When is an international standard not a standard?

george_hodgson2International standards can be difficult to implement, requiring change and compromise. Once implemented, however, they ought to make life much easier for everyone. Indeed ideally they should become so universal that we barely notice them. A good example is Bluetooth, the international standard for how electronic devices talk to each other, which is now so universal that few of us probably realise that it is how our mobile phone connects to the hands-free system in the car.

The OECD’s international standard for automatic tax information exchange, the Common Reporting Standard, is an example of a standard still in the tricky implementation stage. So far, most of the focus has been on ensuring that jurisdictions will meet the Standard’s requirements for providing tax information. But if the Common Reporting Standard is to function effectively as an international standard, it is equally important to ensure that the Common Reporting Standard is universally accepted by countries when they receive tax information.

That is not currently happening.

A short while ago the EU published a ‘blacklist’ of 30 jurisdictions judged to be failing to meet standards of ‘good governance’ in tax matters. The EU list was in turn based on blacklists compiled by a group of 15 EU Member States. As soon as it was published the EU list was widely condemned as out-of-date and inaccurate, but the fundamental point was that many of the blacklisted jurisdictions were compliant with current international tax agreements and had committed to implementing the new Common Reporting Standard. Given their compliance, it seemed entirely fair to ask ‘why were they being blacklisted?’

The EU defence seemed to be that this was simply bringing together blacklists established by EU Member States, prompting the OECD Global Forum itself to comment that it was ‘very unfortunate that this exercise … looked like the establishment of a list’. In the view of both the OECD and the Global Forum, ‘the only [emphasis added] agreeable assessment of countries as regards their cooperation is made by the Global Forum’.

The OECD’s position, that if there is to be an effective global standard for tax cooperation then there has to be a single, consistent approach to judging compliance, seems well founded. We have now, however, seen yet another example of a tax authority deciding it can impose its own arbitrary judgment of the compliance of other jurisdictions with international standards of tax cooperation: in the US, Washington DC has recently announced its own blacklist of 39 jurisdictions deemed to be tax havens. This is in spite of many of the jurisdictions named being judged by the independent OECD process as being compliant with all international standards of tax cooperation.

These kinds of episodes risk seriously damaging the effectiveness of attempts to establish strong, consistent international standards for tax cooperation. We are in a situation, to go back to the Bluetooth analogy, in which the makers of mobile phones are all working to a common standard for transmitting information but the makers of the hands free equipment are working to a range of differing standards for receiving the information.

The OECD is still developing the peer-review process that will police the Common Reporting Standard. Most of the debate around this so far has been on assessing the performance of jurisdictions in terms providing information. It is becoming increasingly clear, however, that equally important will be an assessment of how that information is handled when received – not just in terms of keeping tax information safe and protecting it from abuse, but also in terms of accepting compliance with Common Reporting Standard as a valid benchmark of compliance with international standards of tax cooperation. Without this, the Common Reporting Standard risks becoming an irrelevance.

George Hodgson is STEP Deputy Chief Executive