Aiming for Global Tax Transparency—and Progress in Latin America

This article aims to analyze the role of transparency and exchange of information in helping governments fight tax evasion and other illicit financial flows, to generate much needed revenues in the Covid-19 crisis and beyond. One of the most important areas that reflects international cooperation between tax administrations is exchange of information.

We will focus here on the Punta del Este Declaration of the Global Forum on Transparency and Exchange of Information for Tax Purposes.

The Global Forum

With 164 members, the Global Forum is the leading international body working on the implementation of global transparency and exchange of information standards around the world.

Since the G-20 declared the end of banking secrecy in 2009, the international community has achieved great success in the fight against offshore tax evasion. Working through the Global Forum, countries have implemented robust standards that have prompted an unprecedented level of transparency in tax matters.

The main areas of its expertise are:

• Exchange of information on request (EOIR). This standard requires the transparency of banking and accounting records, as well as ownership of entities and legal arrangements. It provides a framework for obtaining information on request between tax authorities.
• Automatic exchange of information (AEOI). This standard allows for the automatic annual exchange of information on offshore financial accounts.
• Capacity building and technical assistance activities. This ensures that all members receive support and benefit from the tools to implement international tax standards. Guidance material, e-learning courses and virtual classes are accessible through the resources tab.

The Global Forum is a key international body working on the implementation of international standards for tax transparency. It aims to ensure that these high standards of transparency and exchange of information for tax purposes are in place around the world through its monitoring and peer review activities.

Nearly 100 countries carried out automatic EOI in 2019, enabling their tax authorities to obtain data on 84 million financial accounts held offshore by their residents, covering total assets of 10 trillion euros ($10 trillion). This represents a significant increase over 2018—the first year of such information exchange—where information on 47 million financial accounts was exchanged, representing 5 trillion euros. The growth stems from an increase in the number of jurisdictions receiving information as well as a wider scope of information exchanged.

Information on more than 75 million financial accounts was exchanged automatically in 2020, covering total assets of around 9 trillion euros. Additional revenues (tax, interest, penalties) of 112 billion euros have been identified so far through voluntary disclosure programs and offshore investigations, of which over 30 billion euros was identified by developing jurisdictions.

Regional Initiatives

Regional capacity-building programs are provided by the Global Forum Secretariat in collaboration with regional organizations. They are essential partners in building trust, long-term relationships and capacity for transparency and exchange of information for tax purposes. Programs are being run, or are in preparation, for the following regions: Africa, Asia, Latin America, Pacific, Middle East and The Caribbean.

The first regional initiative launched by the Global Forum was the Africa Initiative, which is also therefore its most advanced. This has included significant engagement at ministerial level to ensure political buy-in and sustained momentum. This is reflected in the Yaoundé Declaration, which provides support in the fight against illicit financial flows from Africa.

The ministerial engagement in the Latin America initiative is demonstrated by the Punta del Este Declaration, in relation to maximizing the effective use of the information exchanged under international tax transparency standards to tackle tax evasion, corruption and other financial crimes.

Together with the Asian Development Bank and other partners, the Global Forum launched in 2020 a Pacific Initiative to raise awareness and enhance tax transparency for the benefit of developing Pacific Islands. A new Asia Initiative, supported by Indonesia’s Finance Minister and the President of the Asian Development Bank, was launched during the Global Forum plenary meeting on Nov. 17, 2021.

Tax Evasion Impacts Latin America

As in other regions, the problem of tax evasion affects Latin America. Different institutions have tried to quantify the losses to tax evasion and other illicit financial flows in the region. For instance, the Economic Commission for Latin America and the Caribbean (ECLAC) estimates that 272 billion euros, amounting to 6.1% of the region’s gross domestic product, was lost to tax noncompliance in 2018, of which 3.8% corresponds to corporate and personal income tax evasion.

Moreover, ECLAC estimates that several countries from the region have an income tax gap of more than 50%, meaning that tax authorities collect less than half of the revenues they should theoretically gather. The estimated tax evasion rates for personal income and corporate tax in Latin America have remained at an average of 44% and 58% respectively in the last two decades.

Further, the average tax-to-GDP ratio for the 16 countries covered in the Organisation for Economic Cooperation and Development Tax Transparency in Latin America report remains low in an international comparison, at 19.8% compared to the OECD average of 33.5% for 2020.

To address these pressing issues, an OECD report presents strategies and action-oriented recommendations underlining the role of transparency and international cooperation in helping governments fight tax evasion and other illicit financial flows.

Tax Transparency in Latin America

Major achievements in recent years include:

• Fourteen Latin American countries are now parties to the multilateral Convention on Mutual Administrative Assistance in Tax Matters, the most comprehensive instrument for all forms of tax cooperation to tackle tax evasion and avoidance, thus considerably expanding their EOI relationships networks.
• Ten Latin American countries already participate in the AEOI.
• Six out of eight Latin American countries assessed in the second round of peer reviews of the EOIR to 2021 were rated largely compliant, showing a positive trend in the implementation of the EOIR standard, which includes advanced beneficial ownership requirements.
• Through voluntary disclosure programs launched prior to the first automatic exchanges, EOI and offshore investigations, at least 25.7 billion euros of additional revenue (tax, interest and penalties) have been identified in the region since 2009.
• Latin American countries reported collecting revenue amounting to 3.6 billion euros collectively as a direct result of EOIR between 2009 and 2021.
• More than 1,650 tax officials have been trained since 2020.

Punta Del Este Declaration

The 2022 edition covers 16 Latin American countries and aims to inform decision makers and citizens on the latest progress and remaining challenges in the region.

Initially signed by four countries in November 2018, the Punta del Este Declaration now counts 15 signatories, including all Latin American Global Forum members, with El Salvador and Mexico the latest countries to have joined in 2021.

Political buy-in and high-level engagement for the transparency agenda have significantly increased in the region, encouraging the Global Forum and its development partners (Inter-American Center of Tax Administrations, Inter-American Development Bank and World Bank Group) to design specific programs to improve capacities within tax administrations (e.g. Train the Trainer).

Challenges Remain

The OECD Tax Transparency in Latin America 2022 report shows encouraging progress in relation to the implementation of the tax transparency standards; however, challenges remain, and progress is uneven.

• The region has improved its performance under the EOIR standard during 2021, with some countries undertaking strategies to increase the number of requests sent. However, most Latin American countries are still making few requests and are not yet using their wide EOI networks to their full potential.
• Countries are advancing in the implementation of the beneficial ownership standard. They are moving to a multi-pronged approach for the availability of beneficial ownership information. However, they continue to face challenges at technical levels.
• The implementation of the automatic exchange of financial account information under the Common Reporting Standard (CRS-AEOI) is broadening and, as of 2021, 10 Latin American countries are exchanging reciprocally, with Ecuador commencing exchanges in 2021. Awareness activities and tailored technical assistance programs are still needed to support the five other countries that have not yet set a year of first exchanges to determine an appropriate timeframe.
• Latin American countries generally have solid EOI infrastructures and networks based on the Convention on Mutual Administrative Assistance in Tax Matters, which lays the foundation for EOIR and CRS-AEOI. However, most countries rate the level of knowledge of their officials on EOI, particularly for tax auditors, as “medium,” signaling a need for sustainable training capacities.
• EOI is generating additional revenue for the region. During 2009–2021, at least 25.7 billion euros in additional revenue have been identified through voluntary disclosure programs launched prior to the first CRS-AEOI exchanges, EOI and offshore investigations. In particular, EOIR brought additional tax revenue in Latin America in a total of 3.6 billion euros. In 2021, CRS-AEOI allowed the identifying and/or recovering of 10 million euros. However, these results may not provide a full picture of the situation, as countries do not monitor systematically how much tax is identified due to EOI.

The wider use of treaty-exchanged information for non-tax purposes aims to support a whole of government approach to tackle not only tax evasion but other serious financial crimes such as money laundering and corruption. However, while countries in the region have in place the necessary international and domestic legal framework, the use of this possibility is very limited in the region.

Looking forward, the work of the Punta del Este Declaration will continue to focus on maintaining the region’s political commitment to EOI and tax transparency, while strengthening and building sustainable capacities to adequately and successfully implement standards. Taking advantage of all the possibilities for international cooperation to tackle tax evasion and other financial crimes will also be a main area of the work undertaken.

Final Thoughts

Tax evasion and other illicit financial flows are a global challenge that requires a global response.

International tax cooperation must be part of a set of effective and well-coordinated multilateral actions to respond to the crisis. It is more urgent than ever to work together to fight tax evasion and tax avoidance, including illicit financial flows. International tax cooperation should be scaled up in a way that is universal in approach and scope and takes into account the different needs and capacities of all countries.

Tax cooperation is important for improving domestic tax transparency, coordinating a global response, building peer networks with other jurisdictions, deterring tax evaders, securing a domestic revenue base, assisting development of the economy, and reinforcing social cohesion. It is more than ever vital that tax administrations obtain information about the relevant actors and their economic activities, so that they develop the regulatory capacity to determine their obligations and the management capacity to implement legislation efficiently.

The Tax Transparency in Latin America 2022 report shows encouraging progress in relation to the implementation of tax transparency standards, but challenges remain, and progress is uneven.

The monitoring and cooperation network of the Global Forum has strengthened the exchange of experience between tax administrations, helping them deal more effectively with the challenges of international tax transparency.

In short, transparency and exchange of information is key to tackling tax evasion, and regional initiatives like the Punta del Este Declaration are a great opportunity for countries to access important resources for their development.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Alfredo Collosa is a consultant and tutor in tax administration at the Inter-American Center of Tax Administrations, as well as a professor, investigator, lecturer, and author of books and publications. He holds an Official Masters in Public Finance and Tax Administration (UNED-IEF).

The author may be contacted at: aecollosa@gmail.com