Information exchange is the new face of tax compliance

I read an interesting article last week authored by David Baliraine of Ernest & Young, in which he highlighted the increased information sharing among revenue authorities. Indeed, it is now common to find revenue authorities around the world relying on information from different jurisdictions to effect tax compliance-related actions.

This information is requested for and managed under The Multilateral Convention on Mutual Administrative Assistance in Tax matters. This Convention was developed jointly by the Council of Europe and the Organisation for Economic Co-operation and Development (OECD) in 1988. It was amended in 2010 to align it to the international standard on information exchange for tax purposes. It was then opened to all countries and it came into force on June 1, 2011.

The Convention offers members a variety of tools for administrative co-operation in tackling international tax avoidance and evasion through the provision of exchange of information and assistance in tax collection, among others. The various forms of exchange of information include Exchange of Information upon Request, spontaneous exchange of information, simultaneous tax examinations, tax examinations abroad and Automatic Exchange of Information.

It is worth noting that it also provides extensive safeguards to protect the confidentiality of the information exchanged.

The Global Forum on Transparency and Exchange of information for Tax Purposes under the auspices of the OECD promotes and monitors the implementation of this Convention. As a prerequisite, countries have to pass relevant laws, which are then reviewed and the degree of implementation is subsequently reviewed as well.

The drive to enhance information exchange was facilitated by a number of global activities and events. Noteworthy among them were the operations of tax havens. These tax havens were seen as eroding the tax base of other countries and grossly undermining the fairness of tax systems across the globe and yet they were expanding at an exponential rate.

In 2000, the OECD acknowledged that there were up to 35 tax havens. The financial crisis of 2007/8 further cemented the view that the activities of tax havens were diminishing global welfare and, therefore, had to be addressed.

International efforts were also stepped up when the US Congress passed the Foreign Account Tax Compliance Act (FATCA), which forces foreign financial firms to disclose their American clients.
From the African countries’ perspective, broadening their treaty networks while avoiding the long and many times unfavourable negotiations of taxing rights under the Double Taxation Agreements (DTA) regime was very attractive.

Recognising the rise and complexity in cross-border transactions involving Uganda, its involvement in this initiative was inevitable. Uganda signed the agreement in November 2015, ratified in May 2016 and it came into force on September 1, 2016. Exchange of information has had a major boost to the tax compliance management efforts in Uganda and contributed significantly to its international standing in the new more cooperative global tax environment.

Uganda’s treaty network has expanded from the nine countries under the DTA to 129 countries under this initiative.

The implication of this is that Uganda is able to receive tax-related information concerning taxable entities operating and or deriving income from Uganda from these countries following the laid down procedures. Under the same arrangement, these countries can on request also assist Uganda to recover the tax revenue identified from the entities. This has greatly improved the tax compliance spectrum allowing a more transparent playing field and significantly adding revenue to the national coffers.

The Uganda Revenue Authority capacity in terms of systems, processes and human resources have also been sharpened over time to match the global standards of, among others, timely responses and confidentiality desired to effectively operate under this initiative.

In order to consolidate the above gains and also effectively handle tax compliance challenges posed by offshore dealings that may include tax evasion, inaccurate financial reporting and illicit financial flows, Uganda is now preparing to embrace the other international standard of sharing information which requires jurisdictions to automatically exchange information as opposed to exchanging information on request as is currently the practice.

What is clear though is that the advent of information sharing marks the end of the era of tax secrecy. And as taxpayers, the onus is on you to always provide the requisite information related to all your financial transactions as the law demands in order to avoid unnecessary inconvenience from the taxman.

Mr Mukiibi is the Commissioner, Tax Investigations Department in URA.
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