Why is exchange of information necessary?
The past decades have witnessed an unprecedented liberalization and globalization of national economies. An increasing number of countries have removed or limited controls on foreign investment and relaxed or eliminated foreign exchange controls. Taxpayers operate globally, while revenue administrations remain confined to their respective jurisdictions. Policy makers globally have worked tirelessly to address this imbalance through implementing programs to curtail harmful tax practices by focusing on improved transparency and co-operation between tax authorities.
Countries have increasingly resorted to improved and broadened co-operation in tax matters. In a broader context, the efficient functioning of tax co-operation helps to ensure that taxpayers who have access to cross-border transactions do not also have access to greater tax evasion and avoidance possibilities than taxpayers operating only in their domestic market. Co-operation in tax matters also reflects the basic principle that participation in the global economy carries both benefits and responsibilities. The continued viability of an open world economy depends on international co-operation, including co-operation in tax matters. A key element of international co-operation in tax matters is exchange of information.
What are the benefits of an office of the competent authority in the revenue authority?
The process of exchange of information generally deals with the exchange of specific taxpayer information as well as information from any other person that may possess such information. Revenue Administrations maintain taxpayer information and have the necessary legislative powers to collect information from the taxpayer or any other person. In countries where the Revenue Administration is largely autonomous, it will, from a legislative point, be difficult for a Ministry of Finance to manage requests for information received from partner states and requests for information made to partner states. Therefore, the Ministry will always refer requests for information to the Revenue Administration.
How does this assist in collecting taxes?
The process of exchange of information works in conjunction with audit, investigations and collection functions e.g. transfer pricing audits cannot function effectively without the exchange of information process. The globalization of large organizations and wealthy taxpayers will continue unabated if an exchange of information process is not in place.
Although statistics on exchange of information are limited, it is worth noting the successes achieved by the Australian Tax Office. Information received from treaty partners can often provide additional evidence or confirm investigations into a taxpayer's affairs that can lead to a tax liability being raised. The total liabilities raised that can be attributed to exchange of information activity in 2013–14 was around Australian $250 million. There were 495 exchanges of information in 2013–14; 477 under double-tax agreements, and 18 under tax information exchange agreements.
It is important to differentiate between raising assessments and collecting taxes. The exchange of information process may only result in the amendment of an assessment; the assistance in collection agreements will allow a foreign jurisdiction to collect outstanding taxes on behalf of a revenue administration.
What does a country need to do to achieve this?
The successful exchange of information process is built on three pillars: availability of information, access to information and the ability to exchange information. The availability of information relates to a country's legal and financial framework e.g. are taxpayers compelled to maintain proper records and has bank secrecy been abolished. The access to information relates to the legislative powers of the Competent Authority e.g. can the Competent Authority request information from taxpayers and any other persons. The ability to exchange information looks at the day-to-day operations of the office of the Competent Authority e.g. does the office have reliable business process to ensure exchanges of information are dealt with timeously, accurately and within the framework of the international exchange of information agreements.
Countries are required to amend legislation wherever a deficiency is identified to ensure effective exchange of information occurs.
Challenges faced by African Countries in exchanging tax information
Exchange of Information in tax matters has received world-wide attention since the economic meltdown in 2008 - to the extent that more than 800 agreements that provide for the exchange of information in tax matters have been signed. Despite the increase in number of agreements, Africa only has seventeen representatives at the Global Forum on Transparency and Exchange of Information ("Global Forum").
Revenue Authorities in Africa may, however, find exchange of information in tax matters difficult to manage due to:
With foreign direct investment increasing by 27% in 2011 – totaling about $80bn and expected to reach US$150bn by 2015, African Revenue Authorities will want to increase their efficiency on exchange of information.
African Revenue Authorities who are able to adopt the international standards for exchange of information within the relevant legal frameworks, may see a dramatic increased interest by other territories to increase their treaty networks with African Revenue Authorities.
ATAF's approach to EOI for 2015 - 2017
Complementing the Global Forum's Africa Initiative, ATAF has prepared its EOI Programme, taking into account, the following key elements:
a) 3-year EOI Programme under the ATAF BEPS Programme
The G20 Working Group / OECD has identified certain Action Points as the highest priority for developing countries. Included in these is Action Point 6: Realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties. One of the outcomes of the ATAF Consultative Conference on the New Rules in the Global Tax Agenda in February 2014, was for ATAF to be a key instrument in the fight against BEPS in Africa. Building on this momentum, ATAF has developed a three year EOI Programme which will enhance the OECD's Global BEPS Agenda and will ultimately benefit ATAF members.
b) Elements of the ATAF EOI Programme
The ATAF EOI Programme caters for the establishment and growth of a sustainable Competent Authority Office in each ATAF member state. In fulfilling this mission, the ATAF EOI Programme caters for the following assistance to be offered to members:
c) Sourcing of skills
The names of capable and experienced African experts have been included, and are consistently included to the ATAF Expert Database. These include internationally renowned EOI experts from, inter alia, the South African Revenue Service and the Seychelles Revenue Commission.
d) Establish level and need
It is proposed that a concise questionnaire be developed and circulated to each ATAF member state for the purposes of conducting a country survey on exchange of information. From the results received, members will then be contacted in order to ascertain whether they are willing to be part of the Pilot Phase of the EOI Programme. Thereafter, appropriate programmes for each country will be developed in terms of:
e) Pilot Phase of the Programme
The benefit to ATAF members
ATAF members will be exposed to several benefits in supporting ATAF's EOI Programme, which include: