the text the communiqué threatens sanctions against countries which do not meet the agreed international standards on tax transparency which include adoption of the CRS. So has the US given up on the opaque road marked ‘Tax Haven USA’?
The logic of the communiqué is clear. If the OECD is serious about enforcing international standards of tax transparency, it must blacklist the US if it fails to adopt the CRS before 2018. This will pave the way for other countries to put in place sanctions against US banks, forcing compliance. Whether the OECD will have the political space, or the guts to do that to its biggest member, is another question altogether. But it’s now clear that the EU is promoting the CRS as the standard it expects the US to reach. The EU blacklisting process will also be watched with interest.
International Tax Cooperation and Financial Transparency: We will continue our work for a globally fair and modern international tax system and welcome international cooperation on pro-growth tax policies. We remain committed to the implementation of the Base Erosion and Profit Shifting (BEPS) package and encourage all relevant jurisdictions to join the Inclusive Framework. We look forward to the first automatic exchange of financial account information under the Common Reporting Standard (CRS) in September 2017. We call on all relevant jurisdictions to begin exchanges by September 2018 at the latest. We commend the recent progress made by jurisdictions to meet a satisfactory level of implementation of the agreed international standards on tax transparency and look forward to an updated list by the OECD by our next Summit reflecting further progress made towards implementation. Defensive measures will be considered against listed jurisdictions. We continue to support assistance to developing countries in building their tax capacity. We are also working on enhancing tax certainty and with the OECD on the tax challenges raised by digitalisation of the economy. As an important tool in our fight against corruption, tax evasion, terrorist financing and money laundering, we will advance the effective implementation of the international standards on transparency and beneficial ownership of legal persons and legal arrangements, including the availability of information in the domestic and crossborder context.
Life’s full of surprises, some pleasant, some not so much. Imagine you had undeclared offshore assets when the global financial crisis struck, and you’ve nervously watched the world move towards TJN ‘s proposal for multilateral, automatic information exchange. Until now you’ve probably felt ok, and that you had a choice between two moves. Either you could say ‘Ok, the game’s up – I’ll use an amnesty or some kind of disclosure facility, and go straight’; or you could decide to keep hidden, using the new loopholes that are being actively promoted in Switzerland and elsewhere.
You probably weren’t worrying too much about the past though. Information exchange will relate to existing holdings, so you just need to get things lined up before it kicks in (from September 2017 or after). But as India’s Economic Times reports,
“The worst fear of those with secret offshore bank accounts and private trusts is coming true — some tax havens are ready to part with ‘old’ records and even details of trusts and foundations that no longer exist.”
The OECD’s Common Reporting Standard (CRS) for automatic exchange of banking information leaves the door wide open for fraud. The OECD has recently made available a form to report potential avoidance schemes of the CRS. While this form is a first useful step – we’ve been sharing with them the loopholes and risks we’ve identified, and a suggestion on how to assess countries compliance with the CRS. However, we haven’t seen anything get fixed yet…
While the lack of access to automatic banking information by developing countries is our major concern with the CRS (all as a consequence of the OECD’s arbitrary conditions, such as the need for reciprocity or to be chosen in return through the ‘dating system’), for those countries that will manage to exchange information with each other, other risks prevail. Most notably, the need to (effectively) determine the residency of each account holder.
Civil society and allies are pushing for real (and useful) transparency when it comes to disclosing the beneficial owners (BOs) of companies, meaning the individuals who ultimately own and control the companies that operate in our economies, and that could be involved in illegal activities (e.g. tax evasion, corruption, money laundering, etc.).
After many scandals, including the Panama Papers, the international community is moving in that direction, with the G20, the OECD, the Global Forum, the EU and many countries starting to regulate and require beneficial ownership registration.