The OECD has found itself at odds with both the EU and the Tax Justice Network in the past week over divergent transparency standards. Pascal Saint-Amans, the organisation’s head of tax policy and administration, explains to Salman Shaheen why he believes its blacklist and non-public CbCR standard are the right approach.
When the OECD released its blacklist of uncooperative jurisdictions that are failing to comply with international standards of transparency, it was immediately seized upon by development organisations and tax justice activists for only naming and shaming one country: Trinidad and Tobago. Could it really be that world tax havenry had been effectively stamped out? Or was the blacklist a whitewash?
Not so, argues Pascal Saint-Amans, director of the Centre for Tax Policy and Administration at the OECD, in an exclusive interview with International Tax Review, speaking from Hamburg ahead of the G20 summit. And with the European Parliament yesterday [4 July] voting to adopt a form of public country-by-country reporting (CbCR), finding itself at odds with the OECD approach, Saint-Amans was quick to defend the progress the organisation has been making, urging the international community to have faith in its work and stay the course.
Salman Shaheen: What progress has been made on transparency in the past year?
Pascal Saint-Amans: Panama is one example, the most extreme example, of the progress we’ve seen. Panama had not committed to automatic information exchange. It had 20 agreements to exchange information on request, which means they were not legally bound to do it with other countries. Today they have signed the Multilateral Convention, they are legally bound to do it with other countries. There are many other examples. The Bahamas, hadn’t signed the Multilateral Convention, now they have done so. This is not just paperwork. This is about creating the legal obligations for countries to exchange. There is an obligation to respond to requests, legally speaking. This is serious. This is real. Many other countries have signed the Multilateral Convention. We have since the threat of the list last year, more than 30 countries, who have signed or are about to sign the Multilateral Convention. Five have committed to automatic exchange of information. Seventeen were upgraded on their practice of exchange of information. All that said, the progress has been very important, not only in the last year. We have addressed, with the threat of the list, the remaining countries that tried to play against the rules and that tried to escape. The risk with that is not only the countries doing that, but there is a spill over with countries that have committed, questioning why they would make progress if the playing field is not level. So that was absolutely key for countries to move ahead.
SS: But of course not Trinidad and Tobago. Why is that the last remaining uncooperative jurisdiction on your blacklist?
PS-A: We were mandated to do a list by the G20 and now we’re telling the G20 that countries have met the criteria we set out. That doesn’t mean we’re saying everyone is fine except Trinidad and Tobago. We’re just saying on the staged approach we now have what we wanted to have. All the relevant countries committed, the Multilateral Convention has been signed by everyone, but now it needs to be ratified, and exchange of information on request countries are taking it seriously and doing it.
Trinidad and Tobago, I think they’re lost. They’re not really a financial centre, so I’m not very much concerned about that. But they’re lost. They are in the scope of our exercise because 10 years ago they issued a statement saying they’re going to develop a financial centre. They have never developed a financial centre. They have oil and problems related to governance.
We’re not saying nobody’s on the list because everything’s fine. We’re saying that on the staged approach this is where we are, the threat of the list has worked and that’s what I’m negotiating here, now, in Hamburg at the G20 summit: what’s the next step? We’re not necessarily saying we’re happy as such. We’re very happy with the progress made, but what matters is, as of September 2018, all countries do automatic exchange of information in a proper manner and efficiently and effectively. We may have in the G20 communique something like what we want to debate on the progress. The downside, when you have nobody on the list, is that you have Salman on your back saying: 'ha, Pascal, you have nobody on the list, this is not serious’. But if you don’t have the word 'list’, you have a number of countries saying 'ok, well, let’s see what happens if we do nothing’. We have tried to have this staged process, where we don’t move the goalposts, but we set the criteria to identify the good guys and the bad guys – not only on commitment, but on who as of next year will have failed to enact all the legislation for automatic information exchange. And in 2019, we will assess whether they’re doing it properly or not.
SS: So you find yourself at odds with the Tax Justice Network who write the OECD list off as being a "meaningless gesture"?
PS-A: I don’t object. I do understand that if we were saying 'oh, look, we now assess forever where countries stand and it’s only Trinidad and Tobago which are bad’, that would be a meaningless gesture as they say. But this is not what we do. They know what we do. They know that we are progressing and without a threat you cannot make progress, but the goal of the threat is not to punish countries, but to ensure they comply so you don’t have to name them. I think we have made very significant progress.
SS: Transparency does seem to have come on leaps and bounds in the past few years, but there still appears to be a race to the bottom when it comes to corporate tax rates. The UK is a prime example, particularly with the threat of Brexit. Do you think efforts to end tax havenry could be hampered by global tax competition?
PS-A: Two things. One, where were we three years ago? We were in a situation where companies could locate their profits extremely easily, legally, in what you would call tax havens – in low tax jurisdictions where they had no activity. Through the BEPS work this seems to change. And we released today the annual report of the Inclusive Framework for BEPS Implementation. We don’t yet have the data on the impact of BEPS, but it looks like it is having an impact because of the changes on transfer pricing, because of changes on the multilateral instrument, on tax treaties, because of CbCR. I think this is a game-changer. The tax spending of companies is changing. Is it enough or not? Is BEPS reaching all its goals? We’re going to assess when we have data. But my sense, from talking to many people and observing what happens in the big law firms and so, it is changing. We were told BEPS is going to do nothing, so now the speech from the NGOs is that the race to the bottom is the problem. Well, the real problem was first the fact you could locate all your profits in jurisdictions where nothing is happening and this seems to have come to an end. The race to the bottom didn’t start two or three years ago. It started 30 years ago with Reaganomics and Thatcher. We’ve moved from 40% to 50% rates to the mid-20s. Over the past two or three years, it seems things have not speeded up, even though some countries have reduced their corporate tax rate. The UK, reducing to 17%, is something of an outlier for the big countries. Most are moving down to 20% or 30%. The small countries from 10% to 20%. Hungary is an outlier at 9%. I think the US will never go down to 15%. They may arrive at 25%. It’s going to be very difficult for them to go lower. What does that mean? My take is the large countries have stabilised between 20 and 30% and the small countries between 10 and 20%. We’ll see whether there is a further move. It can be called a race to the bottom, but never forget that tax is a product of the rate and the base. So looking at the rate separately from the base doesn’t make sense. We’re fixing the base right now, so lower rates do not necessarily mean countries are receiving lower corporate income tax revenue. There may be an issue for tax justice campaigners. But we are winning the so-called war against harmful tax practices.
SS: We’ve just seen the European Parliament vote to adopt public CbCR. How do you see the European Union’s standards fitting in with the OECD’s?
PS-A: It’s the endless debate on the publicity of CbCR. The OECD, with the US, Japan and China – I had an email from China yesterday, saying 'what’s happening in Europe, we are struggling and working hard to protect confidentiality, and now we’re being told it’s going to be public?’ I understand why some would like this information to be public. But the deal reached at the OECD between European countries and other countries was that this information would not be public, so the EU’s move, whatever its merits, was not necessarily the smartest move. Our approach is extremely pragmatic, not ideological and pragmatism should be about having a threshold to start, seeing what happens, before moving to possible next steps.
SS: Do you think the EU’s gone too far?
PS-A: We do think there is a lack of consistency between agreements reached at the OECD and between European countries and other countries. That said, this is, how shall I put it, a very mitigated version of public CbCR, so it may have all the inconvenience of the publicity and no benefit of it. It’s not necessarily fantastic if you want countries to cooperate and converge.
SS: Looking ahead, what progress do you see the OECD making in tackling tax secrecy and abuse in the next year?
PS-A: It’s all about the implementation of automatic exchange of information. We need to make sure this happens and that’s a big challenge. We need to ensure the legislation is in place and that’s what we’re looking at right now, a number of countries are late. And then the information to be properly formatted and that we engineer the peer review in the proper manner. That’s extremely difficult. How do you assess whether financial institutions in a country all comply with automatic information exchange?
The above article was published on www.internationaltaxreview.com on 12 July 2017 and has been republished with the approval of the Publisher.