G20 member states held a meeting in China last week. Finance Minister Bambang Brodjonegoro took this opportunity to promote discussion of sanctions for countries that violate the Automatic Exchange of Information (AEOI) framework on taxation.
He said discussions on AEOI in 2018 should focus on two areas. First, sanctions for states that have committed to the framework but are in breach of it. Second, he urged G20 member states to be on the alert for jurisdictions seeking loopholes to avoid complying with the AEOI framework.
“And ensure that all jurisdictions, states or otherwise, are actually bound by the terms of the AEOI,” said Bambang after a meeting with the House of Representatives (DPR) Budget Board on Monday, (25/7). (Read: Panama Papers and the Hunt for Illicit Funds Across the Globe).
One possible sanction is blacklisting countries found to have breached the AEOI framework. However, this proposal has not been discussed further. The sanctions will be reviewed and developed by members of the Organisation for Economic Cooperation and Development (OECD) to be proposed to the G20 member states.
The minister expects all countries, without exception, to comply with this framework, including those categorised as merely jurisdictions. “The countermeasures could include a type of blacklist and sanctions in the form of funds or acknowledgement of the financial system, and so on,” said Bambang.
At the meeting, Panama also agreed to implement the AEOI framework. Three months ago, this country was the centre of worldwide attention following the publication of the Panama Papers. Leaked by a local law firm, Mosack Fonesca, these documents contained data on companies across the globe, most of which sought to hide their wealth from tax authorities.
Bambang said this tax haven helped progress the implementation of a global tax policy. Only Bahrain, another tax haven, has not explicitly announced its commitment to applying the AEOI framework.
Many companies have been adopting a base erosion and profit shifting (BEPS) strategy, which exploits gaps and mismatches in domestic tax regulations to hide or divert their wealth to another country that has lower or no taxes. (Read: 6,000 Indonesians Store Their Monies in One Country).
The AEOI is a system that supports the exchange of taxpayer information between, allowing state tax authorities to immediately trace taxpayers that open accounts in another country.