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G20 negotiations boost Asia's tax transparency

A week of discussions between finance ministers in Bali resulted in a tax transparency deal on Sunday, July 17, despite the fact that the war in Ukraine impedes broader multilateralism.

Several nations, including India, signed the Bali Declaration at the weekend G20 summit, but the amount of support falls short of Indonesia's ambitions for a broader consensus.

Sri Mulyani Indrawati, Minister of Finance of Indonesia, has been presiding over tax-related meetings. She advocated for improvements to the framework for automatic exchange of information (AEOI), global minimum corporation taxes, and carbon pricing policies.

The Bali Declaration obligates Asian nations to increase cooperation and information sharing. This involves implementing the Global Forum on Transparency and Exchange of Information's tax criteria in their entirety.

Zayda Manatta, chair of the Global Forum's France-based secretariat, wants countries to address deficiencies in the AEOI framework before the end of 2022, when compliance ratings on the framework's effectiveness will be issued.

"The increase in information accessible to tax authorities to ensure tax compliance under the AEOI is particularly significant at a time when national budgets have been stretched to deal to the COVID-19 epidemic and there is a broad search for methods to mobilise domestic income," Manatta notes.

On Thursday, July 14, ministers from Hong Kong, India, Singapore, and other Asian nations that are members of the Global Forum signed the Bali Declaration.

According to Indrawati, a tax transparency project for Asia offers a chance to strengthen regional cooperation and combat tax evasion and other illegal financial flows.

She said, "Indonesia welcomes this endeavour to develop bridges between tax administrations and erect barriers to tax evasion for the benefit of Asian nations."

The Bali Declaration is the most recent tax transparency project in Asia since the landmark deal under the Asia Initiative that established an extensive network for the sharing of tax information among the majority of Asian nations.

The Asia Strategy

The Asia Initiative, which was launched in November 2021 and contains the Bali Declaration, is a regional pledge to enhance financial transparency. It is backed by international organisations, such as the Global Forum, the Asian Development Bank, the Asia Pacific Tax Hub, and other partners.

The Asia Initiative is gaining fresh impetus as a result of Indonesia's current G20 leadership and India's future chairmanship in 2023. Earlier regional partnerships under the Africa and Latin America Initiatives revealed a robust local tax transparency initiative.

In 2021, the AEOI framework collected about €40 million ($40,6 million) in three African nations. Likewise, Latin American nations reported an increase in income of €261 million due to information exchange.

Chang Yew Kwan, the head of tax at Bank of Singapore, asserts that the information sharing network might provide authorities with a measure of success that can provide tangible outcomes.

"As the global application of the AEOI standard matures, the end of bank secrecy for tax purposes is an ever-increasing reality," Kwan explains.

According to Global Forum publications, more than 41,000 tax judgements have been communicated across governments, with peer evaluations on decisions involving 131 nations.

In 2021, information on at least 111 million bank accounts worldwide with almost €11 trillion in assets was automatically transferred.

Prior to the Asia Initiative, regional progress on transparency measures was limited, therefore the Bali Declaration represents a victory for the Indonesian G20 leadership. Only 22 of Asia's 48 nations joined the Global Forum and agreed to its transparency criteria and information exchange regulations. Only 16 Asian nations have implemented the AEOI framework.

Outstanding problems

G20 finance ministers noted some of the flaws in the AEOI framework that result in the omission of crucial tax information if the reports do not target traditional financial entities. At the G20 summit on Friday, July 15, India's finance minister, Nirmala Sitharaman, highlighted the transparency issues posed by cryptocurrencies and digital tokens.

She stated, "Investigations have revealed that tax evaders frequently create many layers of corporations to disguise their undeclared assets in India."

While the AEOI for financial accounts has improved openness in Asia, some taxpayers are evading disclosures by storing assets in non-financial structures, such as some digital tokens.

The OECD and European Commission are proposing reporting guidelines for crypto assets, but the Indian government desires its own solution. Sitharaman urged the intergovernmental organisation members present in Bali to seek a solution to the AEOI framework for non-financial institutions as well.

This is an important topic that falls outside the scope of existing AEOI-related disclosures.

While more than one hundred nations have agreed to share financial account information under the framework, some have not even begun to do so.

Sitharaman stated, "They will have to be brought in, as this is a G20 agenda priority."

"I would expect the G20 to play a catalytic role in persuading these nations to join the AEOI, and this mechanism might bolster global efforts against offshore tax evasion and avoidance," Sitharaman added.

Despite widespread agreement on the need of openness, the G20 has unable to reach a consensus on global initiatives to strengthen reporting compliance.

Disjointed multilateralism

Due to political concerns between several G20 nations over the ongoing conflict in Ukraine and its influence on global food and energy supply, there is no common statement following the meetings.

At lieu of a formal joint statement, Indrawati will draught a fourteen-paragraph description of Indonesia's participation in the G20 sessions. Governor of Bank Indonesia Perry Warjiyo stated that the forthcoming announcement will include two paragraphs describing where discussions stalled and parties failed to reach an agreement.

On Saturday, the finance ministers also addressed sustainable finance, cryptocurrencies, and international taxes, although several topics could not be resolved due to the ongoing conflict in Ukraine.

Regarding the progress achieved toward enhancing tax transparency and establishing a worldwide minimum corporate tax rate by 2024, Indrawati stated, "I continue to believe that this is the greatest outcome."

A study of the success of the AEOI is continuing and will be completed in time for the next gathering of G20 leaders in October 2022. The evaluation of the legal framework was concluded in 2020, but a number of countries have since amended their laws in response to OECD suggestions.

Kwan asserts, "The G20 is significantly more beneficial than it has demonstrated in Bali so far, as favourable outcomes have been very few even after several days of deliberation."

The Indonesian G20 presidency and the OECD are drafting a road map for developing nations to improve their tax systems. The October summit of the G20 might have a major impact on global information exchanges and minimal corporation tax rates.



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