Financial Transparency Coalition

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For the first time, the Task Force Regional Representatives delivered specific recommendations to the BRICS governments, which met in South Africa this week. The BRICS countries hold a unique position among developing countries and emerging markets: they suffer from the same persistent problems relating to international taxation, transfer pricing, exchange of information, and tax evasion and avoidance that affect the rest of the developing world, but unlike many developing countries, hold significant power and influence at the international institutions and fora. All five BRICS are members of the G20, and Russia holds the Presidency this year.

In the Communiqué issued following the BRICS Head of Revenue Meeting on January 18th, they committed to the following principles:

• (i) contribute to development of International Standards on  International Taxation and Transfer Pricing taking into account the aspirations of developing countries in general and BRICS Countries in particular,
• (ii) strengthening the enforcement processes by taking appropriate actions for non-compliance and putting more resources on international cooperation,
• (iii) sharing of best practices and capacity building
• (iv) sharing of antitax evasion and non-compliance practices, including abuse of treaty benefits and shifting of profits by way of complex multi-layered structures,
• (v) development of a BRICS mechanism to facilitate countering abusive tax avoidance transactions, arrangements, shelters and schemes
• (vi) promotion of effective exchange of information.

To fulfill these principles, the Task Force recommended that the BRICS adopt the following measures:

Automatic cross-border exchange of tax information: There is no reason why the BRICS nations should continue to allow other countries, especially the major international financial centres, to limit their access to information on taxable interest paid to their citizens. They should also collectively conduct a review of their tax treaties to understand the impact of these treaties on their ability to exchange information, and work toward negotiating more expansive approaches where current tax treaties only authorize exchange of information upon request.

Public registries of beneficial owners of trusts, foundations, and corporations: Anonymous shell companies facilitate the illicit flow of money, including tax evasion, the proceeds of corruption, terrorist financing, profits from drugs, and a host of other global ills. Often created in secrecy jurisdictions, criminals, including tax evaders, use these legal entities to absorb, hide, and transfer wealth outside the reach of any law or tax authority, thereby undermining the rule of law. The BRICS nations should require the collection of real, flesh and blood, beneficial ownership information about who controls any shell companies, and place that information on public registries.

Country-by-country reporting of all sales, profits, and taxes paid by multinational corporations: Secrecy around company structures and accounts facilitates the draining of billions of dollars annually from BRICS countries. If companies were to report all sales, profits, and taxes paid in all jurisdictions in which they operate in their audited annual reports, it would significantly help curtail the outflow. The Task Force recommends that the BRICS capitalize on recent regulatory moves in the United States and European Union and push to require full country-by-country reporting by their own companies and by all companies operations in BRICS.

Strengthening the BRICS’ voice in international fora: Illicit financial flows, including through tax evasion and avoidance, is by nature a cross border problem. Efficient and effective solutions require global cooperation and coordination. The efforts underway toward greater coordination between BRICS nations on matters of international taxation are most welcome, and the Task Force hopes that this coordination will expand into positions taken at international policy fora such as the UN Tax Committee, the OECD, and the G20, hopefully taking into account the interests of developing countries beyond the BRICS alone.

Click here for the full Task Force BRICS 2013 recommendations.

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