18 Apr 2016 12:44 IST

Panama papers effect: G20 economies may crack down on some tax havens

OECD urged to frame criteria to identify non-cooperative jurisdictions

Call this the Panama Papers effect. The G20 economies may penalise tax havens that don’t commit to common global standards of automatic information exchange on banking clients.

At the just concluded meeting of G20 Finance Ministers and central bankers in Washington, the OECD has been asked to establish by July an “objective criteria” to identify non-cooperative jurisdictions with respect to tax transparency.

The G20 will then consider “defensive measures” against financial centres and jurisdictions that don’t come on board on the global pact on automatic information exchange, according to a statement issued by the Group’s Finance Ministers and central bankers after the meeting.

Panama is one of only a few financial centres that have refused to implement the OECD’s Common Reporting Standard (CRS), which provides for automatic exchange of financial account information between tax authorities.

The CRS — approved by the OECD in 2014 and endorsed by the G20 later that year — basically calls upon jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions annually.

So far, 98 jurisdictions, including India, have committed to implement the CRS in 2017 or 2018.

The leak this month of offshore financial records, popularly known as the Panama Papers, has set off a global furore. The leaked documents, which also cover offshore accounts of at least 500 Indians, have prompted several governments to pledge to crack down on tax havens and money laundering. Implicating everyone from world leaders to businessmen, the Panama Papers have exposed billions of dollars in assets hidden in tax havens around the world.

Panama has been holding out against CRS. In a report submitted to G20 Finance Ministers last week, OECD Secretary-General Angel Gurria said that Panama had “clarified” that it was not adherent to the CRS. Last year, the country had made a commitment to implement CRS just before the plenary meeting of the ‘Global Forum’ in Barbados.

“This was notified to you (G20 Finance Ministers) in my report for the Shanghai meeting (February 2016). To date, only Bahrain and Panama have refused to do so (commit to CRS),” said the report.

Lebanon, as a country of relevance for exchange of information on request, should also be asked to commit to the CRS, the report added.