Tax Transparency: Global Forum Reports 2024

Enhancing Tax Transparency through FATCA and CRS

Both the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) play pivotal roles in enhancing global tax transparency and compliance. By facilitating the automatic exchange of financial account information (AEOI) between jurisdictions, CRS and FATCA help tax authorities detect and prevent tax evasion. This comprehensive approach not only fosters fairness in tax systems but also helps countries in mobilize resources for enforcement, which are crucial for development and public service funding.

The Global Forum on Transparency and Exchange of Information for Tax Purposes was founded in 2000 and consists of OECD member countries as well as other jurisdictions that have agreed to implement tax related transparency and information exchange. The Global Forum and IRS have both recently announced achievements in tax transparency across different regions around the globe, showcasing the financial benefits and enhanced compliance efforts resulting from these initiatives.

Revenue Gains

Perhaps the most important benefit identified in these reports relates to increased tax revenue. Whether due to historical nonreporting or under-reporting, many regions which began more strict enforcement saw a huge jump in tax collections since the advent of CRS and FATCA in the last 10 years.

Africa:

In 2023 alone, seven African countries collected EUR 2.2 billion in additional tax revenue through new tax transparency measures. This surpassed the total of the previous 13 years combined. Since 2009, over EUR 3.8 billion has been identified through various tax transparency measures.

Asia:

Members of the Asia Initiative identified EUR 21.8 billion in additional revenue since 2009 through AEOI, voluntary disclosure programs, and offshore tax investigations. In 2023 alone, 13 jurisdictions collected an additional EUR 1.8 billion in tax revenue.

Latin America:

Since 2009, Latin American countries identified EUR 27.8 billion in additional revenue through offshore tax investigations, AEOI, and voluntary disclosure programs. Over the last five years, reporting jurisdictions identified close to EUR 2.1 billion in additional revenue.

United States:

The IRS also announced significant collections with regards to high-net-worth individuals due to the increased resources at their disposal from the Inflation Reduction Act. They have collected over $1 billion from these high-wealth taxpayers just from past-due taxes and interest since Fall of 2023, focusing on 1,600 individuals with incomes over $1 million per year and tax debts over $250,000. Many more individuals are already under audit, with an expectation of additional revenue over the coming years.

Commitment and Resource Advances

With the visible revenue growth comes a stronger commitment from participating jurisdictions. Many regions are expanding their compliance requirements internally, as well as providing more resources to enforce.

Africa:

The Africa Initiative emphasizes strong political support and capacity building, with over 2,700 tax officials trained from 2020-2023, including through programs like Train the Trainer and Women Leaders in Tax Transparency. There are more resources to keep identifying non-compliance.

Asia:

Eighteen Asian jurisdictions committed to start automatically exchanging financial account information by 2026, with 15 already exchanging by the end of 2023. Additionally, 13 of the 14 jurisdictions reviewed in the Forum’s second round of peer reviews received satisfactory ratings on enforcement.

Latin America:

The Punta del Este Declaration, established in 2018, aims to tackle tax evasion, corruption, and financial crimes through transparency and information exchange. Between 2019-2023, Latin American countries reported EUR 862 million in additional revenue from 2,964 information requests from this Declaration. Eight out of ten countries reviewed by the Forum received satisfactory ratings. Additionally, from 2020-2023, 7,957 officials were trained on EOI, including through Train the Trainer and Women Leaders in Tax Transparency programs.

United States:

The Inflation Reduction Act provided the IRS with many new tools for enforcement. They have hired more auditors to more effectively collect taxes and enforce compliance, they have modernized outdated systems which increases efficiency, and increased responsiveness to resolve issues sooner.

Network and Cooperation

As more jurisdictions find value in the unprecedented tax transparency, more countries are committing to exchanging information. New countries are adopting Common Reporting Standards, and agreeing with other jurisdictions to share account information with each other. Through the Mutual Administrative Assistance in Tax Matters (MAAC) more than 140 countries around the world have joined bilateral relationships to auto-exchange information:

• African countries have established over 3,400 bilateral relationships.

• Asian jurisdictions have established over 3,000 bilateral relationships.

• Latin American members have established over 2,000 bilateral relationships.

• United States leverages FATCA legislation to create Intergovernmental Agreements to share information with over 110 other jurisdictions.

New Initiatives and Compliance Efforts

Regions are continuing to look at ways to improve compliance. There is also a drive to adapt legislation to fill gaps in tax law, with more descriptive reporting becoming common place. New legislation such as Crypto-Asset Reporting Framework (CARF) is going to result in significantly more reporting of taxable income.

Africa:

The Africa Initiative, supported by 17 regional and international donors, aims to enhance tax system fairness and mobilize resources to achieve the Sustainable Development Goals (SDGs).

Asia:

The Asia Initiative focuses on developing tailored solutions for implementing global tax transparency standards across Asia. Additionally, six members (Armenia, Azerbaijan, Indonesia, Japan, Korea, and Singapore) plan to implement CARF by 2027 or 2028.

Latin America:

Six Latin American countries are participating in a pilot project on the wider use of treaty-exchanged information, supported by the MAAC and domestic laws. The region has made significant strides since the Punta del Este Declaration, with tax transparency now a crucial part of government strategies to combat tax evasion and mobilize resources for development.

United States:

The IRS has initiatives targeting high-income taxpayers who failed to file federal income tax returns involving more than 125,000 instances since 2017. The IRS also announced new steps to combat the abusive use of partnerships for tax avoidance and has planned audits to scrutinize personal use of business aircraft by large corporations, partnerships, and high-income taxpayers. The IRS aims to close the compliance gap caused by budget cuts and staff limitations, improving fairness in the tax system and ensuring that high-income, high-wealth individuals pay their legally owed taxes.

Escalation in the enforcement of CRS and FATCA regulations

The achievements in tax transparency across Africa, Asia, Latin America, and the United States underscore the significant financial benefits and enhanced compliance resulting from tax transparency initiatives. This ongoing effort not only bolsters public resources but also contributes to a fairer and more transparent global tax landscape. The successful adoption and implementation of CRS and FATCA regulations, among other more regional regulations, have proven highly effective in identifying additional revenue, supporting domestic resource mobilization, and ensuring fairness in tax systems. As these standards continue to demonstrate their value, tax authorities worldwide are increasingly committed to rigorous enforcement. This will lead to a global escalation in the enforcement of CRS and FATCA regulations, resulting in more audits and stricter penalties for non-compliance. Consequently, entities worldwide must adapt to evolving tax regulations, as local tax authorities intensify their efforts to detect and deter tax evasion.

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