G20 Sum­mit – good vibes or hot air?

The Jerusalem Post - - BUSINESS&FINANCE - • By LEON HAR­RIS

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. [email protected]

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