Country-by-Country Reporting and Other Financial Transparency Measures Affecting the European Union

The EU faces large amounts of financial secrecy supplied to it by secrecy jurisdictions. In this chapter, we use the Bilateral Financial Secrecy Index to quantify which jurisdictions supply most secrecy to EU Member States. The chapter assesses the progress of two recent EU policy efforts to tackle financial secrecy: automatic exchange of country-by-country reporting (CbCR) data and black and grey list of non-cooperative jurisdictions. It is found that 34 per cent of the financial secrecy faced by the EU is supplied by other Member States, whose a priori exclusion from the blacklisting exercise reveals its fundamental flaw. Further 13 per cent is supplied by the EU’s dependencies, mainly the UK’s Cayman Islands, Bermuda, and Guernsey. The jurisdictions that supply the most secrecy not covered by automatic information exchange of CbCR data are the British Virgin Islands, United States, and Curacao. Finally the chapter discusses policy recommendations that stem from our analysis.

Tax Experts’ Response to Regulatory and Institutional Triggers

This chapter explores the situations in which tax experts are most likely to take an innovative or aggressive tax position, focusing on the self-perception of the experts themselves of the factors that may influence them in taking such a position. The results highlight the micro-influences on tax experts that may move them along the spectrum of tax avoidance, which has been acknowledged as posing a significant risk to public welfare, equality of opportunity, and the common good. The chapter presents findings from an international survey of tax professionals and experts and highlights some key risk factors. The factors that lead tax experts to take a position that pushes the envelope of regulation are explored in aggregate and compared across the jurisdictional boundary of high or low levels of financial secrecy. The findings have the potential to empower both regulators and professional bodies in addressing the problem of tax avoidance.

Financial Transparency Scale: Its Development and Potential Uses

The purpose of this study was to develop the Financial Transparency Scale (FTS) to assess financial transparency, the open and honest disclosure of one's finances, between married partners. A sample of 183 individuals married for less than 5 years, in their first marriage, completed an online survey. Principal components analysis (PCA) was conducted and determined the FTS is comprised of three components: Financial Partnership, Financial Secrecy, and Financial Trust and Disclosure. The FTS was positively correlated with four related scales: the Kansas Marital Satisfaction Scale, the Shared Goals and Values Scale, the Frequency of Financial Management Scale, and the Communication Patterns Questionnaire – Short Form. An alpha of .94 was reported for the FTS. Financial practitioners can use the FTS as a tool to determine the level of financial transparency within a couple relationship, identify areas of concern, and illustrate the importance of open and honest communication about finances.

From Hegemony to Transatlantic Tax Battle?

This chapter discusses the most recent developments in transatlantic bargaining over countermeasures to financial secrecy and corporate profit-shifting, and sketches several future scenarios based on the theory developed in Chapter 2. It shows that dissatisfaction with nonreciprocal automatic exchange of information (AEI) and the BEPS project's failure to limit tax avoidance in the common market has motivated the European Commission and several member states to push for a common reaction. The European Union has since produced an integrated blacklist of third countries not complying with its tax good governance standards and ordered several member states to claw back taxes lost to sweetheart deals granting selective advantages to individual firms. Moreover, finance ministers debate the introduction of a digital services tax and a common consolidated corporate tax base to curb profit-shifting in the common market. Finally, the chapter presents some overall conclusions drawn from the research presented in this volume.

History and overview of ‘IFF’

This chapter provides a history of the rise of the term ‘illicit financial flows’ (IFF), and the emergence since 2000 of a global tax justice movement. As a broad umbrella term, the phrase was useful in ensuring the political consensus behind the establishment of a target to curtail IFF in the UN Sustainable Development Goals. But that consensus has hidden, to some extent, disagreements over the relative priorities—from the old view of corruption as a problem predominantly of lower-income countries, to the more recent recognition of the central role of typically high-income financial secrecy jurisdictions. Disagreements over political priority have played out as disputes over the definition of IFF, and over the quality of estimates of scale. This chapter provides a comprehensive typology of IFF, and summarises the evidence on the importance of the phenomenon for human development.

Hidden Treasure

We analyze the impact of exchange of information in tax matters in reducing international tax evasion between 1995 and 2018. Based on bilateral deposit data for 39 reporting countries and more than 200 counterparty jurisdictions, we find that recent automatic exchange of information frameworks reduced foreign-owned deposits in offshore jurisdictions by an average of 25 percent. This effect is statistically significant and, as expected, much larger than the effect of information exchange upon request, which is not significant. Furthermore, to test the sensitivity of our findings, we estimate countries’ offshore status and the impact of information exchange simultaneously using a finite mixture model. The results confirm that automatic (and not upon request) exchange of information impacts cross-border deposits in offshore jurisdictions, which are characterized by low income tax rates and strong financial secrecy.

DOES FINANCIAL SECRECY AFFECT PROFIT SHIFTING?

Global efforts to increase financial transparency have been made throughout the last decade. Nevertheless, profit shifting among Multinational Companies still become a crucial issue worldwide. This study investigated whether financial secrecy is one of the determinants of profit shifting that has been overlooked in previous profit shifting studies. Using multiple regression analysis, I concluded that financial secrecy negatively affects profit shifting, meaning an increased transparency will induce taxpayers to shift profit out of the country since ending secrecy equals higher risk for the tax evaders. The finding implies two important recommendations: first, to continue the global efforts to promote financial information exchange for tax purposes and second, to strengthen domestic anti-profit shifting regulations.

A Strange Alchemy

This chapter examines the challenges of attributing responsibility for the cross-border impacts of tax and financial secrecy policies through “spillover assessments.” Integrating human rights guiding principles into the practice of tax spillover assessments can provide value. Yet a number of tough methodological and political obstacles remain, many of which are inherent to the act of policy impact evaluation more generally. Together, these remaining challenges provide for a fertile future research agenda. Methodologically, the empirical accuracy of tax spillover assessments continues to be thwarted by the failure of governments to ensure access to relevant data, made more complex by the right to privacy concerns of many companies in accessing the microdata which would be so useful in determining the impact of changes in tax policy. Alongside these tough methodological challenges, various political question marks continue to frustrate effective tax spillover assessments.