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
OECD (2009), Building Transparent Tax Compliance by Banks, CTP, Paris.
OECD (2006), Study into the Role of Tax Intermediaries, CTP, Paris.