Financial Transparency Coalition

New study reveals serious flaws in OECD’s tax evasion crackdown

The OECD’s Global Forum peer review, the main mechanism for assessing the effectiveness of Tax Information Exchange Agreements (TIEAs), is seriously flawed and therefore contributes to failure in reducing rampant tax evasion.

The findings of a new Tax Justice Network report published today run directly counter to claims made by the OECD that its TIEAs represent the new international standard on tax transparency.

The Creeping Futility of the Global Forum’s Peer Reviews, written by Markus Meinzer, has established:

• The Global Forum standards and peer reviews only help tax administrations to marginally improve the handling of known cases of tax evasion. By ruling out automatic information exchange in the standards, the massive problem of undetected tax evasion and illicit financial flows remains unaddressed by the Global Forum process.
• Relevant information held by accountants and lawyers representing individuals and companies suspected of tax evasion can be withheld or can be subjected to lengthy appeals through the TIEA process. This limits the relevance of peer reviews.
• The peer review process does not drill down to assess whether tax authorities can establish the beneficial owner of assets because the OECD standard is satisfied if mere legal ownership of foreign companies is recorded.
• The Global Forum allows its country members to demand money for information from another countries’ tax authority. This is a morally deeply flawed practice and the Global Forum’s peer review does nothing to address or prevent this.
• The information contained in peer review reports is very narrowly focussed and there is no systematic analysis of routine reporting and public registries.
• The OECD peer review is conducted in two phases. The first assesses legal and administrative compliance. If jurisdictions are found wanting, a phase two review is initiated. But there are no transparent criteria for initiating the phase two review and some countries are simultaneously Phase 1 and Phase 2 assessed with no clear explanation so removing the opportunity for political pressure to be exerted on offending countries.
• The OECD TIEA standards only look at whether countries can access information on foreign investors to hand over to foreign tax authorities. This does not address the challenges faced by developing countries who are seeking to trace assets that have left their country. Therefore, developing countries reap no direct benefit from participation in the Global Forum, contrary to Global Forum’s claims.
• The OECD does not allow civil society to be involved in the peer review process limiting their usefulness.

The report’s author, Markus Meinzer said: “It is remarkable to see how a flawed standard, created by notorious secrecy jurisdictions such as Bermuda, Cayman Islands and San Marino together with OECD’s tax havens in 2001/2002, are still so prominent. With those standards as its backbone, the famous G20-crackdown on bank secrecy remains a farce. We need to become serious about clamping down on cross-border tax evasion and avoidance. In this respect, the OECD and the Global Forum are simply not fit for purpose. We urgently need automatic tax information exchange and country-by-country reporting as minimum criteria to define effective tax cooperation.”

John Christensen, the director of Tax Justice Network, said: “The Global Forum has wasted a golden opportunity for tackling tax havens.  They set the standards too low, and then followed the time-worn approach of having a flawed peer review process.  The Global Forum now needs to bring independent experts from civil society into the reviews to both strengthen the standards and rebuild the credibility of the entire process.”

For more information, please call:

Markus Meinzer: +49 6421 301 9517 or +49 178 340 5673

John Christensen: +44 (0) 7979 868 302

Notes To Editors

1) Tax Justice Network stated last November that $3.1tn of tax, equivalent to 5.1% of global GDP, is illegally evaded in 145 countries, covering 98.2% of the world’s population. In December, Washington-based thinktank Global Financial Integrity confirmed the reality of vast sums of cash flowing freely through an unregulated financial system last month. Developing countries, it said, lost $903bn in illicit outflows during 2009 – a year when economic activity was severely constrained.

2) The Tax Justice Network is a civil society organisation with members on five continents campaigning for taxation justice around the world. Its international secretariat is based in London. For further information visit our website at www.taxjustice.net or call our international coordinator on the number above.

3) The Global Forum is part of the OECD. Its task is to promote cooperation and information exchange among tax administration.

4) The Global Forum was formed in 2000/2001 as a result of the OECD’s Harmful Tax Practices Project. Its first activity generated its Tax Information Exchange Agreement (TIEA) published in 2002. Of its TIEA, the OECD said: “The Model Agreement was developed by the Global Forum Working Group on Effective Exchange of Information which consisted of representatives from OECD countries and delegates from Aruba, Bermuda, Bahrain, Cayman Islands, Cyprus, Isle of Man, Malta, Mauritius, the Netherlands Antilles, the Seychelles and San Marino.” (OECD 2006: 7).

5) Markus Meinzer is an applied researcher and analyst for the Tax Justice Network (TJN) International Secretariat. Based in Germany, he co-author’s TJN’s German language blog at http://steuergerechtigkeit.blogspot.com.