Exchange of information implies achievement of global tax co-operation through the implementation of international tax standards and other instruments to tackle tax evasion.1
As the OECD pulls out international efforts to effectively promote information exchange and tax transparency across the globe, tax authorities are faced with the vast amount of data on Country-by-Country Reporting (“CbCR”), Master Files, Local Files and TP forms.
To adapt to this data-driven world, tax authorities need to revise the way they manage and govern the data. Over the years, developments in technology have opened up new opportunities for tax authorities to improve data governance. Were MNEs had the technological advantage in the past, the advantage now seems to switch over to the side of the tax authorities.
There are many aspects of data governance; one of them is data classification. Data governance enables tax authorities to assign relative values to the data they maintain and then manage that data based on its assigned value. Transfer of voluminous tax data into the cloud has also been considered by most tax authorities. In 2017, Her Majesty’s Revenue & Customs (HMRC) migrated and virtualized 900 of HMRC’s total of 1,200 development and test servers to the cloud.
One of the best indicators of the digital development of tax authorities is management of Country-by-Country Reporting data.
An OECD publication released in September 2017, “Country-by-Country Reporting: Handbook on Effective Tax Risk Assessment”, sets out useful guidelines and recommendations for national tax administrations to consider when introducing CbC reports into their existing tax risk assessment structure. It also provides examples of countries that are ahead of the curve in terms data management and analytics.
Particularly, the Australian Tax Office has set up a structured schema that makes the CbCR data more searchable. It is called the International Dealing Schedule and has been developed with a strong functionality of being able to analyze free text and non-standard data sets.
The ATO is not alone in supplementing the OECD’s suggested routines. Other countries are also embracing third-party software solutions to comply with CbC reporting. For instance, the Bahamas will use a CbC Reporting solution from Vizor to meet its automatic tax information exchange commitments. The solution includes an online portal, accessible by Bahamian financial institutions, which can register and report the required account data to the tax authority (1).
Besides the Bahama’s also Curacao had been in a situation where they needed to be compliant to the international exchange of data. Together with the Dutch tax authorities, Curacao started collaborating with a software provider. The provider had developed a software which helps countries to realise international exchange of information within a year. Curacao requested the expertise of the provider in the information exchange. At the time, Curacao was working of the FACTA data exchange regarding fiscal year 2014, due by the 30th of September 2015 based on an IGA clause between Curacao and the US.
Right after the initial stage the realisation stage was entered. This included monthly meetings with the FACTA/CRS Commission and technical consultations, where the high attendance during the meeting showed that the Financial Institutions needed the information. During the evaluation stage it became clear that Curacao was now compliant to their agreements, submitting their international information before the deadline.