By Dr R Seetharaman/Doha
In April this year, the G20 meeting called for a co-ordinated effort to stop international tax evasion, urging governments to systematically share bank data. The automatic exchange of tax data, an approach which the US has adopted, will represent a major change from the current procedures, in which countries are expected to provide such information only on request as when tax officials seek to track payments across national borders during an audit.
The Foreign Account Tax Compliance Act, (FATCA) has given impetus for this new approach. This Act requires Americans with overseas accounts and non-American financial firms to meet tough financial disclosure requirements. Under the automatic exchange, governments will routinely transfer all foreign taxpayers’ data to their home governments, making it far more difficult to hide assets from the tax collector.
In April, the UK,Germany, France, Italy and Spain also agreed to develop a system that will make it easier to suppress the tax evaders by automatically exchanging information among those countries.
Again in April 2013 Luxembourg agreed to exchange information with the rest of the European Union about EU holders of bank accounts in the country. The UK government has reached agreement in May 2013 with its overseas territories-including the Cayman Islands, Bermuda and the British Virgin Islands-to share information about bank accounts as part of its efforts against tax avoidance and evasion. The UK also plans through G8 to place the focus on international efforts to stop multinational firms using legal loopholes to shift profits to tax havens.
The use of offshore tax havens by wealthy individuals reflected fears that their domestic banks were not safe from financial problems or government intervention. Many also used banking centres like Switzerland or Liechtenstein for the security they provided for their assets.The main source for offshore tax havens is likely to come from wealthy investors in emerging economies who seek geographical diversity rather than to evade tax.
The pressure to close deficits in advanced economies has drawn attention to tax evasion on off shore industry in recent times. When a rescue was finally agreed in relation to Cyprus recently, its offshore financial business was affected. Luxembourg also came under pressure to change its ways.
The Global Forum on Transparency and Exchange of Information for Tax purposes, which was formed in the context of OECD’s (Organisation for Economic Co-operation and Development’s) work to address the risks to tax compliance posed by tax havens was restructured in September 2009 in response to the G20’s call to strengthen implementation of these standards.This organisation is now moving toward the adoption of a rating system, under which it would grade nations’ compliance with transparency agreements which it expects to begin in November.
Switzerland has been in talks with the US for more than two years to resolve a Justice Department investigation that allegedly helped Americans hide money from the Internal Revenue Service. (IRS).
Last week, Switzerland proposed a bill that will pave the way for the country’s banks to resolve a tax- evasion dispute with the US. However, Swiss lawmakers have postponed the debate on the bill until it receives details of the deal the US plans to offer for Swiss banks.Tax havens are starting to look less attractive as a business model.
♦ Dr R Seetharaman is group chief executive officer, Doha Bank.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
Even in defeat, Simeone is among the best
Typical of the man, Cook passes milestone with minimum of fuss
The global financial system under stress
Putting profits in perspective
Don’t let co-worker’s painkiller use go unchecked
Pakistan pushes for NSG entry
Purging junk from the brain can release new energy