Common Reporting Standard: OECD

• 29 Apr 2023

For Prelims: Common Reporting Standard, OECD, AEIO, G20, Tax Evasion, BEPS.

For Mains: Need for Increasing Scope of Common Reporting Standard.

Why in News?

India is pushing to widen the scope of the Common Reporting Standard (CRS) at the G20 grouping to include Non-Financial Assets like real estate properties under the Automatic Exchange of Information (AEOI) among OECD (Organisation for Economic Cooperation and Development) countries.

• India currently has AEOI with 108 jurisdictions for receiving financial information and with 79 jurisdictions for sending information automatically.
• AEOI provides for the exchange of non-resident financial account information with the tax authorities in the account holder's country of residence. It reduces the possibility of tax evasion.

What is the Common Reporting Standard (CRS)?

• About:
  • The CRS was developed in response to the G20 request and approved by the OECD Council on 15^th July 2014.
  • It calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
  • It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
• Current Framework:
  • Presently, the OECD's Automatic Exchange of Information (AEOI) framework provides for sharing of financial account details among signatory countries with an aim to check tax evasion.
    • In August 2022, the OECD also approved the Crypto-Asset Reporting Framework (CARF) which provides for the reporting of tax information on transactions in Crypto-Assets in a standardized manner, with a view to automatically exchanging such information.

What is the Need for Broadening the Scope of AEIO?

• There is a need to broaden the scope of AEOI so that the information could be used not only to check tax evasion, but also for other non-tax law enforcing purposes.
• The risks are not only in the Financial Assets, but also there is a risk of tax evasion in Non-Financial Assets such as real Estate and properties, therefore expansion of CRS from financial to other non-financial accounts is important.
  • As per the OECD’s Tax Transparency report, amid the current geopolitical and debt crisis, there is a need to check tax evasion and illicit financial flows, especially by Asian nations which are estimated to have lost Euro 25 billion in revenue in 2016.
  • Quoting a study, the OECD report said 4 % of Asia’s financial wealth amounting to Euro 1.2 trillion was held offshore, leading to a potential annual revenue loss of Euro 25 billion for the region in 2016.

What are the Efforts to Manage Tax Evasion?

• Global:
  • Base Erosion and Profit Shifting (BEPS)
  • OECD’s Inclusive Framework’s Statement.
  • Double Taxation Avoidance Agreements (DTAAs)
• Indian:
  • The Fugitive Economic Offenders Act, 2018
  • The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
  • Prevention of Money Laundering Act, 2002.

Way Forward

• Expanding the exchange of financial and non-financial information can have significant benefits for tax collection and non-tax law enforcement efforts.
• The G20's commitment to prioritizing these initiatives can lead to increased transparency and accountability in global financial systems, which will ultimately benefit everyone.
• It is essential to continue working collaboratively across borders to improve information sharing mechanisms and ensure their effectiveness while also addressing any potential privacy concerns. By doing so, we can build a fairer and more sustainable global economy that benefits all individuals and nations.

Source: TH