‘Tax havens are all but over’

Pascal Saint-Amans is Director of the Centre for Tax Policy and Administration at the Organisation for Cooperation and Development (OECD) in Paris. A French national, Saint-Amans joined the OECD in September 2007 and was responsible for the organisation’s work on harmful tax practices, money-laundering and tax crimes. He also looked into the tax aspects of countering bribery of foreign officials and administrative cooperation between tax authorities.

He played a key role in the advancement of the OECD tax transparency agenda in the context of the G20. In October 2009 he was appointed head of the Global Forum Division, created to service the Global Forum on Transparency and Exchange of Information for Tax Purposes, a programme with the participation of over 100 countries.

Saint-Amans was recently in India to meet counterparts from India’s Revenue Department. Excerpts from an exclusive interview given in Paris.

What are the OECD and G20’s joint principal actions to root out tax fraud, tax havens and profit shifting – companies not paying tax in the countries where their business is conducted or individuals parking illicit gains outside?

The OECD has three principal threads of action based on the mandate received from the G20. One is fighting profit shifting, known by its acronym BEPS.

The second is improving transparency through better information exchange on request and the third is promoting domestic resource mobilisation by which we mean helping developing countries better assess their taxes and increase their revenue for development.

You are very familiar with the fact that the tax base in India is extremely narrow…

I am very familiar with the fact that in India the number of taxpayers is low. What matters from the OECD perspective, as we are dealing primarily with corporate income tax, is the tax base of companies, both national and multinational, in India. Is it properly apprehended?

You need to combine that with how to attract investments in India. On the one hand India is willing to be very tough in terms of taxing income at source and has a very opinionated position on that subject which is fair enough as a capital importing country.

But on the other hand, the criticism levelled against India is that the tax administration does not always play by the rules, that there is a lot of litigation which is not easy to deal with, and often cases are lost in court by the tax revenue authorities.

There is a high level of uncertainty for investors and that is the main challenge for India. By not providing a safe, sound environment to business, you threaten their ability to invest in India. China does not raise as many problems or disputes or concern from the business community.

Is India then seen as a problematic investment environment from the tax point of view?

Yes. India is perceived by the business community as being a problem. A lack of certainty, rules that are changing constantly, implementation of rules that is not in accordance with the rules. From my perspective I fully acknowledge that in terms of tax policy, India has to determine its own policies as far as tax revenue is concerned. But it’s a question of India clearly enunciating its rules. And that is why I am engaging so closely with my Indian colleagues.

You have been instrumental in drafting the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Could you describe the main points of that convention which India has already signed?

The first major feature of the convention is that it is multilateral — you don’t select with whom you enter into an information exchange relationship. You do it with all the other partners. It’s no more a bilateral bargaining issue. Secondly, it’s a very broad convention because it covers more taxes than are covered by bilateral treaties. It also covers over 100 countries and it includes spontaneous exchange — that is, if one country finds information about activity in a certain country that might be of interest to a third country, it spontaneously provides it ( suo moto reporting).

The convention also provides the possibility of joint audit — so two or more countries could decide to come together to audit a multinational company. It also provides for assistance in collection and assistance in providing information to help assess tax. So if a person has not paid tax in one country but has assets in another signatory country, the partner country can be asked to freeze those assets to help tax collection.

When Switzerland signed this convention it was hailed as a landmark, because the Swiss, like Liechtenstein, Monaco, the Bahamas, Jersey, Guernsey, Luxembourg or other tax havens, ferociously protects banking secrecy.

That is precisely why it took them so very long to sign. But now they see they have no choice but to join the convention and the same holds true for the others. I wouldn’t say the Swiss were exactly enthusiastic about joining but they have done it. Liechtenstein might join soon. The UK is extending the convention to all its dependencies such as the Cayman Islands, Jersey, Guernsey, the Isle of Mann, St Kitts and Nevis, Bermuda. So by the end of the year we should see a dramatic change in the landscape. We will look at who is reluctant to sign after the Global Forum on Transparency meeting in Jakarta (this month).

Does that means tax havens, as we have known them, are narrowing?

It’s more than narrowing. It’s over. What I mean is that five years ago, banking secrecy was the rule in large financial centres in the world; Switzerland, Singapore, Luxembourg — all these territories were secret. It was the rule and considered legitimate. “If you have people hiding their money in my territory, it’s your problem, not mine and I don’t cooperate.” That was the attitude. In 2009 because of the support of the G20 we had a breakthrough and all the countries recognised that it is legitimate to exchange information and not legitimate to offer a place to hide assets. They all committed to change.

Another major landmark was the creation of the Global Forum on Transparency and Information Exchange, which put everyone on an equal footing.

We will check how far signatories cooperate in practice and that’s the peer review mechanism. And at the meeting in Jakarta we will deliver an overall rating about who is good and who is not. The Global Forum is producing concrete changes. There is a virtuous circle that has been put in place and there is a carrot and stick method. So Switzerland signing sends a very powerful message.

What were the factors that brought about this change?

Don’t take Switzerland in isolation. Why are all the others moving? Because of the financial crisis, because you have political and social tension, because these events have changed people’s mindsets.

What was legitimate 10 years ago is no longer so. You cannot bail out the financial industry — putting taxpayers’ money into an industry that then helps in concealing illegal gains. The tolerance for tax fraud has come to zero now.

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