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'Tis the Season?

Posted on December 5, 2016 by Gibson, Stuart

A new wave of transparency and cooperation seems to be breaking out around the world. It is hard to tell whether it's a product of the season, the consequences of the public shaming of the countries and entities that have facilitated secrecy and tax avoidance, the culmination of years of hard work by many dedicated people, or some combination. Whatever the reason, it is welcome.

Since 2009 when the U.S. started cracking down on Americans with undisclosed foreign bank accounts, Switzerland and its banks have come under increasing pressure to help the U.S. enforce its tax and banking laws. Two years after Credit Suisse AG pleaded guilty to helping Americans evade their federal taxes -- and paid a $2.6 billion fine -- the Swiss banking giant is now reported to be freezing the accounts of anyone with U.S. indicia, while it investigates whether the account holders are U.S. persons subject to reporting under the Foreign Account Tax Compliance Act.

The Swiss government is also taking steps to increase transparency. The Swiss Federal Council has approved ordinances that provide for exchanges of country-by-country reports under action 13 of the OECD's base erosion and profit-shifting project, as well as for the automatic exchange of information in tax matters. The country continues to make progress toward adopting a system for the spontaneous exchange of information on tax rulings.

Earlier this year Panama came under fire for its support of financial and tax secrecy. In response to enormous public pressure following the release of the Panama Papers, this fall the country fulfilled its on-again-off-again commitment to exchange financial information under the OECD's common reporting standard. And now the commission appointed to examine the country's financial and legal systems in the wake of the scandals has released its final report, which includes a recommendation that Panama adopt a more open approach toward the exchange of information with other countries (p. 894 News Stories).

In another victory for transparency, the U.S. Tax Court has ordered the IRS and Amazon, parties to a long-running transfer pricing dispute, to disclose portions of the trial transcript and trial exhibits the court had earlier ordered sealed.

The OECD has announced that negotiations have concluded on the multilateral instrument contemplated under BEPS action 15. With 100 countries participating in the development of the instrument, the OECD has now adopted the document that will enable countries to implement the BEPS recommendations in one fell swoop, without having to renegotiate and ratify hundreds of bilateral tax treaties. The OECD is planning a formal signing ceremony for next June. Still, developing countries may be advised to take a wait-and-see approach before signing.

Following last month's U.S. election, optimism is growing that the United States will finally enact comprehensive tax reform in 2017. Mindy Herzfeld examines the proposal to replace the current corporate income tax with a destination-based cash flow tax, as contained in the June 2016 House Ways and Means Committee blueprint for tax reform. Considering the potential benefits and drawbacks, and a plethora of unanswered questions, she suggests it may be too soon to begin popping the champagne corks.

Stuart Gibson is editor of Tax Notes International.