G20 Leaders Make Several Transparency Commitments

17 November 2014

The G20 has endorsed “public sector transparency and integrity” and “high-level principles on beneficial ownership transparency.”

The G20 also agreed to “transparency of tax-payer specific rulings found to constitute harmful tax practices.”

Meeting in Brisbane, Australia, the G20 leaders made these commitments, along with hundreds of others, in a 2015-16 G20 Anti Corruption Plan, a Communique, and other documents listed at the end of the Communique.

The section on “Public sector transparency and integrity” includes this promise:

G20 countries commit to leading by example in ensuring our government agencies, policies, and officials implement international best practices for public sector transparency and integrity.

 The section continues, with an acronym referring to the Anti Corruption Working Group:

In particular, transparency in public investment and procurement processes will boost business confidence and enhance cross-border trade and investment. Concrete action on these issues will also directly support the G20 development agenda, including by helping to protect public finances required for investment in infrastructure. G20 countries commit to leading by example in ensuring our government agencies, policies, and officials implement international best practices for public sector transparency and integrity. The ACWG has identified public procurement, open data, whistleblower protections, immunities for public officials, fiscal and budget transparency, and standards for public officials as issues which merit particular attention.

Australian FOI blogger Peter Timmins observed that the host Australian government is not following international best practice by proposing to abolish the Office of Australian Information Commissioner.

“Then there’s the silence about whether the Government intends to proceed or not proceed with the previous government’s May 2013 notice of intention to join the OGP,” Timmins added. “A national action plan process would be just the right way to explore best practice ideas.”

Beneficial Ownership Pledge

The G20 leaders also pledged in a joint statement to implement “high-level principles on beneficial ownership transparency,” reported The Financial Times.

The Times said, “The commitment by world leaders will intensify pressure on them to address the issue of corporate secrecy. The subject has moved up the political agenda in the wake of a crackdown on tax evasion and illicit financial flows that followed the financial crisis.” At a meeting of G20 officials in Paris in September of 2013, the Times said, China raised objections to the principles.

The G20 principles statement from Brisbane suggests greater transparency on corporate ownership, such as through the creation of central registries, but don’t propose public access to the registries.

“This is a good but insufficient first step,” Friederike Röder, a director of One, was quoted as saying. “But this information needs to be public to create a deterrence effect. It would also ensure developing countries that suffer from tax evasion and corruption would gain access to this information.”

Jason Sharman, professor at Griffith University in Brisbane, said: “The political endorsement is important. It is a step in the right direction. But there is a long history of not matching words with deeds in the G20 which breeds some caution.”

The relevant section states:

Preventing the abuse of legal persons and arrangements is a critical issue in the global fight against corruption. Despite significant international efforts and attention, legal persons and arrangements continue to be misused to hide or conceal criminal activity such as money laundering, tax evasion, and corruption. This abuse of legal persons and arrangements undermines the broader efforts of the G20 to achieve its mission of protecting the global financial system and promoting growth. G20 countries commit to promote greater transparency through effective implementation of the international standards on the beneficial ownership of legal persons and arrangements, set by the Financial Action Task Force (FATF). This will include taking concrete action and sharing in writing steps to be taken to implement the G20 High-Level Principles on Beneficial Ownership Transparency.

Tax Transparency

Indian papers, such as The Hindu, reported that the line on “transparency of tax-payer specific rulings found to constitute harmful tax practices” was inserted at the behest of Prime Minister Narendra Modi.

Disclosure about such rulings was proposed in a recent OECD report, as analyzed by Deloitte, which elaborated:

Compulsory spontaneous exchanges of information in respect of rulings are a key part of the G20/OECD’s drive under BEPS to improve transparency in relation to tax, and will co-exist with other areas such as a more global approach to transfer pricing documentation to ensure that tax authorities are able to access information that may not be in the possession of a local subsidiary. It will also serve as an early-warning system for tax authorities where incentives have the potential to erode their tax base.  Companies need to be aware that, in future, it is likely that rulings obtained in one country will be shared with other tax authorities.

There is general agreement that the presence of ‘substantial activities’ is an important factor in determining whether or not an incentive regime is harmful.  However, there is, as yet, no agreement on its definition.  This report looks at the definition only in relation to Patent Boxes, or intangibles regimes.

The nexus approach proposed to define substantial activities for intangibles regimes is predicated on there being a link between R&D expenditure and the income arising from the patents developed.  It Is not clear whether such a link exists (the value associated with patents is arguably not related to the R&D expenditure incurred to develop them), nor, if there is a link, whether ‘front end’ R&D expenditure is the most appropriate indicator of ‘back end’ substantial commercialisation activity.  Perhaps more pertinently, there are significant practical issues.  These include the need to identify and track qualifying expenditure (potentially including historic expenditure) and the fact that some of the items falling within the definition of expenditure are outside the control of the taxpayer and, in some cases, its group.  There is a question (referred to in the Interim Report) whether the nexus approach might contravene European Union law.

The full provision in the Communique says:

13. We are taking actions to ensure the fairness of the international tax system and to secure countries’ revenue bases. Profits should be taxed where economic activities deriving the profits are performed and where value is created. We welcome the significant progress on the G20/OECD Base Erosion and Profit Shifting (BEPS)Action Plan to modernise international tax rules. We are committed to finalising this work in 2015, including transparency of taxpayer-specific rulings found to constitute harmful tax practices. We welcome progress being made on taxation of patent boxes. To prevent cross-border tax evasion, we endorse the global Common Reporting Standard for the automatic exchange of tax information (AEOI) on a reciprocal basis. We will begin to exchange information automatically with each other and with other countries by 2017 or end-2018, subject to completing necessary legislative procedures. We welcome financial centres’ commitments to do the same and call on all to join us. We welcome deeper engagement of developing countries in the BEPS project to address their concerns. We will work with them to build their tax administration capacity and implement. We welcome further collaboration by our tax authorities on cross-border compliance activities.

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Filed under: IFTI Watch

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In this column, Washington, D.C.-based journalist Toby J. McIntosh reports on the latest developments in information disclosure in International Financial and Trade Institutions (IFTI).
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