G8 summit calls for greater transparency with tax authorities

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At the conclusion of the G8 summit in Lough Erne, Northern Ireland on June 18, 2013, the G8 issued a communiqué and supporting documents expressing support for greater transparency with tax authorities and endorsing the OECD’s ongoing work on base erosion and profit shifting (BEPS).

The tax section of the G8 communiqué addresses several parallel areas involving the development of global solutions to address government concerns about tax evasion and tax avoidance. The G8 expresses support for the OECD’s work on BEPS and stresses the importance of the work plan that the OECD is developing for release in July. The communiqué calls for the OECD to develop a common template for reporting by multinationals on their income and taxes by country. The G8 also commits to establishing an automatic exchange of information between tax authorities as the new global standard and expresses the intention to work together with the OECD and the G20 on this objective.

In addition, the communiqué includes a separate section on tax and development. The G8 expresses the intent to continue providing support to developing countries in their efforts to build capacity with respect to collection of taxes and exchange of tax information. The G8 welcomes the feasibility work of the OECD regarding assistance to tax administrations with respect to complex tax cases. The G8 also asks the OECD to find ways to address concerns of developing countries regarding access to information needed for effective administration of transfer pricing rules.

At the same time, the G8 also released a Declaration expressing the intent to “make a real difference” through a series of steps, which begins with the statement that tax authorities should automatically share information to address what it calls “the scourge of tax evasion.” In addition, the Declaration calls for several other actions in the tax area, including recommendations that: countries should change tax rules that let companies shift their profits across borders to avoid taxes; multinationals should report to tax authorities what tax they pay where; and developing countries should have the information and capacity to collect the taxes owed to them and other countries should help them.

The Declaration includes a further statement in an area related to tax, with the recommendation that extractive companies should report payments to all governments and that governments should publish income from such companies.

The G8 Declaration also includes a recommendation that tax collectors and law enforcement should be able to obtain information about the ownership of companies. This is further detailed in a policy paper titled, G8 action plan principles to prevent the misuse of companies and legal arrangements, which is attached to the communiqué as an annex. The policy paper endorses core principles that are focused on the importance of ensuring the integrity of beneficial and basic company information, the timely access to such information by law enforcement for investigative purposes, and, where appropriate, the legitimate commercial interests of the private sector. The G8 intends to hold itself accountable through the issuance of national action plans in this area and self-reporting through a public update on the progress made against these action plans. In this regard, the United Kingdom and the United States have already issued their own national action plans.

In addition, the OECD on June 18, 2013, released a report it had delivered to the G8 in advance of the summit. The report, A step change in transparency: Delivering a standardised, secure and cost effective model of bilateral automatic exchange for the multilateral context, was prepared by the OECD at the request of the G8. The report follows the G20 Finance Ministers’ endorsement in April 2013 of automatic exchange of information for tax purposes as the expected future standard. The report notes the need for a standardized process that will minimize costs to both businesses and governments and that will improve efficiency.

The OECD report outlines four concrete steps for putting into practice an effective model of automatic exchange of information:

  • Enactment of broad framework legislation to facilitate the expansion of a country’s network of partner jurisdictions
  • Selecting the legal basis for the exchange of information
  • Adapting the scope of reporting and due diligence requirements and coordinating guidance
  • Developing common or compatible IT standards

The report also provides potential timeframes for each of these steps, noting that much of the work is already being done at the OECD.

Implications

The language regarding tax matters in the communiqué reconfirms the strong interest of the G8 member countries in the work of the OECD on addressing BEPS, on enhancing exchange of information between tax authorities and on providing support for the tax administrations of developing countries. The focus on the OECD as the forum through which this work is to be done reflects the G8 countries’ views regarding both the importance of coordinated action and the need for considered technical analysis with respect to these complex matters. The emphasis by the G8 underscores the significance of the report that will be issued by the OECD in July detailing its work plan going forward on the BEPS project. Companies will want to carefully review the OECD report when it is released and evaluate the implications for their business models of the areas that are being targeted for potential change.

Similarly, companies will want to watch for the proposals that are expected from the OECD for a template for country-based reporting to tax authorities. Companies should consider becoming a part of the global tax dialogue on these important international tax issues by engaging with the OECD and with tax policy makers in the countries where they operate.

Related materials

A. G8 Leaders Communique: click here

B. G8 Leaders Declaration: click here

C. G8 Action Plan Principles to prevent the misuse of companies and legal arrangements: click here

D. White House press release: click here

E. White House fact sheet on G-8 Action Plan for Transparency of Company Ownership and Control: click here

F. Remarks on the Summit from David Cameron, UK Prime Minister : https://www.gov.uk/government/news/g8-summit-prime-ministers-remarks