OECD Issues Unanimous Report On Banking Secrecy

The report contains no prescriptive measures; it is more in the nature of a statement of intent by the member countries. In fact, it should not be taken as a statement of the settled policy of the 29 states concerned, because there are strong divergences of opinion both within the OECD and in the Governments of many of the countries themselves about how to achieve the generally agreed goal of improving tax collection.

Mr Makhlouf was also at pains to emphasize that the report does not call for any general opening-up of banking affairs: banking secrecy is respected as a necessary and even beneficial part of the financial system. The report is directed towards allowing national tax authorities to obtain information about specific individuals or companies whom they have reason to suppose are engaged in tax evasion or criminal activity. This goal, even if achieved, would indeed fall far short of the indiscriminate swapping of information which would be necessary under Gordon Brown's 'information exchange' proposals to the Ecofin meeting in Lisbon at the weekend, reported yesterday in Tax-news.com.

The full text of Gabriel Makhlouf's statement follows:

STATEMENT TO THE MEDIA BY GABRIEL MAKHLOUF
CHAIR OF THE COMMITTEE ON FISCAL AFFAIRS

12 April 2000

Introduction

• The OECD has today published a report prepared by the Committee on Fiscal Affairs on improving access to bank information for tax purposes.
• It is an important achievement because it is the first time that all 29 OECD Members have agreed to a report on bank secrecy as it relates to taxation.
• But let me be clear about one thing: this Report does not mean the end of bank secrecy. The Report is quite explicit in recognising the legitimate role that bank secrecy plays in protecting the confidentiality of financial affairs and in maintaining the soundness of financial systems.
• The scope of the Report is also limited. The focus of the Report is on to access to bank information pursuant to a specific request made by a tax authority, directly or through a judicial or other authority, for information that may be relevant to a specific case.

What does the Report do?

• It tries to address the fact that bank secrecy towards governmental authorities, including tax authorities, may enable taxpayers to hide illegal activities and to escape the taxes established by their parliaments.
• This issue is of growing concern in an increasingly global economic environment where taxpayers, large and small, corporate and individual, are increasingly doing business internationally. While taxpayers are able to operate in an increasingly borderless world, tax authorities must continue to observe national boundaries. We believe that enhanced international co-operation is necessary for effective application of tax laws in this new environment.
• To that end, the Report establishes an ideal, namely, that all Member countries should permit access to bank information, directly or indirectly, for all tax purposes so that tax authorities can fully discharge their revenue raising responsibilities and engage in effective exchange of information with their treaty partners.
• It then identifies measures that would assist countries in moving towards that ideal. These measures are: eliminate anonymous accounts and require identification of bank customers and beneficial owners of accounts; re-examine what is known as the "domestic tax interest requirement" for exchanging information. Some countries will not obtain bank (or other) information for a treaty partner unless they have an interest in obtaining the information for their own tax purposes; re-examine policies and practices that prevent exchange of information for criminal tax cases; take appropriate initiatives to achieve access to bank information for civil tax cases. The Committee recognises that some countries would have great difficulty in achieving this level of access in the present circumstances and for that reason have agreed to have an ongoing dialogue to promote the international trend towards such access.
• Countries with dependencies have committed to promoting the implementation of the measures in those dependencies.

What the Report does not do

• It does not call for unfettered access to bank information by tax authorities. All Member countries have administrative or judicial procedures in place to ensure that the information is sought only for an appropriate tax purpose.
• It does not permit tax authorities to go "fishing" for information. The Report relates to improving access to bank information in the context of specific cases where the information is relevant to a particular taxpayer under examination.
• It does not cover routine exchange of information on cross-border savings. The Committee has a separate project on this issue.
• It does not suggest that bank secrecy should be abolished. Even those Member countries with the broadest access to bank information for tax purposes continue to support the broader role that bank secrecy plays in protecting the confidentiality of financial information and in preserving confidence in financial systems.

Broader implications of Report

• This Report is not just about the tax man s ability to collect taxes. The consequences of not being able to effectively enforce tax laws due to strict bank secrecy go beyond tax collection.
• The tax laws enacted by Parliaments reflect economic and social policy decisions about the tax burden to be borne by taxpayers based on levels of income and types of income. The fact that some taxpayers may be able to successfully hide income and assets in banks in foreign jurisdictions that won t disclose such information for tax purposes distorts the distribution of the tax burden intended by national parliaments.
• Confidence in the fairness of tax systems will be undermined if governments cannot show honest taxpayers that they are making a concerted effort to deal with dishonest taxpayers.
• If we are to continue to reap the benefits of globalisation and liberalisation of financial markets, we must be prepared to address these challenges. The Committee has attempted to do so in a way that strikes the appropriate balance between the needs of tax authorities and the need for confidentiality.