Is Tax ‘Secrecy’ and Tax ‘Confidentiality’ the Same?

If you answered ‘no’ then you are in agreement with Luxembourg – Europe’s most successful tax haven, who this week blocked EU efforts to ‘plug’ loopholes in the 2003 Savings Tax Directive.

The Tax Directive – a key instrument in Europe’s fight against tax evasion – regulates the automatic exchange of information on the savings income of EU citizens.

Luxembourg’s Finance Minister has insisted that though his country is committed to fixing tax evasion it was too simplistic to frame the debate about tax co-operation around arguments ‘for’ or ‘against’ bank secrecy.

Why should we care?

The distinction between ‘secrecy’ and ‘confidentiality’ is an important one because although the OECD Global Forum continues to press for the proliferation of bilateral tax information exchange agreements (TIEAs), speaking in Miami last month the former OECD Head of Tax Policy continued to press for the adoption of the OECD Multilateral Agreement on Exchange of Information on Tax Matters as the preferred instrument to facilitate the exchange of tax information. He argued that countries should be moving in that direction in order to achieve the highest level of compliance with international best practice and recognising the inherent limitation of TIEAs.

After five years of intense TIEA activity of these G20 endorsed instruments it would seem that the no so hidden agenda is to multilateralize ‘automatic’ information exchange using an OECD model that until now has received little uptake from its own membership.

In fact as I alluded to in yesterday’s post (The 2012 G20 ‘Tax Haven’ Blacklist Nominees are…) it will be interesting to see if a country like Costa Rica which has signed onto the Multilateral Agreement but has failed its Phase I Assessment will be afforded the same treatment meted out by Sarkozy at the end of the 2011 G20 Paris Summit to those also failing to their Phase I Assessments last year.

The Key Point Is…

The agreed global standard towards which over 107 countries are steadfastly working is not ‘automatic’ exchange of information it is exchange of information ‘on request’. This standard does not require EU or non-EU states sign up to the OECD Multilateral Agreement. Countries should therefore not feel pressured into signing on to the agreement for fear that that a refusal to do so will lead to an accusation of non-compliance or worse yet, complicity in tax evasion.

That the EU – whose membership is also reflected in the OECD – has faltered in their march towards ‘automaticity’ in the exchange of taxpayer information makes the point that ‘secrecy’ is not the same as ‘confidentiality’.

Therefore, as argued by Luxembourg, mechanisms which blur the line between these two concepts should not be blindly adopted but the subject of wide and inclusive debate.


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