STRENGTHENING DOMESTIC RESOURCE MOBILISATION IN THE CARIBBEAN: CHALLENGES AND EMERGING OPPORTUNITIES Ben Dickinson Caribbean Dialogue with the G20, Washington, 13 April

Outline G20 Development Working Group tax pillar interface with the Caribbean: Exchanging Information for Tax Purposes to address tax evasion. Base Erosion and Profit Shifting to address tax avoidance, and related concerns.

TOWARDS AUTOMATIC EXCHANGE OF INFORMATION

Key EoI Developments  April 2009 G20 London Summit: “The era of bank secrecy is over”  Tax transparency seen as a key component of global financial stability  Global Forum mandated to ensure implementation of the international standard.  Currently 125 members –all participate on equal footing  2104 G20 moves towards Automatic Exchange Of Information for tax purposes (AEOI)

Peer Review process  Key aspects  Terms of Reference (3 categories/10 essential elements)  Peer input  2 phases (sometimes combined) o Phase 1: legal framework o Phase 2: exchange of information in practice  Assessment o Three levels for Phase 1 determinations o Four levels for Phase 2 ratings o Progression to Phase 2 blocked if Phase 1 results are too weak  Continuous monitoring o Follow up report by jurisdiction after each Phase (1 year or 6 months) o Supplementary reports possible to improve Phase 1 or Phase 2 results o Second round of reviews on the horizon

Caribbean membership of the Global Forum Anguilla Antigua and Barbuda Aruba The Bahamas Barbados Belize Bermuda British Virgin Islands Cayman Islands Curaçao Dominica Grenada Jamaica Montserrat St. Kitts and Nevis St. Lucia St.Maarten St. Vincent and the Grenadines Turks and Caicos Islands Trinidad and Tobago This map is for illustrative purposes and is without prejudice to the status of or sovereignty over any territory covered by this map.

Snap shot: AEOI and the Caribbean Commitments to exchange automatically  By 2017 Anguilla, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Curaçao, Dominica, Montserrat, Trinidad and Tobago, Turks and Caicos Islands.  By 2018 Antigua and Barbuda, Aruba, The Bahamas, Belize, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Saint Maarten.

Current DWG work on Automatic Exchange of Information Need for technical assistance and capacity accommodation is acknowledged. Global Forum Roadmap for G20 DWG in 2014, proposed a stepped implementation approach for developing countries Pilot projects launched in conjunction with World Bank Group and developed countries- – Albania (supported by Italy) – Colombia (supported by Spain) – Morocco (supported by France) – Philippines (supported by Australia) – Interest from Uganda and Pakistan Ten training events planned in 2015 Ongoing advice and support from Global Forum

Assistance in the Caribbean Training Seminars 3-5 December 2014: AEOI Training Seminar, Mexico (foundation) 1-4 June 2015: AEOI Training Seminar, BVI (advanced) 8 Caribbean jurisdictions have attended AEOI foundation courses (Mexico, Turkey) 2 Caribbean jurisdictions have attended an advanced AEOI course (Germany) Tailored technical assistance Global Forum open to assisting all Caribbean jurisdictions prepare for AEOI Next Global Forum Meeting Barbados October 2015

BASE EROSION AND PROFIT SHIFTING (BEPS)

What is BEPS and why is it a problem? BEPS arises because under existing rules Multinational Enterprises can artificially separate the allocation of their taxable profits from the jurisdictions in which they arise Consequence is income untaxed anywhere or taxed at very low rates and significant reduction of the corporate tax revenue in the jurisdictions where MNEs operate BEPS distorts competition and investment decisions. In the current climate, it is an issue of fairness of the tax system Developing countries particularly reliant on corporate tax.

Feb 2013 Diagnosis: “Addressing Base Erosion and Profit Shifting” July Actions: “Action Plan on Base Erosion and Profit Shifting” Sep 2014 First Set of Deliverables: 3 Reports (Digital Economy, Multilateral Instrument) and 4 Instruments (Hybrids, Treaty Abuse, TP Intangibles, TP Documentation and CBC Template) Sep 2015 Second Set of Deliverables: Action 3 (CFC rules), Action 4 (Interest), Action 5 (HTP), Action 7 (PE Avoidance), Action 8-10 (TP), Action 11 (Economic Analyses), Action 12 (MDR), Action 14 (MAP) October 2015 Completion and Final Deliverables: Completion of BEPS Project and delivery of all supplemental reports to the G20 Finance Ministers Overview of the BEPS work so far

Input received and G20 DWG work in 2014 Identification of priorities of partner economies with technical feedback on proposals under discussion Informed a 2-part report for the G20 Development Working Group (DWG) which looks specifically at BEPS in partner economies Excessive payments to foreign companies in respect of interest, service charges, management and technical fees and royalties Profit shifting through supply chain restructuring Significant difficulties in obtaining the information needed to assess and address BEPS issues, and to apply their transfer pricing rules. The use of techniques to obtain treaty benefits in situations where such benefits were not intended Wasteful tax incentives Lack of data for transfer pricing comparability analysis Indirect transfer of assets

Response in 2015: new structured dialogue process Leaders of the G20 Summit in Brisbane (November 2014): ‘We welcome deeper engagement of developing countries in the BEPS project to address their concerns.’

Direct participation 14 developing countries from a cross-section of regions and per capita income-levels and Regional tax organisations ATAF and CIAT Participate in the Committee on Fiscal Affairs and/or Working Parties to present their views.

Meetings organised on 5 regional/linguistic groupings, with international and regional organisations. Meetings held in February and March 2015 (Korea, Gabon, Peru, Ankara, Pretoria) The chairs of the regional meetings fed the main outcomes into the Task Force on Tax and Development meeting in March 2015, 250 participants. Regional Policy Networks 16

Result to date: Substantive input received on several action items: – Artificial Avoidance of Permanent Establishment Status; Cross- border commodity transactions; Interest deductions and other financial payments This will result in revisions to the new international tax rules that better reflect the needs of developing countries In addition the process has highlighted: – Importance of issues outside of BEPS Action Plan (tax incentives and transfer comparability) – Importance to engage all stakeholders, including business and civil society Structured Dialogue Process: first key outcomes 17

ToolkitsProposed Timelines A report on good practices in transparency and governance on tax incentives in developing countries from the IMF, OECD, UN and the WBG, using case studies, to better assist developing countries in: Balancing investment and public revenue priorities Assessing the benefits and costs of tax incentives Terms of Reference: Agreed 25 November 2014 Draft paper presented to DWG: April Consultation in mid 2015 Final paper: November 2015 Practical guidance to assist developing countries address difficulties in accessing comparables data and approaches to apply internationally accepted principles in the absence of comparables Supplementary Work on determining Appropriate Prices for Mineral Commodities Terms of Reference: By February 2015 Scoping Paper to DWG: April 2015 Toolkit: December 2015 DWG 2015 Capacity Building efforts on BEPS

19 Focus on Tax Incentives: challenges and issues Revenue forgone due to tax exemptions and preferential tax regimes is significant: – Forgone tax revenues ranged between 9.5% and 16% of GDP per year in the Eastern Caribbean Currency Union over 2001 ‐ 2003, while the effect of tax incentives on FDI appeared to be very modest. Tax incentives often result in tax competition. Tax incentives in one country triggers reactions in other countries to adopt the same policies, leading to a“race to the bottom”. – The hotel industry in the CARICOM region is one of the often-cited cases of harmful tax competition between countries vying for the same investors.

Foreign tax auditors work together with local tax auditors in developing countries on real tax audit files, transferring audit knowledge, techniques and skills through a ‘learning-by-doing’ approach. Developing country tax auditor + experts = -Increased tax audit skills. -Results in increased DRM. Complementary to existing efforts from IO and bilateral efforts. Strong support from G8 and G Tax Inspectors Without Borders (TIWB): What is it?

Thank you 21