A Level Playing Field for Tax Information Exchange? by Richard J. Hay
The prospect of global collection and convergence of personal financial information has profound implications for individual privacy. Allied to other plans for the comprehensive surveillance of individuals now underway in the post 9/11 world, the plans for financial information exchange are having a seminal impact on broader society.
Emerging plans for tax information exchange have been thrown into disarray by extraordinary developments in the recent negotiations over the EU Savings Tax Directive. Despite a commitment in principle to information exchange as the ultimate objective of EU plans for policing tax compliance, Swiss insistence on preserving banking secrecy has led to a temporary (and possibly permanent) exemption from information exchange obligations being granted to Switzerland, Luxembourg, Austria and Belgium by EU member states.
All states concerned (i.e. those granting and those given an exemption from information exchange) are members of the Organisation for Economic Co-operation and Development, yet the OECD has threatened draconian sanctions for non-member jurisdictions which are not committed to information exchange in its own parallel program. OECD assurances that it would ensure adherence to similar standards by its own member states1 are now in doubt, and the threatened sanctions for non-member jurisdictions are now inconceivable. The OECD?s program for tax information exchange is in jeopardy.
Having found that a number of OECD member states have evident reservations about tax information exchange there is an understandable temptation for the smaller offshore jurisdictions to resile from similar commitments to tax information exchange made to meet the OECD?s February 2002 deadline. However, the OECD?s project for information exchange is too important to fail. Greater information exchange is inevitable in an interdependent world. Small jurisdictions which are insensitive to the need to assist the larger countries (on which their ability to do business depends) risk further confrontations ahead.
Despite concerns over process the OECD deserves credit for its pioneering policy work on the need for greater co-operation in a global world. The EU has also contributed to policy design, but its proposal for automatic provision of data is intrusive and indiscriminate. The OECD?s approach ? information exchange on request ? has the potential to strike a more appropriate balance between the needs of law enforcement and an individual?s right to reasonable privacy.
The initial OECD engagement with non-member jurisdictions was clumsy and aggressive. The dialogue between OECD and the offshore centres had become increasingly constructive until the recent EU developments. The EU developments mean that threats will not secure the further co-operation that OECD needs at this stage. A reformed process for change which gives the offshore centres a positive stake in the outcome is now essential to make further progress on information exchange.