More From The Economist: Tackling Tax Evasion

Business and managementDespite a Americanled crackdown since 2008, vast amounts of undeclared money remains stashed in foreign bank accounts and investments some amount of it in America itself.

The current, on request standard for information swapping is flawed.

It works only when tax authorities know who is hiding money from them, and even so relies on the is the Foreign Account Tax Compliance Act, or FATCA, a American law passed in 2010 and due to kick in on July 1st. Anyways, taxtransparency activists look for to see information exchanged automatically on a regular basis. The world has started to move in that direction as tax fairness has gripped the public imagination in the wake of the global financial meltdown. This will require all foreign financial institutions to report data on American clients or face stiff penalties. While banks and custodians, Brokers, certain investment vehicles and insurance companies would have to report. The draft standard provides for financial institutions to report information to their respective governments, that would in turn share the data with other jurisdictions once a year. The information to be reported includes not only all kinds of investment income but also account balances and proceeds from sales of financial assets.

Just as importantly, reportable accounts include not only those held by individuals but also those in the name of trusts, foundations and identical entities.

The effectiveness of this broader scope still relies on comprehensive beneficial ownership information in registries of trusts and shell companies.

As the Tax Justice Network, a NGO, pointed out after the draft was released. Another concern is that poor countries will end up being excluded from the OECD standard. Even when almost all tax havens are in rich countries and many poor countries lack the resources to collect and check the data, They could be expected to provide reciprocal information exchange.

As with previous OECD initiatives, another worry is the lack of sanctions for recalcitrant jurisdictions.

Switzerland, the mother of offshore financial centres, has indicated that it will consider exchanging information automatically when it becomes the global norm.

The new standard ain’t intended to replace the onrequest model but to complement it though if it’s widely adopted, countries that struggle to embrace it could find themselves on grey lists. Some offshore practitioners complain that legitimate financial privacy is now trampled in the stampede to tackle dubious financial secrecy.

In truth, the real game changer was FATCA, an extraordinary piece of extraterritorialism that sounded the death knell for the old, murky system. OECD still has an important role to play in forging consensus and speeding adoption of new approaches. Mr Gurria touts the new standard as a game changer.

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