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International Tax Information Exchange: the Present and the Future
In 2009, the world’s most powerful leaders went to London to the G20 Summit. In their joint statement, the G20 declared that “the era of banking secrecy is over”. It was signed by leaders such as the former US president Barack Obama, the Russian president Vladimir Putin and the former Chinese leader Hu Jintao.
Since then, governments from all around the world have been deepening cooperation and tax information exchange, implementing policies on international tax transparency and exchange of information standards, producing the most impactful international offensive against offshore tax evasion in history.
Their reason is simple. Tax evasion restricts the State's ability to invest in healthcare, defense and other critical issues. For example, tax evasion costs the European Union an estimated 1 trillion EUR every year, as many businesses and individuals deposit their money in offshore jurisdiction in order to optimize their taxes.
The impact has been sound. Over one million taxpayers in the G20 countries have taken a step forward and declared their assets and income. The main reason is because the cost of moving and maintaining money in offshore destinations has been arising in recent years.
In this article we will analyze the present and the future of the international tax information exchange, and how it would affect you if you are a businessman looking to optimize your taxes.
How the Transparency Era Began
Most rich countries in Europe and America have developed welfare States in recent decades in order to redistribute wealth and reduce inequality. Often, people in those countries enjoy subsidies on healthcare and education. In theory, subsidizing or even exempting the poor from paying healthcare or going to the university would ensure a constant social mobility among classes.
However, through their taxes, residents of the country pay for all these hospitals and schools. In the long term, high taxes tend to reduce private initiative and foreign investment. It's not attractive for an investor to put his money in Spain, where income tax is 50%, rather than Brazil or Dominican Republic, where tax rates are much lower.
That it’s a dynamic that the world has seen in recent years. Billions of dollars have come out from Europe rich countries to Third-World countries and offshore jurisdictions, where investors can have lower tax rates at a higher return.
In 2009, world leaders decided this had to stop, so G20 governments started sharing tax data in order to curb tax bases erosion, enforce domestic law and reduce tax evasion. Also, G20 countries pressed offshore jurisdictions in order to comply with the new law framework, resulting in enhanced procedures and transparency in order to avoid tax evasion.
As a result, the Global Forum was born. This is a multilateral framework composed of 124 countries, both OECD and non-OECD ones. It is aimed to deepen transparency and exchange information between nations.
The Global Forum monitors through an in-depth peer review process that its members comply with the internationally agreed standard of transparency and exchange of information process. This standard has been broken down into 10 essential elements:
About availability of information
1. Jurisdictions should ensure that ownership of all relevant entities are available to the competent authorities
2. Reliable accounting records should be kept for all relevant entities and arrangements
3. Banking information should be available for all account holders
About the access to information
4. Authorities should have the means to obtain and provide information that is the subject of a request under an EOI agreement for any person within their territorial jurisdiction.
5. The rights and safeguards should be compatible with effective exchange of information.
About the exchange of information
6. Mechanisms of exchange should effectively provide exchange of information
7. The jurisdiction network of information exchange should cover all relevant partners
8. These mechanisms should ensure the confidentiality of the received information
9. These mechanisms should respect the rights of taxpayers and third parties
10. The jurisdiction should provide information exchange in a timely manner
Why Should You Care about the Tax Information Exchange?
In the past, it was common that taxpayers received information document requests because taxing authorities were inquiring into certain transactions. However, in 2021 many types of information exchange between governments occur without the individual’s knowledge. The “No Secrets” era has begun, as governments are complying and expanding their operations in the International Tax Information Exchange.
This is a critical issue for most businessmen and wealthy families around the world. If you are a taxpayer, then you should:
- Refresh on major types of tax information exchange
- Know how your information will be used
- Be prepared that anything you provide to local authorities could end up in the hands of a foreign government.
Governments all around the world continue to emphasize coordination and exchange of taxpayer information. You should be aware of the numerous ways your information may be exchanged and that anything you provide a local government could end up in the hands of another. Furthermore, if you are subject to an audit, even before it begins, the auditors may already have a relevant amount of information exchanged by other governments through these treaties.
The Future of Tax Information Exchange
Tax information exchange has been a hot topic in the international agenda in recent years. The goal is to reduce tax evasion and white-collar crimes. However, there are still many offshore jurisdictions that don’t comply with international tax EOI treaties, such as Cyprus, British Virgin Islands and Luxembourg (according to the OECD).
In fact, those jurisdictions have been under increasing pressure from the OECD to comply with these standards. What we could expect in the years to come is that those jurisdictions increase their compliance on tax EOI treaties.
What Can We Do for You?
In Mundo, our goal is to ensure your financial freedom and look for the best investment opportunities in dozens of jurisdictions around the world.
Since the 2008 subprime financial crisis, many governments have advanced in Tax Information Exchange Agreements, in order to avoid tax evasion and increase transparency standards.
For businessmen and family offices it's a critical issue to have a deep knowledge and advice about EOI standards. If this is your case, you don’t have to worry. In Mundo we have partnered with a long-standing international firm based in the Isle of Man, which will ensure you can optimize your taxes in a proper jurisdiction while maintaining full compliance on international standards.
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