The main mechanism for reviewing the operation of tax information exchange agreements and improving tax cooperation agreed by the OECD and its Global Forum is the peer review process. It was decided in 2009 by the G20 and OECD that peer reviews will be carried out to check a country’s implementation of the OECD tax standard. The Global Forum reviews have been underway since 2010 and as of January 2012, 59 peer reviews have been published.
It is clearly important for both policy makers and members of the public that the effectiveness of tax information exchange agreements and the Global Forum’s peer review process can be properly evaluated.
This is the context in which this paper has been prepared. The questions the paper will address in particular are: what value do peer reviews add for developing countries? What other value might they add? Where and why do the peer reviews fail? What risks do they carry and for whom?
Broadly, the paper argues that the peer review process adds limited value in terms of increasing transparency, while no value added is discernible for developing countries. Rather the review process imposes costs. On the other hand, there is a significant risk that the international momentum to improve tax and financial transparency will be captured and neutralized by the peer review process, without addressing the core problem of massive illicit financial flows from southern to northern countries.
While influential international organisations such as the World Bank and the International Monetary Fund remain largely passive on this matter, the OECD through the Global Forum peer review process appears to have created a mechanism that serves more as a fig-leaf than a genuine systemic solution. It is the intention of this paper to explain and describe why the Global Forum’s standards and peer review process are not effective solutions to the related problems of illicit financial flows, tax evasion and avoidance.
We argue that initiatives such as FATCA and automatic information exchange are likely to be far more effective in curtailing illicit financial flows, so it is a matter of grave concern that the OECD/Global Forum continue to promote their far weaker standard to other countries while their own members pursue more effective alternatives. It is hard to avoid concluding that the Global Forum peer reviews are an exercise in creeping futility.
- Global Forum peer reviews have had limited success in terms of pressure on a few notorious pariahs in tax transparency.
- The current standard of transparency and its peer reviews promoted by the Global Forum is not fit to solve the fundamental international tax issues concerning developing countries and developed countries: it will not curtail illicit financial flows and widespread tax evasion, and the macroeconomic distortions arising from these flows will continue to undermine economic stability.
- Currently available evidence does not support the notion that tax information exchange agreements would be an effective tool to deter tax evasion and illicit financial flows.
- Automatic information exchange is likely to be far more effective in curtailing illicit financial flows.
- The problem of international tax evasion is systemic in nature, and stronger solutions, such as automatic information exchange, are required in order to effectively curtail illicit financial flows.
- Comprehensive statistics should be provided about the volumes or types of information being exchanged. this is crucial to enable an assessment of Whether or not the whole exercise is effective.