Tax Policy & Controversy Briefing | October 2013

Tax administration aspects of the Tax Annex to the St Petersburg G20 Leaders Declaration

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Aside from the important issues under consideration in the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan, the last few years of G8 and G20 meetings have included a focus on the need to expand programs for sharing tax information, including discussions on the types of information to be shared, which countries should participate and whether participating countries legal frameworks are fit for purpose. The most recent G20 meeting continued this focus, with the Leaders’ Declaration and associated “Tax Annex” document providing more definitive guidelines around the timing of the introduction of multilateral, automatic information exchange.

The tax annex to the G20 Leader’s Declaration[1] (the tax annex) contains three items concerning the sharing of taxpayer information:

  • Declaration 2 – “The Global Forum on Transparency and Exchange of Information for Tax Purposes has played a critical role in ensuring that the international standard of exchange of information on request endorsed by the G20 is implemented effectively around the world.”
  • Declaration 3 – The G20 has now endorsed the development of a new global tax standard: to automatic exchange of information.”
  • Declaration 4 – “The next challenge regarding automatic exchange of information is now to get all jurisdictions to commit to this standard and put it into practice.”

Global Forum on Transparency and Exchange of Information 

Initial efforts by the G8 led to the establishment of the Global Forum on Transparency and Exchange of Information (the Global Forum) in 2009. The Global Forum now has 120 member countries and has been behind the creation of 1100 new bilateral exchange of information agreements[2]. The Global Forum’s initial fixed 5 year term has been renewed and it is currently chaired by Mr. Kosie Louw of the South African Revenue Service. 

The work of the global forum has been to scrutinize all countries to determine their compliance with the new international norm regarding transparency. Countries are reviewed in two phases:

  • Phase I asks:
    • Do they have the legal framework for obtaining bank information, identifying beneficial owners, bearer shares, etc.
    • Can they compel the production of such information
    • Are they able to safeguard the information from unlawful disclosure
    • Do they have a framework for exchanging information, i.e., either treaties or tax information exchange agreements
  • Phase II asks whether the countries actually provide information when requested

Through its extensive review activities, the Global Forum continues to successfully pressure countries previously viewed as financial havens into implementing laws and procedures requiring the exchange of tax information. 

Once legal issues preventing transparency have been resolved, then the actual exchange of information is carried out using specific requests for information as the method for obtaining taxpayer information. A specific request is one in which one country asks another for information about a specific taxpayer it believes is not in compliance and has information located in the other country. 

Specific requests have limitations: a taxpayer has to be identified as a compliance risk, the potential of assets existing in a specific offshore location has to be detected and, the tax authority has to be able to demonstrate why it believes tax avoidance is at issue. 

Exchange of information

Given limitations of specific requests as a means of exchanging information, the G8 and G20 (with support from the OECD and EU), initiated activities to add to available information sharing methods, specifically automatic exchanges on a multilateral basis. An automatic exchange is where information about income or financial accounts located in a source country is automatically, i.e., without a specific request, provided to an individual’s country of residence. 

In connection with June meeting of the G8 hosted by the UK, the OECD released a paper[3] citing unprecedented political support for expanding cooperation including automatic exchanges. At the same time the European Commission announced changes to its Administrative Cooperation Directive which addresses automatic information exchange providing for the exchange of information consistent with FATCA (dividends, capital gains, other income, account balances); this was shortly after 5 of its member countries announced their intent to engage in a pilot automatic exchange of information project. Declaration 3 contains this endorsement of automatic exchanges. 

But in this regard, as noted by Declaration 4, there are practical considerations. What is the standard to be used for conveying information between governments on a uniform basis? What information should be included? What language issues need to be eliminated and how will the information need to be structured to ensure an electronic format is acceptable to everyone’s technology? 

Because of the prior activities by the OECD and the more recent activities associated with adoption and implementation of FATCA, it appears significant progress has been made in overcoming these obstacles. So much so, that G-20 Declaration provides it has as a target a “new single global standard for automatic exchange of information by February 2014 and finalizing any technical issues by mid-2014….expect[ing] to begin to exchange information automatically on tax matters among G20 members by the end of 2015.” 

“Getting all jurisdictions to commit to this standard and put it into practice.”

Declaration 4 of the Tax annex calls upon all


While the Global Forum continues its efforts in attacking financial secrecy, the Tax Annex to the G20 Declaration is further evidence a significant expansion of the ways in which tax authorities plan to share tax information.

For companies, at a minimum this means an increase in burden, for some a significant increase. More countries will be adding new forms they will require be submitted in order that they have the information they need to participate in the automatic exchange programs. In the United States, FATCA has already had a far-reaching impact on US-based companies as well as foreign companies with US assets or clients. Companies are advised to now analyze their organization’s corporate footprint, their customer base, and the business practices and operational procedures of each of their entities in readiness for this next phase. Successful compliance will involve expanding on existing processes, hence reviews of existing information reporting and withholding compliance processes and procedures should be performed.

  • Rob Hanson
    Global Leader – Tax Controversy Services
    +1 202 327 5696