Banking on fair tax

©Government of South Africa

The financial crisis might not have been caused by taxation, but it nonetheless raises concerns about evasion, compliance and transparency in financial markets. The OECD Observer asked South Africa's minister of finance, Pravin Gordhan, who chairs the OECD's Forum on Tax Administration, to explain.

OECD Observer: What particular challenges do banks present for tax authorities?

Pravin Gordhan: There are a few. Take for instance the complexity of some transactions undertaken by banks or the financial products developed by banks for their customers. This often makes it difficult for revenue bodies to differentiate between aggressive tax planning transactions and transactions that are merely complex but do not contain any significant tax uncertainty. Add to this the fact that banks operate on a global level, which means many of their transactions, or transactions facilitated for their clients, have tax impacts in more than one country. This makes it difficult to understand the overall context of a transaction and can also cause delay in arriving at a decision on the correct tax outcome.

The OECD's Forum on Tax Administration recently approved a study on building transparent tax compliance among banks. What are the main messages from the study?

The aim is to enable tax administrations to appreciate fully the commercial and international context of the complex financial transactions used by banks and their clients. So we encourage banks to offer a degree of transparency above the minimum required under existing tax laws. By obtaining information at an early stage, tax administrations can respond to emerging risks and ensure that their resources are targeted effectively. This minimises compliance costs for banks. Tax administrations can also work together more effectively. By sharing information internationally, they can better respond to emerging aggressive tax planning as well as reduce the time taken to provide greater certainty to banks on transactions involving multiple jurisdictions.

Why did the OECD commission the report?

Unacceptable tax minimisation arrangements are one of the major risks that all countries need to manage. The role of tax advisors and financial and other institutions in promoting these arrangements has been a particular concern of ours for a few years now. The Forum on Tax Administration committed to examining the role of tax intermediaries in relation to noncompliance and the promotion of aggressive tax planning in 2006. This latest report on the role of banks in designing and implementing aggressive tax planning is the follow-up.

The financial crisis developed as the study was being undertaken. What effect did the crisis have on the study's recommendations?

Though the report was not about the financial crisis, it was necessary to take it into consideration. Neither tax policies nor tax administrations appear to have been major influences on events or behaviours which led to it. However, clearly the crisis presents an opportunity for revenue bodies to work with other financial regulators to improve transparency and tax compliance. This is an important recommendation in the report and one that is part of strengthening the overall corporate governance framework.

©OECD Observer No 273 June 2009

 

References

OECD (2009), Building Transparent Tax Compliance by Banks, CTP, Paris.

OECD (2006), Study into the Role of Tax Intermediaries, CTP, Paris.

Visit www.oecd.org/tax

Visit www.oecd.org/finance

 



Bookmark this


Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Editor's choice

  • OECD General-Secretary Angel Gurría on Global Economy. Angel Gurría speaks in Brisbane, where the G-20 summit took place this weekend,on Bloomberg Television's "On the Move."
  • Speaking to Dukascopy TV, OECD’s Peter Jarrett says the deficit reduction plans are not to blame for the stagnation of French growth and increase of unemployment.
  • Base Erosion and Profit Shifting (BEPS)
  • Base Erosion and Profit Shifting: "Currently tax planning results in locating the profits in tax havens where nothing is happening. BEPS is rewriting the international tax rules to realign the location of the profits and the real activity."
  • Try our latest OECD Observer crossword!
  • Better Life Index
    How do you measure a Better Life? The OECD has launched a new interactive infographic where visitors can explore the priorities of people worldwide. Be a part of it. Create and share your Better Life Index.
  • Tim Harcourt Video
  • G20 and Australia: Economist Tim Harcourt speaks to the BBC about how Australia has gone from "Down Under to Down Wonder".
  • OECD Week 2014 : Resilient economies for inclusive societies. Forum 2014 was organised around three cross-cutting themes: Inclusive Growth, Jobs, and Trust. Watch the video. And check out our 2014 yearbook by clicking here.
  • better-life
  • What does a better life mean for you? Watch this video produced by students from La Sorbonne and see what people around the world have to say.
  • In the transition to cleaner and greener economies, the OECD is helping government and business with the tools to get climate finance right for greener growth plus job creation, while treating our environment as a precious resource.

Most Popular Articles

Subscribe Now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly


Online edition
Previous editions

Poll

Is deflation a major risk in OECD economies?

Yes
No
Don't know

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2014