OECD tax report to G20 in Japan

The OECD secretary-general has published his report to the meeting of G20 finance ministers and central bank governors held in Japan on 8-9 June, receiving endorsement of the OECD’s roadmap for taxation of the digital economy.

The report is in two parts. Part I covers the activities and achievements in the OECD’s international tax agenda, while Part II looks in detail at progress on transparency and exchange of information for tax purposes. Part I is divided into four main themes: addressing the tax challenges arising from digitalisation; tax transparency developments; implementing BEPS measures; and capacity building in developing countries.

Annex 1 contains the OECD’s programme of work for reaching agreement on a long-term solution to taxation of multinational enterprises in the digital economy through changes to the international tax system. The OECD notes that while its interim report in March 2018 was ‘characterised by division’, the agreed programme of work represents a ‘major step forward’. Nevertheless, finding agreement on the ‘complex and difficult questions’ around the allocation of taxing rights set out in pillar 1 of the plan by the end of 2020 ‘will demand political engagement and compromise’ among the G20.

Tax transparency developments outlined in the report include the following:

• by the end of 2018, 90 out of the 100 jurisdictions who had made a commitment to do so had started automatic exchange of financial account information under the common reporting standard (with Brunei Darussalam, Dominica, Israel, Niue, Sint Maarten and Trinidad and Tobago yet to complete their legal procedures for implementation);
• more than 4,500 exchange of information agreements are now in force, with information on 47 million offshore accounts, representing a total of around €4.9 trillion, exchanged in 2018 alone, described as an ‘unprecedented level of transparency in tax matters’, prompting the OECD to comment that ‘bank secrecy for tax purposes no longer exists’;
• by June 2019, over €95bn in additional revenue (tax, interest, penalties) had been collected from taxpayers, following disclosure through various initiatives including voluntary compliance mechanisms and other offshore investigations over the last decade (expected to stabilise under the CRS from now on, as countries collect taxes annually on the income generated by the disclosed assets); and
• the latest OECD analysis shows a fall of approximately 34% in bank deposits in international financial centres over the past ten years, representing around $551bn, due in large part to automatic exchange of information, which OECD figures indicate has been directly responsible for around 20% to 25% of the overall reduction in bank deposits in these centres over the period.

The report describes progress on implementation of BEPS measures as ‘broad and consistent’. Specific developments mentioned are:

• information has now been exchanged on a total of 21,000 previously secret tax rulings (which includes 4,000 exchanged since November 2018);
• country-by-country reports have been exchanged by 80 jurisdictions (up from 62 jurisdictions in November 2018) containing information on the activities, income and assets of multinational enterprises;
• over 250 preferential tax regimes have been reviewed since 2015 and virtually all of those identified as harmful have been amended or abolished, making it harder for some countries to erode the tax base of others by attracting non-residents and foreign income only; and
• the BEPS multilateral instrument on tax treaties now covers 88 jurisdictions (25 of whom have already ratified), such that the report states that treaty shopping is ‘coming to an end’;
• dispute resolution mechanisms in 45 jurisdictions have been reviewed as part of the process of improving mutual agreement procedures; and
• tax administrations are reporting a high level of engagement among multinational enterprises in implementing BEPS requirements.

Capacity building in developing countries continues with:

• 30 bespoke induction programmes launched by the OECD inclusive framework to assist developing countries in implementing their BEPS priorities;
• over 650 financial crime investigators from more than 80 countries trained in centres of the OECD’s international academy;
• tax inspectors without borders having raised a cumulative total of $470m of additional revenues by April 2019, with 61 current or completed programmes and over 28 upcoming programmes in Africa, Asia Pacific, Latin America/Caribbean and Eastern Europe.

The G20 communiqué issued following the meeting said: ‘We welcome the recent progress on addressing the tax challenges arising from digitalisation and endorse the ambitious work program that consists of a two-pillar approach, developed by the inclusive framework on BEPS. We will redouble our efforts for a consensus-based solution with a final report by 2020.’.

See ‘OECD secretary-general report to the G20 finance ministers and central bank governors: June 2019’ (bit.ly/2KJurtl).