Welcome initiative to fight tax evasion
The OECD, a club of rich countries, has done well to unveil a single global standard for automatic exchange of financial account information to combat money-laundering and tax evasion.
The new common standard will override banking secrecy.
It mandates banks, brokers and fund houses to collect information from their clients and pass it on to their respective regulators. This is welcome. It will help combat aggressive tax avoidance and ensure that all taxpayers pay their fair share of tax in the right place at the right time. Rightly, India has committed to early adoption of the new standard. The government will find it easier to secure information on suspected evaders, especially those who have stashed wealth abroad.
It is a matter of time, with the G20 already turning the heat on Switzerland and other tax havens.
OECD’s initiative will end the practice of MNCs shifting profits to tax havens and avoiding payment of taxes in their homeland. These companies are increasingly reporting profits in countries from where they don’t earn their revenues to avoid taxes, and this leads to erosion of the tax base, and deprives governments of revenues. As information exchange becomes automatic, companies will find it harder to inflict “base erosion and profit shifting” on their host nations.
The G20, which is also working on a unique legal entity identifier system to make companies identify their real owners, should not take its foot off the pedal. The UK has already taken the lead to make the registry of the real owners public, given that companies are keen to know who they are dealing with.
Effective sharing of information will help trace the beneficial owners, and the job will become easier when information exchange becomes automatic.
