Tax Neutrality and the Need for Openness and Collaboration

March 25, 2022

Tax Neutrality and the Need for Openness and Collaboration

When one thinks about international taxation, openness and collaboration are probably not the first words that come to mind. That’s in large part thanks to the legacy of tax havens, which have all too often resorted to obfuscation and secrecy to obscure questionable legal practices.

But the world we live in today is much different than the one that gave rise to tax havens. Today, succeeding in international financial services requires collaboration, transparency, and adherence to high legal standards.

This calls for jurisdictions to have open dialogs with international regulators, law enforcement agencies, and tax administrators to ensure jurisdictions are following global standards and agreements. More so, it means closely collaborating with these individuals and organizations and actively sharing information in an ongoing effort to uphold standards and enable more effective tax collection.

Tax Neutral jurisdictions do precisely this. They routinely work with regulators and tax authorities from around the world to share information and make certain taxation remains fair and adheres to high legal standards.

Here are three notable examples of how Tax Neutrality and open collaboration go together to fight tax evasion and aggressive tax avoidance.

Open Information Exchange Among Tax Neutral Jurisdictions and Other Countries

Tax Neutral jurisdictions that have signed onto the United States’ Foreign Account Tax Compliance Act (FATCA) and the international Common Reporting Standard (CRS) automatically share tax information with the tax authorities of other governments. For FATCA, that means sharing information with the U.S. Internal Revenue Service; for CRS, it requires sharing information with agencies in 97 countries.

For example, if someone is an investor in a collective investment vehicle or multinational enterprise domiciled in a Tax Neutral jurisdiction that adheres to these standards, their home tax authority will receive information from the jurisdiction’s government about their reportable tax activity. The authority can then use that information to apply their own taxes. If investments are underreported, the home tax authority will receive information to help them flag the underreporting and identify the gap.

Thus, by openly sharing information and collaborating with local authorities, Tax Neutral jurisdictions enable more effective and accurate tax collection.

A Commitment to Fighting Corruption, Money Laundering, Terrorism Financing, and Tax Evasion

Tax Neutral jurisdictions and G20 countries are committed to meeting the high legal standards that define fair and balanced international taxation. Consider these jurisdictions and countries the “G20 Plus,” a collection of all G20 countries and leading international financial centers, all with shared interests in combatting corruption, money laundering, terrorism financing, and tax evasion.

Open collaboration and cross-border communication and cooperation with international law enforcement agencies and other organizations are all keys to their efforts. G20 Plus Tax Neutral jurisdictions and countries work to ensure that globally accepted standards for international taxation are upheld and enforced. Examples of some of the many countries and organizations these jurisdictions work with include:

  • The United Nations, The Group of International Finance Centre Supervisors (GIFCS), the European Union, and others in their respective efforts to fight corruption
  • The United States to exchange information for the purpose of enforcing laws around international taxation as part of the U.S.’s Mutual Legal Assistance Treaty (MLAT)

Collaboration with the Organization for Economic Cooperation and Development (OECD)

Tax Neutral jurisdictions also actively work with the OECD to seek ways to encourage greater transparency and open exchange of information. They stand with the OECD’s ongoing effort to eliminate double taxation and adhere to OECD best practices around financing government operations. Jurisdictions like the Cayman Islands have also implemented the OECD’s Base Erosion and Profit Shifting minimum standards.

All these efforts are critical in the fight against illegal tax practices. They are enthusiastically embraced and enacted by Tax Neutral jurisdictions, for one very good reason: because these jurisdictions understand that when it comes to doing good and fair business, the best policy really is one based on openness, and partnership.

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