The OECD meeting 1-2 September 2009

Posted on

The OECD is holding a meeting of the Global Forum on Transparency and Exchange of Information on September 1-2 in Los Cabos, Mexico.

There are three objectives. The first is to discuss creating new ways of concluding Tax Information Exchange Agreements.

The second is to decide whether the Cayman and St Kitts & Nevis legislation that allows unilateral information exchange is acceptable for information exchange purposes.

The third is to set up a peer review monitoring group on information exchange.

Documents on the first two agenda items are here. The document on monitoring is here.

And I have to say this is the most massive waste of effort. Tax Information Exchange Agreements do not and cannot work. There is good reason for that. As the standard TIEA makes clear. a TIEA request must provide or state:

(a) the identity of the person under examination or investigation;

(b) what information is sought;

(c) the tax purpose for which it is sought;

(d) the grounds for believing that the information requested is held within the jurisdiction of which request is made;

(e) to the extent known, the name and address of any person believed to be in possession of the requested information.

The reason for the low number of information requests that they have, and might, give rise to becomes obvious immediately. By definition there is considerable secrecy within secrecy jurisdictions about trusts of all sorts. Determining from readily available sources the ownership and control of companies is almost impossible in most such locations. Many have official banking secrecy. In that case the chance of linking assets, such as a bank account, owned by a company which is in turn controlled by a trust of which the person under investigation may or may not be settlor and / or beneficiary is remote in the extreme. The existence of TIEAs is immaterial in that case: without a ‚Äòsmoking gun’ to trigger an enquiry under the Tax Information Exchange Agreement the reality is they have no practical value.

So here is the OECD putting massive effort into creating a system that cannot deliver unless it simultaneously creates the environment in which the ‚Äòsmoking gun’ is automatically provided by the secrecy jurisdiction that holds data on tax abusers to the jurisdiction in which they really reside and where tax is likely to be due on the structure hidden in the secrecy jurisdiction.

There is a relatively easy way to do that: I have outlined it here where I argue that the data required to trigger an effective information exchange request is not precise information on the interest, profits, gains or other income accruing to offshore structures created by, owned by, or which benefit people resident within other jurisdictions. All the country where that beneficiary of the offshore structure really lives needs to know to trigger an effective information exchange request is:

1. That a structure exists in another jurisdiction (a bank account qualifying by itself as a structure for this purpose);

2. What each component (trust, company, or foundation) is called;

3. Who manages it;

4. Where it banks;

5. Who in their jurisdiction benefits from it.

If this data were available it is likely that almost every country in the world could and would substantially increase the number of tax information exchange requests that they might make using the proposed network of Tax Information Exchange Agreements.

Only if this is done do Tax Information Exchange Agreements make sense. But there’s not a hint that the OECD is looking at creating this so of automatic information exchange (and nothing less will do). As such what they are proposing on 1 and 2 September is window dressing that cannot deliver.

We're trying to offer options that could make TIEAs work: it would be good to see some action that at least recognises the concerns of civil society on this issue.