The BRICs and International Tax Governance: The Case of Automatic Exchange of Information

ABSTRACT

This article investigates the BRICs’ involvement in the adoption of Automatic Exchange of Information (AEoI) by the G20 and the Organisation for Economic Cooperation and Development (OECD) as a major breakthrough in the global fight against tax evasion. Our main questions concern the BRICs’ willingness to accept AEoI, and their agreement to the Western-dominated OECD as its institutional forum. First, we examine the domestic drivers for BRICs’ participation, as their statist model of capitalism reveals strong disincentives to join this regime and the fact that the budgetary consequences of the global financial crisis were less severe than in Western states. We argue that their agreement on AEoI results more from their persistent balance-of-payments vulnerability to illicit capital than from fiscal weakness, while also discussing the possibilities for mock compliance. Second, we review the role of the non-reciprocal US foreign account tax compliance act (FATCA) in shaping the BRICs’ preference for a multilateral AEoI-regime centred around the OECD’s Common Reporting Standard (CRS). Last, we show that the BRICs’ acceptance of the OECD resulted from pragmatic interests and receiving ownership over the process, together with the absence of coercive mechanisms within the CRS-regime that could fundamentally undermine their sovereignty in this domain.

KEYWORDS:

• BRICS
• international tax governance
• automatic exchange of information
• FATCA
• OECD

Acknowledgement

This work was supported by the Research Foundation Flanders under grant number 3F015115.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Dries Lesage is associate professor of globalisation and global governance at Ghent University.

Wouter Lips is a junior researcher, funded by the Flanders Research Foundation, at Ghent University. He works on global tax governance.

Mattias Vermeiren is assistant professor of International Political Economy at Ghent University. He is the author of Power and Imbalances in the Global Monetary System: A Comparative Capitalism Perspective (Palgrave 2014) and co-author of Rising Powers and Economic Crisis in the Euro Area (Palgrave 2016).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 China’s macroeconomic stimulus, for instance, was largely funded by an extraordinary expansion of banking credit since 2009: credit to the non-financial sector skyrocketed to more than 240 per cent of GDP in 2015. Since 2007 the ratio in Brazil, Russia and South Africa increased by, respectively, 36 per cent, 50 per cent and 16 per cent, reaching 140 per cent, 92 per cent and 122 per cent of GDP in 2015. Only in India credit to the non-financial sector grew at about the same pace as GDP throughout this period, oscillating around 127 per cent of GDP (Figure 1).

2 The OECD itself does not look at the information or how it is used, because of its confidential nature. As such, the accountability lies solely with the national tax administration. However, it is also important to recognise that there is a learning curve towards handling the enormous amounts of newly acquired data that must not be confused with mock compliance (Personal interview, May 2018).

3 Federal Law No. 173-FZ ‘Concerning Special Considerations Relating to the Conduct of Financial Operations with Foreign Citizens and Legal Entities, the Introduction of Amendments to the Administrative Offences Code of the Russian Federation and the Annulment of Certain Provisions of Legislative Acts of the Russian Federation.’

4 See https://www.treasury.gov/press-center/press-releases/Documents/reciprocal.pdf.

5 For China an additional benefit of the CRS regime’s safeguard reciprocity was that is creates a ‘level-playing-field’ for Hong Kong, whose status as global financial center had to be protected from asymmetric compliance costs. OFCs such as Hong Kong have been under such close scrutiny since the 2000s, so there was very little opportunity for undetected non-compliance with respect to AEoI. By participating in the reciprocal CRS regime together with Western OECD countries, these OFCs could maintain a level playing field and avoid asymmetric compliance costs.

Additional information

Funding

This work was supported by the Research Foundation Flanders under [grant number 3F015115].