Today, tax is often front page news, and the conversation about who should pay what has become a public and political conversation. It is not surprising therefore to see tax rise on the agenda this year at WEF.
At the heart of any conversation around Responsible Tax are two critical topics: avoidance and evasion. The movement towards transparency in tax is a partial solution to both, but we should consider both in their own right. When we look at evasion, transparency is about identifying assets and income within the financial system. The last few years have brought a great deal of progress in ending banking secrecy with the adoption of the Common Reporting Standard (CRS) and a few other key factors. Previously, financial Institutions built their businesses on traditional models based on confidentiality whereas there is now a refreshed focus on customer service, especially around disclosure reporting and compliance. Technology is a key enabler in achieving transparency, not just in relation to offshore accounts but also routine evasion that occurs in the regular economy. This is where some of the developing countries will leapfrog the old economy by moving towards these technology solutions. On the flipside, the use of technology for the purposes of evasion needs to be continually assessed as we now see evaders move towards crypto-currencies where the use of regular funding methods is becoming more heavily scrutinised.
The other side of the debate is Tax avoidance. Tax avoidance deals more specifically with activities that are legal but not wanted and where the application of laws were not the intention of the legislation. This is where transparency serves a different purpose. It can allow tax authorities easier access to the information they need to assess business activity and individual’s personal wealth, enabling governments to adjust laws when they are not obtaining the intended results.
This raises two key considerations. Firstly, the mere exchanging of data cannot be the sole answer. Risk assessment tools such as Country by Country reporting have been put in place for tax authorities to obtain and exchange information with each other but they do not provide a complete solution. Secondly, should this information be made public? The evidence we have so far leads me to conclude that the answer to this is no. Where this information has been made public, it has occasionally been misunderstood. The underlying tax position can be extremely complex, and is not fully understandable when reported in simple black and white terms. However, stakeholders have a legitimate expectation to understand the tax position of appropriate businesses. It is therefore incumbent on businesses to disclose information in a format that all stakeholders can understand.