Tax Transparency:
Understanding the MENA Region’s Role 

Great strides are being made to challenge the widespread secrecy of banking, ownership and accounting information on a global scale, and make that information more accessible to tax authorities for the purposes of closing the tax revenue gap, and promoting the fairness of the international tax system.

As we head into an uncertain future in the wake of the COVID-19 pandemic, multilateral co-operation on transparency and exchange of information for tax purposes will be critical. Diana Caceres, Senior Tax Research Manager at Thomson Reuters interviewed Zayda Manatta, Head of Secretariat at the Global Forum on Transparency and Exchange of Information for Tax Purposes at OECD, on this topical issue.  

The exchange of information for tax purposes between countries is an essential tool for tax authorities to ensure that all taxpayers pay the correct amount of tax. It ensures fairness between taxpayers and provides for tax revenue mobilization. Without access to offshore information, tax administrations cannot be aware of, or fully understand the impact of cross-border transactions, which limits their ability to tax them fairly. This can jeopardize the fairness of the tax systems and public confidence, as well as the willingness of taxpayers to comply with their tax obligations.

Briefly, mechanisms have been put in place to ensure the implementation of tax transparency and exchange of information standards, in order to ensure a level playing field. There are currently two standards:

1. The exchange of information on request (EOIR) standard, under which tax authorities can make specific requests to other tax authorities for information that will allow them to progress their tax investigations; and
2. Automatic exchange of financial accounts information (AEOI) standard, which requires the annual exchange of information on financial accounts held by non-resident individuals and entities in a pre-defined format.

Following the 2008 financial crisis, the G20 Leaders declared the end of bank secrecy for tax purposes. They called on the OECD-hosted Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) to monitor the implementation of the tax transparency and exchange of information standards.

The monitoring and peer review processes provide assurance to Global Forum members that all jurisdictions are properly implementing the standards and highlight where more needs to be done. The Global Forum has an established peer review process in relation to the EOIR Standard, which is already in its second round. With respect to the newer AEOI Standard, the Global Forum has already reviewed the domestic and international legal frameworks and initiated the review of the effectiveness of its implementation in practice.

The review and monitoring processes are designed in a way that ensures peers participate in the exercise and have a say in each other’s review. Every jurisdiction participates on an equal footing, and has a voice and a vote. The decisions are taken by consensus (consensus minus one in the case of approval of reviews), which means guaranteeing there is agreement on the outcomes.

With currently 162 members, the Global Forum is committed to monitoring the implementation of these standards and providing capacity building to ensure that all of its members, including developing ones, benefit from these tools.

Under the Exchange of Information on Request Standard (EOIR), tax authorities can make specific requests to other tax authorities for information that will allow them to progress their tax investigations. The information that could be requested includes, but is not limited to, accounting records, bank statements and information on the ownership of companies and legal arrangements. Under the AEOI Standard, the information exchanged includes details about the financial account (e.g., the financial institution maintaining it, the account number and the account balance) and details about the account holders (e.g., their name, address, date of birth and taxpayer identification number).

2020 was an exceptional year, with global shocks. The COVID-19 pandemic has posed unprecedented challenges. Multilateral co-operation on transparency and exchange of information for tax purposes has remained increasingly important. As the social and economic consequences of the COVID-19 pandemic worsen, international co-operation is critical in helping countries mobilize tax revenues and promote the fairness of their tax systems.

The COVID-19 crisis can be expected to reduce public tolerance of tax avoidance and evasion even further, as the need to ensure everyone pays his / her fair share of taxes escalates.  As the public pays increasing attention to tax evasion, this should encourage governments to further progress the tax transparency and exchange of information agenda. Transparency and exchange of information impacts public perception of the fairness of tax systems, contributes to the deterrence of tax evasion and avoidance, and fights tax non-compliance. Together, these factors lead to domestic resource mobilization.

Ensuring that all members, including developing countries, make use of transparency and exchange of information to fight tax evasion has been a priority for the Global Forum for a decade. The Global Forum’s capacity building work expanded to ensure that all members benefit from exchange of information, particularly developing countries, which are disproportionately affected by tax evasion and avoidance. Seventy jurisdictions received assistance in 2020. These efforts have been made possible through generous donor support, and close co-operation with international organizations and regional partners. They are reinforcing the inclusive spirit of the Global Forum, which is critical given the challenging global context.

Although some of the GCC countries became members of the Global Forum rather recently^[1], the GCC countries are committed to tax transparency and exchange of information standards; and have made good progress in their implementation. The recent joiners – Kuwait and Oman – have yet to receive a full review on EOIR. They have received support from the Global Forum Secretariat.

Implementation by the GCC countries is generally satisfactory. Bahrain, Qatar, Saudi Arabia and the United Arab Emirates received an “in place” determination with respect to the AEOI review of their legal frameworks, released in December 2020^[2]. With respect to the implementation of the EOIR standard, the GCC countries are generally doing well and have received satisfactory ratings. Bahrain received a “Compliant” rating, whereas Saudi Arabia and Qatar received a “Largely Compliant” one. Following progress made, the United Arab Emirates received a “Largely Compliant” rating in its EOIR review in 2019.

Corporates in the Middle East (as well as in any part of the world) should abide by the rules. The Global Forum does not assess the compliance of corporations, but the compliance of jurisdictions: whether there are laws and rules that ensure the availability of the information, whether the authorities can have access to it and whether they can exchange the information with other tax authorities. For this purpose, every jurisdiction should ensure the required legal framework is in place, and there are efficient and effective processes and procedures to guarantee information exchanges take place as expected.

In general, corporations are expected to provide information on their activities, including their shareholders (legal and the beneficial ownership information), finances (banking information) and operations (accounting information). This implies having the support documentation – and making it available to the authorities when requested. The way the information should be kept and made available to the authorities (who are the ones responsible for exchanging it with other jurisdictions) depends on each jurisdiction’s policy decision. Some jurisdictions have public registries for legal and beneficial ownership information; some jurisdictions require corporations to keep the information and provide it when necessary; some jurisdictions require the information to be provided to the tax authorities on a regular basis; and so forth.

Usually, under their Anti-Money Laundering / Countering the Financing of Terrorism (AML-CFT) regimes, jurisdictions require obliged persons (such as financial institutions) to adopt customer due diligence procedures, to know their customers and ensure the information provided by them is accurate, updated and complete.

In the case of AEOI, financial institutions should ensure the quality of the financial account information they provide to the tax authorities to be exchanged automatically. This means they should:

• Identify the beneficial owners of the accounts and their jurisdiction of residence;
• Collect information on the financial accounts of non-residents (who resides in a jurisdiction with whom there is an activated relationship with the jurisdiction where the financial institution operates); and
• Provide it to the tax authorities timely. 

By understanding and upholding the internationally agreed tax transparency and exchange of information standards, corporate organizations in the MENA region and globally can play a valuable role in enhancing tax transparency and helping governments raise much-needed revenue in these challenging times.