Tax in Developing Countries: Increasing Resources for Development

Written evidence submitted by HM Treasury

RESPONSE TO Q211 – I nformation on the OECD Task Force

As part of the OECD Global Forum on Development held 27-28 January 2010, the creation of the Task Force on Tax and Development was announced at a joint meeting between the Committee on Fiscal Affairs (OECD CFA) and Committee on Development Assistance (OECD DAC).

UK attendance at meetings in this area followed the normal pattern where political engagement by Ministers (to register an issue of the international agenda) gives way to engagement by officials (to work through the development of the new process and then to carry forward the detailed technical work ).

The Right Honourable Stephen Timms MP from the previous Government attended this meeting as Financial Secretary to Her Majesty’s Treasury, to register this issue on the international agenda.

The first meeting of the actual Task Force took place on 11 May 2010 in Paris. Officials from the Department of International Development (DFID) and the Treasury attended the fir st one rather than a Minister.

The task force is essentially a technical discussion forum and not intended for mi nisterial level representation. Delegates from donor countries are usually officials from development, foreign, or finance ministries.

The UK position for taskforce meetings is prepared in close consultation between DFID, HMT and HMRC.

There have been two further taskforce meetings held 11-12 April 2011 in Paris, and most recently 9-10 May 2012 in Cape Town. An official from DFID has attended all three taskforce meetings.

The Task Force is co-chaired by South Africa and the Netherlands, and includes members from OECD and developing countries, international and regional organisations, NGOs and business.

The role of the Task Force is to support the Committees in delivering a programme to strengthen tax systems in developing countries. It identified four areas of work as key for developing countries efforts to mobilise domestic resources:

State building, accountability and effective capacity development;

More effective transfer pricing regimes in developing countries;

Increased transparency in the reporting of financial data by MNEs; and

Countering international tax evasion/avoidance and improving transparency and exchange of information (supporting the Global Forum on Transparency and Exchange of information).

The Taskforce has also held further sub-group meetings which took place during the following dates:

Transfer Pricing

15 December 2010

19 September 2011

Transparency in Financial Reporting

9 December 2010

29 March 2012

State building, Taxation and Aid

4 November 2011

7 -8 February 2012

The DFID official attended both sub group meetings on Transparency in Financial Reporting.

We see the Taskforce as a valuable forum not only for the strength of the discussion but for the practical steps that it has taken to respond to the issues and needs identified by developing countries themselves, for example the recent technical assistance on transfer pricing to Kenya, Ghana, Vietnam, Rwanda and Colombia.

RESPONSE TO Q212 – Meaning of ‘Plausible Grounds’ with respect to the UK-Switzerland Agreement

A powerful new provision in the UK-Switzerland agreement will allow HMRC to find out whether UK taxpayers have bank accounts in Switzerland. This provision is a substantial improvement on HMRC’s current ability to identify Swiss accounts.

Under this new provision, the UK will ask the Swiss authorities to determine whether a named individual has an account with a Swiss financial institution. The agreement specifies that the UK must have "plausible grounds" for making such a request. It goes on to define "plausible grounds" in Article 33 paragraph 3:

"Plausible grounds for the request exist where the competent authority of the United Kingdom has identified on a case-by-case basis a tax risk in relation to the United Kingdom taxpayer and sees plausible, non-arbitrary grounds for checking the tax position of a United Kingdom taxpayer. These grounds shall be based on an analysis of a range of information such as previous tax returns, level of income, third party information and knowledge of the persons who were involved in completing a tax return. So called "fishing expeditions" are excluded."

In practice, this means that UK must confirm that a tax risk in relation to the individual in question has been identified through HMRC’s risk assessment procedures. It is not necessary for a link to Switzerland to be proved; nor must the "plausible grounds" be disclosed to the Swiss.

RESPONSE TO Q226 – Suspicious banking reports

In response to the Committee question about how many suspicious banking reports are received per year in respect of a) UK citizens and b) foreign nationals, I can confirm the Treasury does not keep this information.

All Suspicious Activity Reports (SARs) go directly to the Serious Organised Crime Agency (SOCA). However, it may be helpful to cite SOCA’s 2011 annual report which states it received a total of 247,601 SARs in the last year (Oct 2010-Sept 2011) with approximately 78% coming from the banking sector.

23 May 2012

Prepared 14th June 2012