What has been the fallout of the Paradise Papers?

Ross Greenwood speaks to the Director, Centre for Tax Policy and Administration at the OECD, Pascal Saint-Amans, about corporations profit-shifting to avoid paying tax.

Introduction: What has been the fallout of the Paradise Papers?

Ross Greenwood: Welcome back to Money News right across the country. Great to have your company here on a Tuesday evening. Last night we told you on the program about the Australian Tax Office launching a criminal investigation in conjunction with the Australian Federal Police and the Australian Crime Authority in regards to revelations that have come out of the so-called Paradise Papers.

Now, this incredible leak that has now been sent to all of the International Consortium of Independent Journalists but then disseminated through media outlets throughout the world, including The Guardian, through the ABC, and some Fairfax journalists here in Australia has really, if you like, been a treasure trove from 13.4 million documents that have been released.

But the heart of this, which basically is involving people such as the Queen, advisors to Donald Trump, including the US Secretary of Commerce Wilbur Ross. You had the key fundraiser to the Canadian Prime Minister Justin Trudeau was implicated. You then you had your rock stars, you had say for example, Bono was there, there was Madonna that was mentioned in there. Then even closer to home, there were issues in regards to Michael Hutchence. You had say for example Nicole Kidman and Keith Urban, her husband, at least named in this.

Now, as the Australian Tax Office pointed out, in many cases there might have been very good reasons as to why these people had dealings with entities inside the Cayman Islands and at least say, for example, you were told your Home Tax Office said, “Basically, well, listen, this is what we’ve done, we’ve reported,” then you’re absolutely clear. The issue is however, that it seems as though there has been systemic system of not disclosing interest in these islands, say, the Cayman Islands, the British Virgin Islands, and others to tax authorities to believe that you had avail of secrecy over your affairs. That’s where many are going to run into significant trouble.

This is nothing new to Australia, this is nothing new to the world really, because people understood for many years that there was this so-called base erosion that was taking place in terms of the tax system. That people were using almost an arbitration between tax regimes to get the lowest possible tax rates for their companies and their individual circumstances.

Now, one man who was helped the world to clamp down on this is Pascal Saint-Amans. Now Pascal Saint-Amans is the director for the Centre for Tax Policy and Administration of the OECD. He was also instrumental in putting policies before the leaders of the G20 countries, especially when they came to Brisbane through Australia. It’s been ongoing work over more than a decade to try and get countries to cooperate to make certain that they clamp down on the tax cheats and get the money back into their own countries. I’m pleased to say that Pascal Saint-Amans from the OECD is on the line right now. Many thanks for your time as always Pascal.

Interview with: Pascal Saint-Amans, Center of Tax Policy and Administration at OECD, Director

Pascal Saint-Amans: My pleasure. Good evening to you.

Ross Greenwood:  Just in this regard, these papers, the Paradise Papers, how important are they to tax authorities around the world?

Pascal Saint-Amans:  Well, one, there is no big news in terms of the fact that we know about these schemes. Now, it’s good to bring them to the public so that the public is aware that things are still going on. We’ll see, we’ll investigate. As Chris Jordan said in The Australian, many of the tax commissioners over the world, we are going to look into the papers, we’re going to look whether there is information which can be exploited. We have different groups and the OECD which gather the tax commissioners of country so that they can enact the law, but beyond the tax administrations, we need to pursue our efforts to change tax policies, to improve tax corporation, to put an end to these type of practices.

Ross Greenwood:  How far down the track do you believe you were in implementing the policies from the G20 to make certain there is the genuine cooperation, to make certain that a light is shown upon individuals plus companies tax affairs, so that they are reasonably and fairly taxed in their home countries?

Pascal Saint-Amans:  We are never satisfied with where we stand, however, if we step back 10 years ago and compare the situation with today, 10 years ago bank secrecy was the rule all over the world. You could hide legally, not in your country of residence but in country where you were hiding, either Singapore, or Hong Kong, or Switzerland, or Jersey. I could list probably 50 countries. You could hide your assets, your financial assets without any problem. This is over. Now we have automatic exchange of bank information, financial information across the world. It started last September among 50 countries and in September 2018, we have another 50 countries. That’s a big change.

Second, as regards to the so-called legal arrangement, they are legal but they are contrary to the spirit of the law or what the people and their representatives in parliament want. That’s the project we called Base Erosion and Profit Shifting. Remind you this of the time, that this was approved in part in Brisbane in Australia back in 2014. We’re three years down the line and we are in the implementation stage.

Most of the schemes we see today are going to die because we’ve changed the law, but we need to monitor that. We need to go further, further as regards to transparency, further as regards to the availability of beneficial ownership information. There’s still work to do. Even though things have changed, and things are changing, thanks to the public pressure, thanks to the leaks unfortunately as well.

Ross Greenwood:  I was going to say, because you’ve been at this for a long time, you’ve seen most of the schemes come through. You’re one of those who talked about the double R schemes that had been so infamous in the tax avoidance industry. Even when you see the breadth of the information that has come out from something such as the Paradise Papers, do you get a little surprised? Do you get a little shocked by the amount of information or even some of the schemes that people have been using?

Pascal Saint-Amans:  Well, we are not really surprised by the schemes we see because we know about them, which in a sense is reassuring. It’s not good to see them but we know about them, so there is nothing surprising that we would have missed. Again, most if not all these schemes would be put to an end by the implementation of our standards. We now have more than 100 countries across the world, including all financial centres, which have committed to implementing the new standards and we are going to monitor these new standards.

Nothing really new, even though it’s frustrating to see that it’s going on. We’ll have to monitor that this comes to an end as early as possible. We can see that the offshore world is doing good and that reflects also the state of our society where inequalities have never been that high with the concentration of wealth in a few hands and concentration of tax avoidance in a few hands as well.

Ross Greenwood:  Do you believe that Google taxes that have been introduced, say in the UK or the so-called Google taxes, and even in Australia as well, do you believe that that has helped the progression of the compliance or do you believe it’s still something that’s ultimately the laws as, and if you like, the disclosure that you’re working towards that that would have ultimately created this more level playing field?

Pascal Saint-Amans:  You have different levels. You have the measures to fight Base Erosion and Profit Shifting on the one hand and those regarded the so-called Google taxes or equivalent, it’s more about how to deal with the digitalization of the economy across the world. What the Australians have done through the diverted profit tax may help in the short term but we need long-term solutions there.

The G20 gave us a mandate this year to deliver reports, and not only report but recommendations to be implemented by April 2018. That would also cope with this phenomenon of the digitalization of the economy, which means that you have companies making huge profits in countries without any footprint, without any physical presence. We need to find ways of taxing them where they are making the profits, meaning in the market. We’re working on that with the ATO, with the Treasury of Australia and many other countries.

Ross Greenwood:  It is incredible because there is potentially billions of dollars. Even the Australian Tax Office says he believes it’s collected already more than four billion dollars over the past 12 months as a result of its initiatives trying to track down these issues, plus also tax amnesties that it’s had for citizens and also for companies that may very well have been trying to hide their face previously. From that point of view, there are billions of dollars at the Australian taxpayers, the Australian government would not have otherwise had.

Pascal Saint-Amans:  Across the world, we estimate that the cost of Base Erosion Profit Shifting is about $250 billion a year. As regards to the end of bank secrecy, treasuries have already collected more than 85 billion euros of taxes from assets which have been disclosed voluntarily by taxpayers in the prospect of the move towards automatic exchange of information. Which again, has started with 50 countries last September, and will be extended to another 50 countries including old tax havens in September 2018.

We can see the monies coming in, even though, again, more work to do to eliminate the risk of offshore in particular by putting some obligations of disclosure to all the tax intermediaries as the company that we’ve seen in that case Applebee’s. If we put some more pressure on the tax intermediaries, the ATO is doing pretty well. By the way in Australia, I think we can make further progress.

Ross Greenwood:  I want to tell you, Pascal, we have followed the progression of these policies, not only in Australia but around the world though your eyes and through the work that you have done as the director for the Centre of Tax Policy and Administration at the OECD. You have sort of largely driven the agenda, driven the policy, board all of the tax commissioners from the various countries together to make certain that there is that spirit of cooperation, and also the heads of government as well. It has been a fine thing, but to actually sit there and think of $250 billion a year, already some 85 billion euros has been disclosed around the world as people are preparing for this new regime.

Pascal Saint-Amans, we really appreciate your time in the program as always and we look forward to speaking with you again in the future.

Pascal Saint-Amans:  Thank you.

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