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Tax Transparency in train...

Kitty Miv, Editor
02 March, 2020

Having taken a long, hard look at the United States last week, and focused on tax and political developments in the European Union before that, this week we will be looking at tax transparency, and the various international and national efforts in this area to boost information sharing and thereby cut down on base erosion and profit shifting.

It's been quite a week or so for developments in this area, and on February 18, the EU revealed that it has added the Cayman Islands, Palau, Panama, and the Seychelles to its list of non-cooperative tax jurisdictions, bringing the total tally to 12 from 8.

The European Council, which agreed the additions, stated that these jurisdictions had failed to implement the tax reforms to which they had committed by the agreed deadline; most commitments delivered upon by third-country jurisdictions involved a deadline of the end of 2019.

The Council also reported that it had amended its "grey list", of jurisdictions cooperating with the EU to amend their tax systems. In light of their implementation of reforms in compliance with EU tax good governance principles within the required timeframe, the following jurisdictions have been removed from the grey list: Antigua and Barbuda, Armenia, the Bahamas, Barbados, Belize, Bermuda, the British Virgin Islands, Cabo Verde, the Cook Islands, Curacao, the Marshall Islands, Montenegro, Nauru, Saint Kitts and Nevis, and Vietnam.

The EU has granted 12 jurisdictions extensions to enable them to pass the necessary reforms and deliver on their commitments. The EU said that most of the deadline extensions concern developing countries without a financial center who have already made meaningful progress in the delivery of their commitments.

It subsequently emerged that the government of the Cayman Islands was not best pleased about this state of affairs, and is hoping that the territory will be removed from the EU's blacklist of non-cooperative tax jurisdictions this year.

The Cayman Islands authorities argued that the EU's decision is "deeply disappointing" and that it has "already contacted EU officials to begin the process of being removed from the EU list." The Government is reported to be hopeful that this can be achieved as early as October.

Cayman Premier Alden McLaughlin went on to add that over the past two years, the Government has cooperated with the EU to deliver on its commitments to enhance tax good governance. Since 2018, Cayman has adopted more than 15 legislative changes in line with the EU's criteria.

McLaughlin observed that the listing appears to stem from Cayman's new rules on collective investment vehicles (CIVs) not being in force on February 3, 2020.

In April 2019, the EU confirmed that Cayman had satisfied its economic substance requirements, with the exception of economic substance rules for CIVs. On January 31, 2020, Cayman passed the Private Funds Law 2020 and the Mutual Funds (Amendment) Law 2020, which it says addresses the EU's concerns. The Government said that the EU was notified that the legislation would be passed by January 31. The laws entered into force on February 7.

McLaughlin concluded by explaining that the Cayman Islands "remains fully committed to cooperating with the EU, and will continue to constructively engage with them with the view to be delisted as soon as possible."

Taking things in a different direction, and bringing them down to an individual level, the OECD announced plans to create a framework for sharing and gig economy platforms to report the activities of their users.

The OECD explained that: "The growth of sharing and gig economy platforms presents significant opportunities for tax administrations, as it may bring activities previously carried out in the informal cash economy onto digital platforms, where transactions and related payments are recorded in electronic form. If leveraged in the right way, this can lead to greater transparency and minimise compliance burdens for both tax administrations and taxpayers."

The body went on to reveal that its work in this area is intended to address potential deficiencies in the effectiveness of purely domestic transaction reporting frameworks, which have been introduced by a number of countries on businesses such as Airbnb.

Later in the week, the OECD also released technical tools in the shape of IT-formats and guidance to support the technical implementation of the OECD Treaty Relief and Compliance Enhancement (TRACE) initiative.

TRACE is a standardized system that allows the claiming of withholding tax relief at source on portfolio investments and removes the administrative barriers that affect the ability of portfolio investors to effectively claim the reduced rates of withholding tax.

In light of the ongoing implementation of TRACE by Finland and the interest of other jurisdictions to follow suit, the OECD is now releasing the standardized IT-format to support the reporting of information under the TRACE AI system, the TRACE XML Schema, and User Guide.

Also on February 25, the OECD released a dedicated XML Schema and User Guide, developed to allow tax administrations to provide structured feedback to the sender on errors encountered with respect to tax information exchanged through the OECD Common Transmission System (CTS), which is used by tax administrations to exchange information.

Until next week!

Tags: Euro | Government | Law

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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