Global Economy
Automatic Exchange of Tax Information: OECD says countries won't be able to game system
By Matthew Allen,
May 18, 2015 - 8:04 AM

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Short cuts, loopholes and other forms of skulduggery will not be tolerated when the automatic exchange of tax information comes into force, a top official from the Organisation for Economic Co-operation and Development (OECD) has promised Swiss bankers.

Grace Perez-Navarro, second in command at the OECD’s tax policy division, sought to placate doubters at a meeting in Zurich on Tuesday. Switzerland signed up to the anti-tax dodging system last year, but only after insisting on rules that ensure a level playing field for everyone.

However, fears persist in some quarters that some countries may seek to move the goal posts in their favour in the way they implement the system. Delivering poor information (failing to track down beneficial owners of trusts, for example) and leaking Swiss data to the media or other agencies top the list of concerns in Switzerland.

Perez-Navarro said the peer reviews carried out by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes to ensure that countries are fully compliant with new standards should weed out any sharp practices.

Continued reviews will measure actual performance of different countries against a set of global rules on collecting and sharing tax data called the Common Reporting Standard (CRS).

“It is true that at the moment there is not a level playing field,” Perez-Navarro told journalists in Zurich. “[But] the peer pressure of the Global Forum process will, at the end of the day, work to achieve a level playing field for all.”

“No country wants to share information with another country that cannot protect information or use it only for the right purposes. One breach will undermine the whole exchange of information system,” she said.

“I think the error of leaks will subside once automatic exchange of information is introduced. The leaked information […] came about from the current frustration at the lack of transparency that prevents tax authorities from doing their jobs.”

Sovereign decision

Fabrice Filliez from the State Secretariat for International Financial Matters (SIF) and Swiss representative on the Global Forum agreed that a bad rating could have a severe impact on economies. Even multinational companies would be paying attention, he said, and could divert their financial flows away from poorly rated jurisdictions.

“We should not underestimate the impact of ratings by the Global Forum to keep discipline,” he said. “It has an impact, even if people don’t feel it.”

At present, only a handful of jurisdictions are still resisting the OECD, including Panama, the Cook Islands and Bahrain.

Filliez added that Switzerland could pull the plug on any future exchange deal if it thought the partner country was not playing by the rules.

“It will be a sovereign decision to activate [automatic exchange of tax information with another country],” he said. “This does not mean it is activated for life, but it is constantly under review. We could decide to suspend it if any breaches were detected.”

Parliament will start debating the domestic legal framework required for implementing automatic exchange of tax information to other countries later this year. Switzerland aims to start exchanging data with selected countries from 2018, but this could be challenged by both parliament and a possible national referendum.

Under investigation

The Swiss Bankers Association (SBA) and the Association of Foreign Banks in Switzerland (AFBS), which organised the media round table on Tuesday, broadly welcomed the automatic exchange of tax information, despite both arguing against the proposal when it was mooted in 2008.

“You will break your teeth on banking secrecy,” former Swiss Finance Minister Hans-Rudolf Merz told the world that year.

A year later UBS was fined $780 million (CHF720 million) by the United States for helping tax cheats, marking the beginning of the end for Swiss secrecy laws.

Since then, Credit Suisse has faced a much higher fine while Wegelin and other banks have been driven out of business by US investigations. At present around a dozen banks in Switzerland are under active criminal investigation in the US and many more face fines under a non-criminal prosecution agreement agreed between the two countries.

France and Belgium are among other countries either prosecuting Swiss banks or holding investigations.

AFBS President Frank Morra believes that the introduction of automatic information exchange could help halt the recent trend of foreign banks pulling out of Switzerland.

“With this system, foreign banks will start to grow stronger in future as we restore confidence in tax transparency,” he said.

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