Regional : Enhancing Transparency and Exchange of Information for Tax Purposes

Public sector management / Public expenditure and fiscal management

The rapid globalization of financial services, investment and trade has imposed a significant impact on developing countries' revenue base. Cross border financial transactions are increasingly employed for aggressive tax avoidance, which result in the erosion of domestic tax revenues to the outside of developing countries, often to offshore financial centers. The issue is particularly acute in Asia. According to Global Financial Integrity, a Washington-based NGO's latest report, developing countries lost a total of 5.6 trillion US dollars in illicit financial outflows including tax evasion in 2001-2010, and Asia accounted for 61 % of the total illicit outflows . In order to counter international tax avoidance schemes and the erosion of domestic tax revenues, the tax authorities are increasingly required to strengthening their international network and capacity for the exchange of information with foreign tax authorities.

This regional TA project focuses on the capacity development of 8 DMC members of the Study Group on Asian Tax Administration and Reserach (SGATAR), i.e. Indonesia, Malaysia, Mongolia, Papua New Guinea, the PRC, the Philippines, Thailand, and Vietnam, with respect to the exchange of information for tax purposes, and aims to enhance the framework of regional cooperation among the SGATAR member tax authorities.

The risk of international tax avoidance and demand for the exchange of information among the Study Group on Asian Tax Administration and Research (SGATAR)'s developing member economies increase; according to Global Financial Integrity's global ranking on the estimated amount of illicit financial outflows in 2001-2010, the PRC is ranked the 1st out of 143 countries, and Malaysia the 3rd, the Philippines the 6th, Indonesia the 9th, Thailand the 13th, Vietnam the 33rd, Papua New Guinea the 99th and Mongolia the 111th respectively .

In many SGATAR member countries, a majority of exchange of information cases are those with the SGATAR member countries. For example, at the National Tax Agency, Japan, in Operation Years 2010 and 2011, more than 60% of exchange-of-information cases were held within SGATAR members. In particular, the exchange of information with SGATAR's developing member countries increases its importance; the percentage of exchange-of-information cases with the SGATAR's developing member countries increased from 15% in Operation Year 2010 to more than 20% in Operation Year 2011.

The OECD'sGlobal Forum on Transparency and Exchange of Information for Tax Purposes is promoting internationally recognized standards . While the OECD Global Forum's 118 member economies committed to implement the internationally recognized standards include all of the SGATAR's developed member economies except Taipei,China, only half of the SGATAR's developing member countries, i.e. Indonesia, Malaysia, the Philippines and the PRC are the OECD Global Forum's members, which imposes a further risk to widen capacity gap among SGATAR member economies. The OECD's Global Forum has also recognized the necessity of capacity development activities such as training seminars in Southeast Asia including Indonesia, Malaysia, The Philippines, Thailand and Vietnam , and it has expressed its support for the ADB to lead capacity development activities for SGATAR member countries.

Technical consultation session on international standards on the exchange of information for up to four DMCs delivered.

Recommendations for strengthening international cooperation and exchange of information produced.

Training courses for (i) exchange of information, and (ii) audit to counter international tax avoidance and evasion designed and delivered.