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Knowledge sharing urged to beat evasion
International Tax Review


Ahearing of the US Senate Finance Committee was told last week that exchange of information is key to combating offshore tax evasion.

Witnesses from the US government, the OECD and the University of Michigan testified that the effort had to be multilateral.

Senator Max Baucus, the Democrat chairman of the Committee,said the US authorities cannot track where taxation may be going missing because they couldn't keep up with the speed of international trade.

"The heart of the problem is that the Treasury, the IRS, and American institutions know far less than they should," he said.

John Harrington, the acting international tax counsel at the US Treasury,said that guidance projects and information exchange with other jurisdictions were key to the government's approach to the problem.

He said that recent guidance sought to stop the abuse of foreign tax credits, transfer pricing and other transactions.

Exchange of information provisions are part of every tax treaty the US signs. Where a treaty is not appropriate, America seeks to conclude tax information exchange agreements.

Harrington said the US has been to the fore on improving information exchange globally by participating in initiatives such as the Joint International Tax Shelter Information Centre and the Leeds Castle group of countries. Both groups regularly share knowledge on global and national tax administration.

Jeffrey Owens, director of the OECD's Centre for Tax Policy and Adminstration,outlined some of the Organisation's initiatives to improve offshore tax compliance, such as revising the OECD's Model Tax Convention to boost exchange of information provisions and discussions in the Forum for Tax Administration.

"Offshore tax evasion is not about small islands that do not impose income taxes," Owens said. "It is about all countries that lack transparency and that are not prepared to cooperate to counter tax abuse."

Reuven Avi-Yonah, a professor of law at the University of Michigan, hadnine recommendations for tackling offshore tax abuses by US taxpayers. These included increasing IRS enforcement efforts, working more closely with the OECD, closing loopholes in the Internal Revenue Code and better bilateral information exchange.

Michael Brostek, director, tax issues, Strategic Issues Team, US Government Accountability Office,reported to the Committee on the effect of the three-year statute of limitations on the US tax authorities' offshore enforcement programme and on the Qualified Intermediaries Programme, which concerns the overseas financial institutions that agree to withhold and report tax on US source income paid offshore to.

Brostek said that while the QI programme was working well, most US source income flowed through withholding agents and the government was less confident that they were reporting and withholding tax properly.