The OECD and the G-7: The Dynamic Duo of Fighting Tax Crime

Peter Cotorceanu Blog, CRS, CRS Disclosure Facility, OECD

On 5 May, the OECD announced the opening of a “CRS Disclosure Facility”. (The Announcement is available here.) The Disclosure Facility is intended to facilitate reporting of “loopholes”, “schemes”, “products”, or “arrangements” that may be used for circumventing CRS.

The OECD’s announcement was followed on 13 May by a formal request from the G-7 member states at the annual meeting in Bari, Italy that the OECD crackdown on methods of avoiding CRS reporting or concealing beneficial ownership of assets (the “Bari Declaration”(available here)). Strange that the G-7’s request came after the OECD had already moved on the issue, at least with respect to CRS. But as they say in Paris, “c’est la vie”.

The clear signal from both organisations is that the myriad devices being used worldwide to aid the concealment of taxable assets and income through avoidance of CRS reporting and other means must be targeted and tackled.

“Good on ya’”, as we say back in New Zealand. Mostly.

Look, I’m all in favour of flushing out tax evasion and tax evaders. That’s a noble goal and one that I fully support. The offshore world should as well.

That said, as you should know by now, I am an equally vocal proponent of the right to privacy in financial matters provided the privacy is being used for legitimate reasons. Yes, governments have the right to know if we’re paying our taxes. But, in  my view, governments do not have the right to know anyone’s financial affairs if those affairs are conducted in a fully-compliant fashion, tax and otherwise. And, as we all know, both CRS and FATCA ask for far more information than is relevant to tax compliance, which is those regimes’ ostensible goal. Therefore, as much as I support the OECD’s and G-7’s overall tax compliance aims, I equally support compliant people’s right to avoid FATCA and CRS reporting if they can do so legally.

Now, let me descend from my soapbox to address the more mundane details of the new CRS disclosure facility . . . .

The “Facility” is a website, available here. Anyone can go to the website and enter details about techniques that may be used for circumventing CRS. The information can be entered anonymously or with full disclosure of the user’s identity and other details. The website asks whether the avoidance technique is being actively promoted or used and, if so, the countries or regions where it is being used. Finally, the website allows the user to upload documents or provide links to “publicly available” materials in which the technique is described or promoted.  Not quite sure why the OECD wants only “publicly available” materials. To that extent, the OECD is far more scrupulous than certain tax authorities who have made a habit of buying stolen—most definitely not “publicly available”—data.

According to the OECD, it will analyse the data it collects to determine whether the source of the loophole is local implementation misstep or some fault in the CRS standard itself. In the former case, the errant jurisdictions will be told how to repair the defect as part of the standard CRS review process. In the latter case, the OECD may publish an FAQ to resolve a question of interpretation.  Or, if the flaw is one of fundamental CRS design, the OECD may issue revisions to the CRS Standard or Commentary.

While CRS itself is a significant advance in the efforts to confront tax evasion, the “loopholes” in it are legion. As many of you know, I’ve written a detailed article on one of the best-known loopholes, i.e., moving assets and structures to the U.S. (The article is called “Hiding in plain sight: how non-US persons can legally avoid reporting under both FATCA and GATCA” and is available here). As the article makes clear, only fully compliant persons should even attempt to use these avoidance techniques. Or any others (and there are quite a few!). But, as the article also makes clear, avoiding CRS is not easy especially given most countries’ CRS anti-avoidance legislation. We’ll take a closer look at such legislation in an upcoming blog.

In sum, the CRS disclosure facility is a great leap forward (and not, one hopes, in the Maoist sense) in combatting tax evasion. But of course it will also be used to find out how fully compliant people are avoiding CRS. I for one will not be posting any information on the OECD’s website. However, if any of you wishes to post my “Hiding in plain sight” article and the techniques it discusses on the website, have at it. Not much the OECD can do to close the U.S. “loophole”, at least not until the OECD has the intestinal fortitude—not to mention suicidal wish—to give a red card to the U.S., which just happens to be the OECD’s largest funder.

As a closing point, by seeking expert input and even allowing for anonymous whistle-blowing, the OECD is smartly taking advantage of a typically underused resource: Practitioners with a strong understanding of the rules. I wonder, though, just how much information the OECD is going to collect. Whatever happens, as long as overly burdensome regulatory regime like CRS exist, there will be those who seek to avoid them. Some for illegitimate reasons, yes. But some also for perfectly legitimate ones. More power to the latter. Let’s hope they can stay one-step ahead of big brother despite the OECD’s new CRS Disclosure Facility.