During the course of September, 2013, the leaders of the G20
nations met in St Petersburg to deal with a number of matters. Pursuant to that meeting, a tax annex to the
St Petersburg G20 Leaders’ Declaration was released.
At the outset, it is appropriate to point out that the
members of the G20 comprise the European Union together with the following 19
countries: Argentina, Australia, Brazil,
Canada, China, France, Germany, Italy, India, Indonesia, Japan, Mexico, the
Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United
Kingdom and the United States.
The G20 has been at the forefront of seeking a more
effective, efficient and fair international tax system since it declared the
era of bank secrecy over at the G20 London Summit held in April 2009. The tax annex points out that in an era of a
mobile economy, strengthening of international co-operation in tax matters is
essential to ensure the integrity of national tax systems and to ensure trust
in governments.
The Global Forum on Transparency and Exchange of Information
for Tax Purposes has played an important role in creating the international
standard of exchange of information on request which was endorsed by the G20 and
to ensure that this standard is implemented effectively around the world.
The Global Forum has undertaken 113 peer review reports and
has issued over 600 recommendations for improvement, with more than 300 of those
recommendations having been dealt with.
The number of jurisdictions that have committed to implement the Global
Forum’s standards and have joined the Global Forum now numbers 120.
During the G20 summit held in St Petersburg in September,
the G20 has now endorsed the development of a new global tax standard, and that
is the requirement of automatic exchange of information. What this means, is that, instead of
countries being required to request information from their treaty partners,
they will automatically receive information for tax purposes, and, similarly,
must make such information available automatically.
Church of the Savior on Blood, St. Petersburg, Russia. |
The
G20 has decided that it is now appropriate to migrate to a more ambitious and
higher standard which the automatic exchange of information. This has become necessary as a result of
undisclosed foreign bank accounts, and the Global Forum will monitor a move to
this standard to ensure its effective implementation.
During July 2013, the G20 finance ministers and central bank
governors endorsed the ambitious OECD proposal for a global model for
multilateral and bilateral automatic exchange of information for tax purposes
and indicated their commitment to the automatic exchange of information as the
new global standard.
The OECD has commenced work with the G20 countries to design
a new single global standard for the automatic exchange of tax
information. It has been proposed that
the new standard, included in a model competent authority agreement, will be
presented that the G20 Finance Ministers and Central Bank Governors Meeting, to
be held in February 2014.
The Global
Forum will establish a mechanism to monitor and report on the implementation of
the new standard of automatic exchange of information and will co-operate with
the OECD Task Force on Tax & Development, the World Bank and other
organisations to help developing countries identify their need for technical
assistance and capacity building.
The tax annex points out that it is anticipated that the
automatic exchange of information on tax matters among G20 members will
commence by the end of 2015. It has been
proposed that the automatic exchange of information is the standard of
reporting which will be adhered to by all jurisdictions and which must be
adopted in practice. It is anticipated
that the multilateral convention is key to ensuring the rapid implementation of
the new standard of information exchange, thereby enabling developing countries
to develop a new and more transparent environment.
It has been confirmed that all G20 countries
have signed the multilateral convention and more than 70 countries and
jurisdictions are covered or are likely to be covered by the multilateral
convention, including a large number of financial centres. It has been pointed out that the multilateral
convention is a powerful tool to be used in combating tax evasion, and allows
for all forms of co-operation tax matters, including the automatic exchange of
information.
Recently, the OECD issued a document dealing with the manner
in which countries should address base erosion and profit shifting
(‘BEPS’). The tax annex points out that
international collective efforts must also address tax base erosion flowing
from international tax planning.
The G20
has pointed out that the interaction of different tax rules which may result in
multinational enterprises to artificially shift profits out of the countries
where they are derived resulting in either very low taxes or even double
non-taxation needs to be addressed, as this undermines the fairness and
integrity of the various tax systems around the world. G20 leaders, during the course of their 2012
summit, identified the pressing need to address BEPS as a priority and that it
is important to achieve better international co-ordination on taxes.
Furthermore, the tax annex refers to the fact that the rules
regulating international tax, which were formulated in the 1920’s, have not
kept abreast with the dynamic need to
address BEPS as a priority and that it is important to achieve better
international co-ordination on taxes.
It is clear that the G20 leaders intend to work closely with
the OECD in advancing the BEPS agenda so as to address the problems identified
by the OECD in this regard. The tax
annex refers to the action plan designed to address BEPS, which contains an
ambitious agenda to examine the following fundamental aspects of international
tax rules:
·
Firstly, changes to international tax rules must
be designed to deal with the gaps between different countries’ tax systems
while respecting the sovereignty of each country to design its own rules;
·
Secondly, the existing international tax rules
regarding tax treaties, permanent establishment and transfer pricing, must be
examined to ensure that profits are taxed where economic activities occur and
the value is created;
·
Thirdly, more transparency will be established,
including through a common template for companies to report to tax
administrations on their world-wide allocation of profits and tax;
·
Fourthly, all the actions are expected to be
delivered in the forthcoming 18 to 24 months;
Finally, the tax annex points out that it is intended that
developing countries must reap the benefits of the G20 tax agenda, thereby
enabling developing countries to secure tax revenues required to foster
long-term development.
Thus, based on
the decisions taken at St Petersburg by the G20 summit, it is intended that the
countries comprising the G20 will, instead of only making available tax
information upon request, be required to automatically exchange certain tax
information to the G20 countries. In
time, it is anticipated that the requirement to automatically exchange
information will increase amongst the various countries of the world.
South Africa currently has a large network of double
taxation agreements in place, which contain articles dealing with the exchange
of information from South Africa to the treaty partner and vice versa. In time, these articles will, no doubt, be
amended to comply with the decisions taken at the St Petersburg G20 summit.
Furthermore, South Africa has concluded a number
of tax information exchange agreements, a number of which are already in force,
particularly with the Bahamas, Bermuda, Cayman Islands, Gibraltar, Guernsey,
Jersey and San Marino. A number of other
tax information exchange agreements are in the process of being completed and
will come into force in the next twelve to twenty-four months.
In addition, South Africa signed the Multilateral
Convention on Mutual Administrative Assistance on Tax Matters as amended by the
protocol in Cannes on 3 November 2011, and, once the outstanding
formalities have been completed, that convention will, for all practical
purposes, constitute part of South African law.
Taxpayers, therefore, need to be aware of the changes taking
place in the international arena whereby tax authorities will exchange
information automatically from one country to another to ensure greater
compliance with the tax systems around the world.
This article by Dr Beric Croome Tax Executive Edward Nathan Sonnenbergs Inc. was first published in Business Day, Business Tax and Law Review, October 2013.
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