Global Forum has a strict peer review in its tax transparency mechanism across the world.
Yet it has few challenges to overcome.
What is Global Forum?
The Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) was constituted in 2009.
Currently, Global Forum has 146 member countries.
The aim of the Global Forum was to ensure that all countries fully implement the international standards on tax transparency and exchange of information (EOI).
Every country is peer reviewed on these standards, after review rating is awarded which may be ‘Compliant’, ‘Largely Compliant’, ‘Partly Compliant’ or ‘Non-Compliant’.
Global Forum has assigned ratings to 116 countries, the whole process has been very efficacious.
India is a member of all three main working bodies of the Global Forum Steering Group, Peer Review Group (PRG) and AEOI Group. In fact, India is vice-chair of PRG and AEOI Group.
What are the concerns in claiming tax evasions?
Powers of tax authorities are confined to their national borders, and no universally accepted institutional mechanism is available to deal with this problem
There were very few legal tax treaties with Tax havens (TH) through which tax information could be obtained.
There were strict bank secrecy laws in TH, as providing any information about assets of foreign citizens would lead to reduction in their revenues and GDP.
How peer review process is tackling these concerns?
The peer review process has led to elimination of bank secrecy in a large number of countries.
At the start of the review process in 2016, there were 65 countries which had bank secrecy laws and so could not exchange banking information.
This number has been reduced to a meagre five countries at the end of 2016.
It works in this way, suppose country X has domestic bank secrecy laws which prohibit the sharing of banking information with other countries.
As this is against the international standards, an adverse rating will be awarded to country X during peer review and country X will then be persuaded to amend its legal systems.
Hence, all global forum members are persuaded to increase their bilateral EOI relationships with all relevant countries.
The adverse rating also has a reputational effect, International organisations such as World Bank and IMF do not grant assistance to a country if the rating is adverse.
What are the challenges before global forum?
The Global Forum has been substantially successful in curbing the menace of tax evasion, however some challenges remain.
It does not have the power to take direct action against any country, which is not following the tax transparency standard, it can only award an adverse rating
Tax evaders are inventing new techniques of evasion, due to its multilateral nature it is difficult for the Global Forum to target such evasions.
Global Forum operates on the principle of “consensus” implying that all countries should agree, which sometimes leads to less than optimal decision-making while deciding complex tax issues.
There are still countries which are outside the purview of Global Forum and are being used by tax evaders.
There has been tremendous increase in work which has put stress on the limited resources of Global Forum.
