The end of bank secrecy? Bridging the gap to effective automatic information exchange: An Evaluation of OECD’s Common Reporting Standard (CRS) and its alternatives

On July 21st, 2014 the OECD published Commentaries on the Common Reporting Standard (CRS) published five months earlier, fulfilling the G20’s request to develop a global standard on Automatic Information Exchange (AIE) of tax data.

Although the objective is that CRS should become the “global” AIE standard, it will not be the only AIE system in place. For instance, the European Union Savings Tax Directive (EUSTD) or the US’s Foreign Account Tax Compliance Act (FATCA). In fact the CRS was adapted from FATCA. However, unlike FATCA and the EUSTD, the CRS is, at least in spirit,—supposed to be open and multilateral, not only in its scope, but also when offering benefits to all countries.

Nevertheless, the potential of the initiative does not seem to have been fully realised by the CRS. A first problem consists in the artificial limitations that have been included regarding the use of the data to fight money laundering and corruption. The CRS explicitly restricts the use of the information received to tax purses, and explicitly prohibits sharing information with law-enforcement authorities, which prevents cost-free synergies for fighting corruption and money laundering to be fully harvested.
Furthermore, entry barriers do not look particularly low for developing countries: there are no provisions on non-reciprocity in their favour (to first only receive information). On the contrary, non-reciprocity is offered only to tax havens (jurisdictions without income tax), for whom receiving information and discarding it was apparently not enough: they ensured that no data would ever be collected about their residents. This desire to perpetuate opacity seems to be an odd wish under a new transparency framework and highlights that some jurisdictions are betting on defending their offshore finance industry by selling tax residency certificates which offer escape routes to criminals. For the same reasons, the US appears willing to postpone or even sidetrack multilateral AIE, offering only very narrow reciprocity via FATCA and thus positioning itself as a monopolistic secrecy jurisdiction.

Seemingly, the problem in much of the CRS’ design is related to institutional problems with the OECD, a group representing only developed countries (instead of a more representative one like the UN Tax Committee), designing a standard that was supposed to benefit all, especially developing countries.
Notwithstanding its moral obligations, the OECD could have realized that a more welcoming framework for developing countries was in the best interests of developed countries: since the CRS will only be effective once all jurisdictions participate, the longer it takes for the rest of the world to be part of it the higher the chances for tax dodgers and money launderers to keep avoiding transparency.

In conclusion, many loopholes remain to be fixed, entry barriers for developing countries need to be lower, and even the current CRS provisions will have to be monitored to ensure their proper enforcement (especially by secrecy jurisdictions). But all in all, a global AIE framework with the potential to benefit all countries is a major transparency breakthrough.