A top world economic group has called for the creation of a global system to automatically funnel financial information about individuals and companies from countries where their earnings and investments are located to jurisdictions where they might owe taxes.
The Organization for Economic Cooperation and Development (OECD), which is spearheading an effort to curb tax evasion by individuals and close some controversial tax loopholes for corporations, said that the foundation of such a system is already emerging because of reporting requirements newly imposed by the United States.
The Foreign Account Tax Compliance Act requires overseas financial institutions to send the Internal Revenue Service information about accounts held by Americans in an effort to curb the use of foreign tax havens.
Though overseas banks have complained about the regulatory burden, major financial centers such as the United Kingdom already have reached data-sharing agreements with the United States. What’s more, the OECD said, the U.S. requirement is prompting other nations to consider sharing the information they will already have to send to the United States.
In a paper submitted to the Group of 8 top economic powers meeting in Ireland this week, the OECD said that such a system should be made automatic and go global — with data flowing freely from banks, investment houses and other financial institutions to governments around the world.
The resulting network of information, the OECD said, would curb what it characterized as a global problem as governments fight for revenue in a time of budget constraints throughout the industrialized world.
“Vast amounts of money are kept offshore and go untaxed,” the organization said in its report. “Tax evasion is a global issue requiring global solutions — otherwise the issue is simply relocated, rather than resolved.”
Major European nations in April said they would begin a data exchange, and the list of nations that have signed on is growing. Significantly, the U.K. has struck a data-sharing agreement with commonwealth territories such as the Cayman Islands that are among the world’s acknowledged tax havens.
The OECD is a group of 34 mostly developed nations that work together on a range of economic policy and development issues. It does not include major developing nations such as China, India and Brazil, but it does collect statistics on the global economy and is an important forum on issues such as cross-border taxation.
With Europe, the United States, Japan and others facing large budget deficits and mediocre economic growth, tax enforcement has become an increasingly important issue. Nations such as Greece are trying to build better collection systems from the ground up, while others seek to limit how individuals and corporations take advantage of existing rules to reduce their tax payments.
The issue has been particularly controversial in the United States, where tech giant Apple was held up as an example in recent congressional hearings of how multinational companies can use their global production systems to shape how they account for their earnings and, as a result, minimize the taxes they pay. In the U.K., there has been an outcry as well over tax strategies used by companies including Starbucks, Amazon and Google.
The OECD this summer is scheduled to release a broader agenda for global tax reform meant to limit opportunities for companies to claim profits based on what would limit their tax bill, as opposed to where their economic activity occurred.
The OECD in recent studies said it could not quantify how much is lost to governments as a result of those tactics but said it considered the amount to be massive.
While legislative and diplomatic efforts to close those sorts of loopholes on a global scale may take time, the OECD said it should be relatively easy for countries to work within existing treaties and laws to start the automatic exchange of financial information.
The technology also exists to transfer the data easily and protect it through encryption — a priority in an era of sophisticated hackers and deepening concern about data privacy.