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Markus Meinzer ■ Policy paper on automatic tax information exchange between Northern and Southern Countries

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Tax justice reports
Tax justice reports

Policy paper on automatic tax information exchange between Northern and Southern Countries

In order to raise awareness and remedy the apparent lack of information about Automatic Information Exchange (of financial information) - AIE, and to increase the understanding of AIE, Tax Justice Network began a case project in early 2010. The project's aim is to accompany a small group of developing countries applying for the extension of the automatic information exchange mechanism under the EU­Savings Tax Directive or another international legal instrument that results in a similar AIE­ mechanism. This paper is one stepping stone in this process and seeks to comprehensively introduce policymakers in North and South and civil society organisations to the subject.

Since the UN­ Financing for Development Conference in Monterrey 2002, domestic resource mobilization has been put high on the international development agenda. In this context, the important role of raising tax revenues in developing countries (DC) has been increasingly acknowledged. While thedesign and functioning of domestic tax systems attracts increasing attention, theinternational dimension to the problem is much less discussed. The problem becomes apparent when looking at phenomena such as “capital flight” and illicit financial flows which often result in massive cross­border tax evasion by tax­residents of DCs, much to thedetriment of their public finances andprospects of economic development. One step to solve the problem is automatic informationexchange between destination countries of “tax flight” (such as Europe and NorthAmerica) and developing countries. Automatic tax information exchange (AIE) exists todayfor example in the European Union (EU) underthe EU­Savings Tax Directive (EUSTD).

In order to raise awareness and remedy the apparent lack of information about Automatic Information Exchange (of financial information) – AIE, and to increase the understanding of AIE, Tax Justice Network began a case project in early 2010. The project’s aim is to accompany a small group of developing countries applying for the extension of the automatic information exchange mechanism under the EU­Savings Tax Directive or another international legal instrument that results in a similar AIE­ mechanism. This paper is one stepping stone in this process and seeks to comprehensively introduce policymakers in North and South and civil society organisations to the subject.

Key findings

  • automatic tax information exchange has the potential to play a crucial role in bringing about overdue adjustments in the global economic balance
  • the gross distortion of international investment patterns is Currently helped by financial and tax secrecy in the global north.
  • the effect is that southern countries find themselves entrapped in a vicious circle of underinvestment, volatile economic performance, capital flight, external financing gaps and increasing foreign debt.
  • the global north is affected by this misallocation of financial capital resulting in a vicious circle of financial bubbles, exaggerated purchasing power of its currencies, overconsumption, exploding health care costs, environmental degradation, soaring inequality and unemployment.

Key recommendations

Additional resources