Is Automatic Exchange of Information Really More Effective? Ask the UK Government…

March 10th, 2011

Back in 2009, when Task Force members began lobbying the UK government on what the G20’s crackdown on tax havens might look like, the response was that automatic exchange of information was cumbersome, difficult, that there was far too much information to be useful – and, to paraphrase, that it would end up being shipped around the world in boxes which would cause a fire hazard.

But last week the UK parliament accepted the Draft Penalties, Offshore Income etc. (Designation of territories) Order 2011. This measure, designed to crack down on UK taxpayers holding assets offshore, makes clear that the UK sees automatic information exchange as more effective than the ‘on request’ model enshrined in the OECD’s Tax Information Exchange Agreements.

Based on a system of categorising jurisdictions to determine penalties for tax evaders, the UK government have chosen not to use the OECD’s list of non-cooperative jurisdictions, but rather to look at the “the existence of information exchange agreements…[and]…the quality of such agreements… particularly with regard to whether they provide for the automatic exchange of information on savings income.”

Penalties are 1.5 times higher for those with undeclared taxable income in jurisdictions which share information on request than for jurisdictions which share information automatically.

This distinction is to be welcomed, but the question now remains:  practical constraints aside, why would the UK government consider automatic exchange of information as the gold standard in cracking down on UK tax evaders, yet pass on the opportunity to use its influence at the OECD, the UN and the G20 to pursue this standard internationally for the benefit of many (particularly developing) countries?

Written by David McNair

Follow @FinTrCo