Call for global information system to curb tax evasion

The OECD tells the Group of Eight economic powers that information needs to flow freely from financial institutions to governments

PUBLISHED : Wednesday, 19 June, 2013, 12:00am
UPDATED : Monday, 13 June, 2016, 12:45pm

The leading developed nations have called for the creation of a global system to automatically funnel financial information about individuals and companies using offshore tax havens, but Switzerland does not want to co-operate.

The 34-nation Organisation for Economic Co-operation and Development (OECD), which is spearheading an effort to curb tax evasion by individuals and close some controversial tax loopholes for corporations, said the foundation of such a system was emerging because of reporting requirements newly imposed by the United States.

The Foreign Account Tax Compliance Act requires overseas financial institutions to send the Internal Revenue Service information about accounts held by Americans in an effort to curb the use of foreign tax havens.

But in Geneva, Swiss lawmakers yesterday refused to bow to pressure to vote on a deal with the US, exposing American tax dodgers with assets in Swiss banks and risking a clash with Washington.

A stormy session of the Swiss lower house, or National Council, refused for the second time to hold an emergency debate on the controversial "Lex USA" deal, which Washington has demanded must come into force by July 1.

The deal is seen as crucial if Swiss banks are to escape the threat of a raft of lawsuits in the US, and being barred from the big and profitable US market.

But they could also fall foul of Swiss law.

Swiss banks are believed to hold accounts worth billions of dollars belonging to American citizens who have not declared these assets to US tax authorities.

With the global economic crisis having put tax havens into sharp focus - notably at the G8 summit this week - Switzerland has fought to defend its cherished principle of banking secrecy by giving ground in some areas, but declining to allow the automatic handover of account details.

Although overseas banks have complained about the regulatory burden, major financial centres such as Britain have already reached data-sharing agreements with the US. What's more, the OECD said, the US requirement is prompting other nations to consider sharing the information they will already have to send to the United States.

In a paper submitted to the Group of Eight economic powers, meeting in Ireland, the OECD said such a system should be made automatic and go global - with data flowing freely from banks, investment houses and other financial institutions to governments.

The resulting network of information, the OECD said, would curb what it characterised as a global problem as governments fight for revenue in a time of budget constraints throughout the industrialised world.

"Vast amounts of money are kept offshore and go untaxed," the organisation said in its report. "Tax evasion is a global issue requiring global solutions - otherwise the issue is simply relocated, rather than resolved."

Major European nations said in April they would begin a data exchange, and the list of nations that have signed on is growing. Significantly, Britain has struck a data-sharing agreement with Commonwealth territories such as the Cayman Islands that are among the world's acknowledged tax havens. Under the take-it-or-leave-it deal proposed by the US side and approved by the Swiss government at the end of May, Swiss banking secrecy rules would be frozen for a year for American clients.

There has been anger across the Swiss political spectrum because details of the agreement are not set to be revealed until after it comes into force.

With Europe, the United States, Japan and others facing large budget deficits and mediocre economic growth, tax enforcement has become an increasingly important issue.

Additional reporting by Agence France-Presse