The big breakthrough in international cooperation, needless to say, has arisen because several OECD countries are battling tax evasion themselves.
Given the kind of disclosures made in the Paradise papers—a leak of 13.4 million records from, among others, offshore law firm Appleby—it is not surprising that media attention, and therefore that of various governments, is focused sharply on the deals that are revealed in these leaks; before this, it was the HSBC List, the Panama Papers, etc. Such lists, undoubtedly hold important clues for investigators to follow, but as tax expert Mukesh Butani points out in the op-ed pages of this newspaper today, there are several other events that are, simultaneously, making life difficult for wannabe tax dodgers. Butani, for the record, points out that not all overseas registrations are tax dodges; sometimes this is done to take advantage of tax treaties and sometimes it is done because the jurisdictions are neutral but have robust regulatory compliances.
The big breakthrough in international cooperation, needless to say, has arisen because several OECD countries are battling tax evasion themselves. Witness the famous case of Apple where the European Commission slapped a $14.5-billion tax order against Ireland for giving Apple state aid by allowing it to pay a mere 1% tax on its profits; the US, in turn, is also battling the case of MNCs that are keeping profits overseas in order to reduce their tax liabilities. As a result of this, apart from doing this for crimes like drug trafficking and money laundering, most countries are more willing to share information requests. While this doesn’t mean a fishing expedition will be entertained, it is likely countries will no longer cite banking secrecy laws or say, as the Swiss have on occasion, that the information cannot be released because there was no criminality as far as their laws were concerned. These tax information exchange agreements will have to be signed between countries, but the Base Erosion & Profit Shifting (BEPS) rules already mean corporates have to be a lot more transparent than they have been so far.
So, for instance, the reporting template requires country-by-country reporting—any MNC will have to, now, put out information on the profits being made in each jurisdiction as well as where it is subjecting its incomes to tax. In other words, taxmen will have a lot more information at their disposal and it will become that much more difficult for companies to evade taxes by showing greater value addition in low-tax jurisdictions. Future leaks like the Paradise Papers, undoubtedly, will be a great source of information for tax investigators the world over, but with companies also filing a lot more information and countries sharing a lot of tax data, the taxman isn’t going to be starved of relevant information.