Some 100 nations to join new regime to fight tax avoidance

"We're here to start our collective journey toward a fairer, more equitable and transparent international tax system," Japanese Finance Minister Taro Aso said at an OECD meeting in Kyoto in which participants were discussing global cooperation in addressing tax avoidance.

The OECD's Committee on Fiscal Affairs started a two-day gathering to prompt more countries to take part in ongoing efforts by 46 nations to impose tougher international rules to prevent tax avoidance by multinational enterprises.

According to the Paris-based organization, 35 countries and jurisdictions have formally joined the new inclusive framework and 22 others attending the meeting are expected to join the efforts by the end of this year.

"The meeting will have historic meaning, as we expand the achievement of our project globally with the participation of many developing countries," Aso told reporters.

Pascal Saint-Amans, director of the OECD's tax policy and administration, termed the latest move a "major shift in international taxation."

He said such jurisdictions as Hong Kong and Singapore joined the inclusive framework, which was previously agreed on by countries mainly consisting of OECD members and Group of 20 countries.

The OECD estimates revenue loss resulting from corporate tax avoidance could be $100 billion to $240 billion annually, saying the impact of such practice on developing countries is particularly damaging considering their greater reliance on corporate income tax revenues.

The committee also adopted ways to address governments that are failing to cooperate with efforts to seek transparency on taxation prior to the launch of a tax information exchange initiative next year involving around 100 countries and territories.

According to criteria set by the committee, nations that are considered cooperative need to comply to exchange tax information on request, commit to automatic exchange of information and conclude a multilateral treaty on tax information exchange.

The move comes after the G-20 developed and emerging economies instructed the OECD following their meeting in April to establish objective criteria to specify uncooperative jurisdictions. The outcome in Kyoto will be reported to a G-20 meeting in July.

In order to make the initiative more effective, the committee will consider blacklisting some countries as early as next year to identify those which do not comply with the criteria, with an eye to imposing punitive measures.

Those which fail to basically fulfill two of the three criteria are expected to be subject to blacklisting, said Masatsugu Asakawa, the Japanese Finance Ministry's vice minister for international affairs, adding it will take time until sanctions will be actually applied to uncooperative countries.

"Punitive measures are aimed at making these countries afraid and prompt them to change their domestic law to participate in the tax information exchange," said Asakawa, who chaired the meeting.

To seek more participation in adopting tougher tax rules to force firms to pay appropriate taxes in places where they make profits, the committee invited countries which do not belong to the OECD or G-20 to attend the gathering.

The effort to tackle the issue has gathered steam following revelations stemming from the release of the Panama Papers, in which leaked files from a Panama-based law firm specializing in setting up shell companies implicated politicians and business leaders from around the world in tax avoidance allegations.

In April, the G-20 economies called for "timely and widespread implementation" of the new tax rules and encouraged all relevant and interested countries and jurisdictions to join the new inclusive framework.

Source: Kyodo