globeandmail.com

G20 nations to crack down on tax cheats, agree to share records by 2015

Saturday, September 7, 2013

BILL CURRY, JANET MCFARLAND

ST. PETERSBURG, RUSSIA and TORONTO -- Leaders of the world's major economies are planning a co-ordinated crackdown on people and corporations that evade taxes and shortchange public coffers.

The Group of 20 countries agreed to share tax records by 2015 as part of a pledge to crack down on individual tax cheats and global corporations that use complicated arrangements aimed at paying as little tax as possible.

The topic of taxation in a global economy has become a key political issue as multinational firms such as Apple and Starbucks face scrutiny about their low tax bills from the countries in which they make most of their money. Investigative reports into the use of offshore tax havens by the world's wealthiest individuals have added weight to the view that governments are missing out on much needed revenue.

As business increasingly moves online and international, the cash-strapped governments approved an aggressive timeline to adopt the automatic sharing of tax information. The deal was solidified after China, the last holdout, agreed to the plan just days before the summit in St. Petersburg.

"We are committed to automatic exchange of information as the new global standard," said the G20 final communiqué. Member countries will work out the details of the plan throughout 2014 with the goal of having the system in place by the end of 2015.

Prime Minister Stephen Harper called the tax exchange agreement "extremely positive," even though concerns remain to be addressed. "Obviously, there are many details to be worked out," he said.

Albert Baker, national tax quality and risk leader at Deloitte LLP in Canada, said the information-sharing agreement is part of a broader package of sweeping potential new tax reforms endorsed by G20 leaders Friday. Many of the key initiatives are being developed by the Organization for Economic Co-operation and Development to harmonize tax policies globally.

"For multinational companies around the world, this could result in dramatic change," Mr. Baker said.

He said many countries have tailored their laws to attract business in certain areas - such as tax-friendly patent rules - and could face pressure to unwind their special structures. "The G20 supports it in principle, but it will be interesting to see over the next two years ... whether the necessary level of co-operation among countries can in fact be achieved," Mr. Baker said.

Arthur Cockfield, a law professor at Queen's University in Kingston who studies international tax agreements, said the countries involved must be clear as to how the information will be protected.

"Governments will more effectively engage in automatic tax information exchanges if they have assurances that the transferred information will be protected by laws that are similar to their own laws that protect taxpayer rights," he said.

Fred O'Riordan, tax policy leader at Ernst & Young LLP in Toronto, said it should be possible for G20 countries to share tax information because there are already many cases of bilateral information sharing, and countries have developed privacy standards with each other.

"Of course, the wider you cast the net, the more risk there could be leaks of information," Mr. O'Riordan said, "but I think all of the parties participating are well aware of those risks and are going to be implementing measures to safeguard privacy."

A proposed U.S. law requiring foreign governments - including Canada - to report banking information involving U.S. citizens has already run into concerns from the Canadian government and attracted the attention of Canada's privacy commissioner.