The Hindu Business Line : The number of tax havens has tripled over the last three decades Detaxification

Offshore tax evasion is a complex problem, which requires response at a number of levels…We do not know just how big the problem is, in part because of the secrecy that surrounds many of the jurisdictions involved in it.

Mr Jacques Sasseville, Head, Tax Treaty Unit, OECD

Offshore tax evasion increases the burden on honest taxpayers and undermines the fairness and the integrity of tax systems, says Mr Jacques Sasseville who heads the Tax Treaty Unit, Centre for Tax Policy and Administration, at the OECD (Organisation for Economic Co-operation and Development). Such evasion constrains the freedom of governments to design tax systems that reflect their own values, he rues.

“It was in this context that OECD member-countries launched two initiatives,” he recounts, in the course of a recent e-mail interaction with Business Line. The first was an initiative on tax havens launched in 1996; and the second was the work that led in 2000 to a new international standard on access to bank information for tax authorities.

As a result of these initiatives, a large number of jurisdictions are now working with OECD member-countries to improve transparency and exchange of information for tax purposes on a global basis, says Mr Sasseville, with justifiable satisfaction. Access to bank information for tax purposes has been improved in a number of countries, he adds.

Mr Sasseville, whose work is related to the OECD Model Tax Convention, is co-chairman of an international tax conference being organised by the International Fiscal Association Indian Branch along with the OECD, later this month in Mumbai.

On July 13, 2006, India officially became observer to the OECD Committee on Fiscal Affairs. “Marking this new step in India’s increased participation in international tax affairs will be the forthcoming conference,” says Mr Sasseville. He sees the development as mutually beneficial to both India and the OECD.

Excerpts from the interview:

What are the taxation issues that the OECD is currently discussing with the Indian Government? Also, a historical background of the discussions.

The tax dialogue between the OECD and India is primarily focused on international tax issues. There are also some discussions on improving tax administration. Whilst before 2002, OECD officials met a few times with Indian tax officials and India participated in some OECD tax meetings, co-operation really picked up in 2002, when the OECD began assisting India in training high-level Indian tax officials at their training academy

To what extent do you think the Indian taxation regime is aligned with that of the developed world? Where are the yawning gaps, and what come in the way of a quick resolution of the same?

The introduction of a value-added tax has of course brought India’s tax system closer to that of most developed countries (the US being the only example of a developed country that does not have such a tax).

It is difficult, however, to refer to such a thing as the tax regime for developed countries. There are substantial variations between the tax systems of OECD countries, both as regards the reliance on different types of taxes, the definition of the tax base and tax rates. India is of course special because of size, diversity and complexity — which present major challenges for its tax administration, both with respect to technology and personnel.

Are there clear benefits for India from a closer co-operation with the OECD? In this respect, what has been the experience of other countries with regard to the OECD?

Many countries such as China, Russia and South Africa have found a real benefit from understanding the solutions which others countries have developed to particular problems in respect of tax policy and administration in areas such as transfer pricing, for example.

It is never easy, and is often a waste of time, to try to reinvent the wheel. To know how others have addressed a particular tax issue is the key to develop a better solution or a least one that has been tried and tested before.

Isn’t tax compliance a function of the extent of social security?

That is an interesting issue. I do not think that a taxpayer should determine his level of tax compliance based on the social security benefits that he expects to receive from the state.

A tax system is essentially intended to finance all the state expenditures and social security is only one category of expenditure; the development of infrastructure is another important source of expenditure.

Having said that, it is clear that if taxpayers do not feel confident that the taxes that they pay are used efficiently, compliance will suffer.

Can you list the top tax issues that concern multinational corporations operating in India? Is transfer pricing a niggling area where close co-operation can make a big difference?

Transfer pricing is the key area. Unfortunately, this is an area where complexity is inevitable, as the ultimate goal of transfer pricing rules is to determine the appropriate allocation of income between jurisdictions on a case-by-case basis.

The condition for the existence of permanent establishments is another area often mentioned by multinational enterprises. The resolution of disputes with the tax administration may also be an issue, primarily because of long delays in litigating cases.

Does India have to make changes in its laws and procedures to make the tax regime more effective? Can IT (information technology) too play a major role in this effort?

India has already made a number of important adjustments to its tax system, such as a greater focus on transfer pricing. This process will continue.

Looking at the example of OECD tax administrations, it is clear that IT will inevitably play a greater role in improving the efficiency of the tax administration and, in particular, in the delivery of services to taxpayers. India’s leadership in the services industry suggests that taxpayers will increasingly ask for, and use, IT to interact with the tax administration.

Talking about IT, can India play a major role in the taxation work for the developed countries, as in the case of IT services for businesses?

I believe that currently some tax work is already outsourced to India by some accounting firms.

The difficulty, of course, is that tax systems are very different and tax expertise concerning a particular country is therefore primarily concentrated among tax advisers residing in that country. Having said that, it is clear that some tax services, particularly in relation to IT, can be outsourced.

Your views on tax havens and the concerns they pose for the tax authorities.

Offshore tax evasion is a complex problem, which requires response at a number of levels: at the level of the tax administration, at the level of legislation, and also at the international level.

We do not know just how big the problem is, in part because of the secrecy that surrounds many of the jurisdictions that are used in it. Our discussions at the OECD have, however, shown that this is a big problem, and we believe it is growing.

The number of tax havens has tripled over the last three decades. Although much of the activity in these jurisdictions is legitimate, the experience of tax administrations around the world is that they also attract a lot of money on which tax is being evaded.

For example, Ireland has recently collected almost 840 million euros from Irish residents hiding undeclared income in offshore accounts. South Africa estimates that it is losing something like 64 billion rands to tax havens.

Bio: Mr Sasseville holds university degrees in law and accounting sciences (including master degrees in both law and taxation). He has worked at the OECD since 1995 and also from 1990 to 1993, when he was Principal Administrator and subsequently Deputy Head of the Fiscal Affairs Division. He has also worked with the Federal Government of Canada as Counsel in the Tax Counsel Division (Department of Justice) and as Chief, Tax Treaties (Department of Finance).

Previous work experience of Mr Sasseville include five years as Professor in the Department of Accounting Sciences of the University of Quebec at Montreal, researcher and lecturer at the Law faculty of the University of Montreal and work as a tax lawyer. He has written and lectured on Canadian and international tax issues and is a member of the Permanent Scientific Committee of the International Fiscal Association and regular lecturer at the University of Leiden (Netherlands) and at the Vienna Technical and Economic Institute (Austria).

D. MURALI

http://Detaxification.blogspot.com

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