G20 - An afterthought in Bali
Tax transparency made it into the final communique following November’s G20 summit in Bali, albeit buried down in the 31st paragraph. It fared slightly better than the reheated commitments to combat money laundering, terror financing, and proliferation financing, relegated to a near postscript in the 51st paragraph out of 52, and to anti-corruption measures – the subject of the 49th paragraph. Put together, it hardly suggests that these issues are seen as much more than an afterthought, let alone close to the top of the international community’s agenda.
The Indonesian presidency could have been a watershed for transparency on tax and corporate secrecy. Instead, the communique commitments amount to a recitation of pre-existing shopping-lists covering base erosion and profit shifting (BEPS), beneficial ownership transparency, domestic law to criminalize bribery, exchange of information, and crypto-asset reporting. This is better than nothing, but not by much.
The G20 Bali Leaders’ Declaration including a recognition of “the need for the international community to step up their efforts to effectively combat money laundering, terrorism financing, and proliferation financing” was not accompanied by anything more than rhetoric.
The Summit host, Indonesia, used the gathering to advocate for its full membership of the Financial Action Task Force. Its government also identified tax transparency as one of the priorities of its G20 presidency.
“A fair and transparent international tax system is important to overcome tax evasion, prevent transfer pricing, and encourage conducive national tax policies”
That’s all well and good.
So, too, is the communique’s reference to “welcome[ing] the signing of the Asia Initiative Bali Declaration,” agreed by 13 Asian countries – though not by countries desperately in need of improving anti-money laundering and -terror financing initiatives such as Cambodia, Myanmar, or the Philippines – in July. Those warm words will likely not turn it into policy implementation which is critical to increasing the exchange of information standards and tax transparency.
The Indonesian government’s record – and those of a handful of neighboring countries – does not inspire confidence.
Indonesia was among a group of states “considered to be very secretive when it comes to the transparency of ownership of legal entities and other forms of wealth,” according to the United Nations Office on Drugs and Crime (UNODC) citing the February 2020 Financial Secrecy Index. My own research focused on the ways in which the criminal and corrupt are moving illicit finance with ease between countries in Southeast Asia, many of which have signed the Bali Declaration, confirms the UNODC’s finding.
They and the rest of the G20 could start by agreeing to establish mandatory central registries of beneficial ownership information, that is freely accessible online for law enforcement, relevant government authorities and the public, with common standards on data so that it can be easily shared.
Agreeing on common data standards is crucial. In many instances the value of agreements on exchange of information is much less than it should be, due to differences in how corporations are structured and differences in data format.
Similarly, agreeing on a sound legal definition of beneficial ownership would set down a building block for an effective financial transparency and tax justice regime. Without common data standards and robust definitions, national ownership registers are reduced to little more than a sum of their parts.
In the meantime, G20 countries should agree to expand their anti-money laundering and counter-financing of terrorism obligations to apply to non-financial businesses and professions, otherwise known as DNFBPs such as corporate service providers, accountants, lawyers, real estate, and luxury goods dealers by interlinking corporate beneficial ownership databases with real estate ownership registries to help asset recovery efforts.
Going forward, Indonesia hands the G20 baton to India in the coming weeks.
India has already promised to back a push on tax transparency. Although early signs show that the bulk of the meetings chaired by Modi’s government ahead of the Delhi summit next September will prioritize digital payments and tax matters, including regulations to check tax evasion by crypto assets. So far, it appears not to be an agenda of optimism.