OECD'S Reporting Standard: Collateral Damage
Article first published in the Royal Gazette January 2017
The elimination of tax evasion is a laudable objective. Governments miss out on revenue if assets are moved to other jurisdictions to evade taxes, and the impact is greater in poorer countries.
However, it is reasonable to ask whether international efforts for the automatic exchange of information (AEOI) strike an appropriate balance between the objective of eliminating tax evasion and the legitimate concerns of individuals concerning their privacy and safety.
The use of planning techniques to lawfully minimise taxation combined with honest tax reporting is very different from illegally hiding assets and income to avoid accurately reporting to tax authorities. However, those who pay higher tax rates may be forgiven for begrudging those with the resources to structure their affairs utilising lower tax jurisdictions, potentially only further increasing the substantial proportion of global wealth held by a tiny proportion of the population. The Tax Justice Network, a tax research and advocacy group, estimates that offshore financial centres (OFCs), many of which are United Kingdom (UK) dependencies or territories, hold USD21 to USD32 trillion of individuals’ financial assets.
Governments and media have described tax avoidance as a moral evil, often distinguishing between aggressive and ordinary tax planning. However, taxpayers cannot be expected to comply with subjective notions of morality.
Rather, the imposition of tax through application of clear laws should be the objective. In order to implement appropriate tax laws, governments may require information regarding the transactions and entities that their residents benefit from locally and abroad. The Organisation for Economic Cooperation and Development (OECD) and many governments are concerned that OFCs attract foreign investment by: imposing low, or no income or corporate taxes on foreign investors; and facilitating foreign investors to keep their identities and financial affairs private.