G20 Summit – good vibes or hot air?

You might think nothing happened at the G20 summit in Argentina a week ago because Trump ignored Putin, Saudia Arabia was sidelined and Britain is Brexiting.

In fact, the G20 is a major event at which leaders of some 85% of the world economy issue directives on a host of economic matters to bodies like the OECD and to government officials that do tend to get acted upon and affect us all.

For example, the US and China announced the resumption of trade talks. The OECD was tasked by earlier G20 summits to tighten up the world tax system and is well on the way to doing so. And climate change wasn’t forgotten.

As Winston Churchill reportedly said: “Jaw, jaw is better than war, war.”

Israel was too small to be at the G20 summit, but was not forgotten.

OECD report

The OECD presented a detailed report to the G20 leaders which gave us a few insights.

On the personal side, the automatic exchange of financial account information (AEOI) begun with first exchanges in September 2017.

It is estimated that by June 2018, countries around the globe have uncovered 93 billion euros in additional tax revenue (tax, interest and penalties) as a result of voluntary programs and other offshore investigations since 2009.

AEOI is now happening in 83 jurisdictions. Moreover, details on accounts worth hundreds of billions of euros were exchanged in 2017, the first year of operation of the OECD’s Common Reporting Standard (CRS).

On the corporate side

On the corporate side, following the delivery of the OECD/G20 Base Erosion and Profit Shifting (BEPS) package, the key issue remains how to address the tax challenges arising from digitalization.

Following the US tax reform, the United States has now agreed to engage in the search of a global “solution.” In fact, the US began taxing multinationals before other countries started doing so.

For example, the UK recently made a proposal focused on a reallocation of taxing rights based on active user contribution. And France and Germany are exploring the feasibility of a new global tax mechanism.

A key “tool” to implement BEPS is the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, also known as the “BEPS multilateral instrument.”

To date, 84 countries have joined the BEPS multilateral instrument, which entered into force on July 1, 2018, among the first signatories that have ratified it. When more ratifications are effective, the BEPS multilateral instrument will be expected to result in the modification of 1,400 bilateral tax treaties, which will then be strengthened against tax avoidance.

What about Israel?

Not so great, unfortunately.

The majority of the committed jurisdictions (94 out of 98) were able to put the necessary domestic legislative framework in place, however, five jurisdictions have yet to complete the process. Four are third world countries, the other is Israel.

At the international level, all the 98 countries have agreed to use multilateral instruments: the Multilateral Convention and the CRS Multilateral Competent Authority Agreement (the CRS MCAA). While most jurisdictions have the complete legal framework in place (88 out of 98), 10 are still in the process of doing so. Eight are third world, the other two are Turkey – and Israel.

What is the problem in Israel? Reports suggest the Knesset Finance Committee would like to see an arrangement sorted out for gemach loan societies.

What will happen to Israel?

The G20 Leaders’ Declaration at the end of the Buenos Aires summit says ominously: “We welcome the commencement of the automatic exchange of financial account information and acknowledge the strengthened criteria developed by the OECD to identify jurisdictions that have not satisfactorily implemented the tax transparency standards.

Defensive measures will be considered against listed jurisdictions.”

It remains to be seen what “defensive measures” might be considered.

What else is in the G20 Communique?

The G20 welcomes the strong global economic growth while recognizing it has been less synchronized between countries. They also note current trade issues.

In other words, the Trump administration has adopted an America-first policy. The solution, says the G20, is stepping up dialogue and actions to enhance confidence.

As for environmental issues, the G20 conceded that each country may chart its own path.

Signatories to the Paris Agreement reaffirmed that the Paris Agreement is irreversible and committed to its full implementation. The United States reiterated its decision to withdraw from the Paris Agreement, and affirmed its strong commitment to economic growth and energy access and security, while protecting the environment.

As always, consult experienced tax advisers in each country at an early stage in specific cases.

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd. Leon@hcat.co.