After getting 84 jurisdictions to agree to transparency and tax information exchange standards, the Organisation for Economic Cooperation and Development (OECD) is now working on improving the mechanism by starting work on a global tax identification number.
In addition, OECD has identified at least four tax jurisdictions — Jamaica, Qatar, Botswana and Ghana — whose tax information system would be studied to find out if they are emerging as the new tax havens following the crackdown on the existing ones.
“A lot of work on having a common denominator on tax information exchange is going on. Most OECD countries have a unique tax identification number but the question is how do you match them since there may be many Smiths,” Jeffery Owens, director of OECD’s centre for tax policy and administration, told Business Standard.
He added that this would also act as a deterrent for people to park funds in tax havens. “If Indian citizens know that the authorities can ask, say, Mauritius for information, which can be matched, then there will be smaller chances of misuse,” said Owens.
A unique tax identification number would be akin to a global permanent account number (PAN) for Indian taxpayers which could remain the same across jurisdictions. But it is not clear if the OECD members and the non-members, such as India, would agree to shift to a common system. While India enjoys the status of an observer in the committee dealing with fiscal matters and taxation, over the years, the government has moved to a system which is in line with OECD principles though the norms are not binding on non-members.
In addition, Owens said OECD was working on a common format for tax information exchange forms so that the system was standardised across the world.
Earlier this year, due to the pressure from countries such as the US, tax jurisdictions including Switzerland, Liechtenstein, Monaco and Andorra agreed to amend their laws to fall in line with the OECD standards on information exchange in bilateral tax treaties and tax information exchange agreements.
The move was seen as significant as the offshore financial industry, or the tax havens through which investment is routed to other countries, was estimated to be worth up to $11.5 trillion by some estimates (see table).
In its action plan for 2009, OECD has identified assessing the 84 tax jurisdictions, and the new entrants to the list, not only in terms of their tax laws but also on parameters of transparency and information exchange.
In addition, the Paris-based body has suggested more co-ordination between banks and tax authorities for checking the risks arising out of tax planning. In a report released earlier this week, OECD has said aggressive tax planning, with the help of banks, poses a major risk to all countries.
(The reporter is in Paris on OECD’s invitation)