Category Archives: CBCR

The new political economy and geography of global tax information exchange

The OECD has recently released information on the two most important recent global networks of global tax information exchange. They are, respectively, the networks of exchange of country-by-country reporting (CBCR) and exchange of financial account information (through the Common Reporting Standard, CRS).

These networks give a unique look into the new political economy and geography of global tax information flows. CBCR and CRS data are, arguably, the cornerstones of modern global tax information cooperation, providing crucial data on the foreign activities of national individuals and companies. The CBCR is an annual report for large multinational groups (revenue +€750m) that states their jurisdictions of operation, the nature of business in each country, the tax paid along with a host of economic activity indicators. The CBCR is typically filed in the corporate headquarter’s country of residence, then shared on request with other countries as needed. Through the CRS, each government compiles data from national banks on the financial accounts (balances, interest, dividends, and financial asset sales proceeds) of non-citizens, which is then exchanged automatically with those citizens’ home competent authorities.

Therefore, it is also highly interesting to look at the global network of these information flows – who has access, who doesn’t, and who is connected.

So I scraped the data off the OECD website and analysed it. And what I found provides a very interesting picture of the modern tax information networks.

At the time of writing, there were around 700 (CBCR) and 1600 (CRS) bilateral exchange agreements established. (I’m not sure why OECD say 1800 CRS agreements because there’s only 1600 unique agreements in their data). Given that the CRS was launched four years ago and CBCR only two, the discrepancy is natural. Taken together, the 2300+ agreements are a quite fascinating data set. Let’s look at each in turn, and then the two together.

First, however, a key caution must be noted. While the CBCR and CRS provide key recent mechanisms of tax information exchange, they are by no means the only mechanisms. Preceeding the new CBCR and CRS networks are established networks of bilateral “by request” exchange of information networks (the previous OECD standard), bilateral tax information exchange agreements (TIEAs) and tax treaties with info exchange clauses. Given that these have been in place for much longer, they are naturally more dense than the new networks. Still, CBCR and CRS are the frontier and are replacing these older standards exactly because of their limitations. Thus, the analysis below provides a picture of the emerging state-of-the-art within global tax information exchange.

The global CBCR exchange network

I tweeted out the network the other day, and it looks like this:

cbcr network

(Size by degree (number of links); node colour by region; and network layout by ‘ForceAtlas2‘.)

There are a few caveats to be noted before drawing lessons from this picture. First, the novelty of CBCR shapes the network look substantially. The picture is dominated by European countries, but that is understandable given 55% of all CBCR exchange agreements are formalised by EU Directive 2016/881/EU on automatic exchange of tax information (the rest are individually negotiated CBCR MCAAs). Second, the absence of the USA is noteworthy. While the USA has been reluctant to commit to reciprocal information exchange of bank account data, that is not the cause for CBCR. Simply, US CBCR filing requirements will kick in on 31 December 2017, as in most jurisdictions, but later. It is almost assured that the US will develop an extensive exchange network to protect US MNEs from local filing demands. Other countries with late filing requirements that will be expected to build substantial exchange networks as we go include Hong Kong, Japan, Russia and Switzerland. The whole network is expected to increase substantially over the next few years, as the remaining CBCR MCAA signatories (as of today, there were 57) conclude and report agreements.

That said, what we can see is that the current global CBCR network is all about Europe, OECD members, and a few small offshore centres. That picture likely won’t change too much. The almost complete absence of South America (beyond Brazil and Uruguay), Asia (beyond Malaysia), and Africa (beyond South Africa and Mauritius) stands out. This has attracted renewed criticism that the OECD tax policy-making processes are not inclusive of developing countries. However, it should be noted that the OECD has moved in the direction of bringing developing countries more closely in to its tax work, including through the BEPS Inclusive Framework, so there is potential for a broadening of the geographical concentration in the CBCR exchange network.

It is also worth noting that the picture indicates a very clear “you’re either in or you’re out” trend. There are currently 45 countries exchanging CBCR data, and none of these have less than 23 agreements (maximum of 43). If you are set up to exchange CBCR data, you are ready to exchange it with many partners.

More broadly, I think the network shows quite nicely the varying allegiance to the OECD international tax consensus. The European Union, in particular the European Commission, has become an increasingly autonomous player in international tax affairs but also a close ally of the OECD on many counts. The centrality of Europe in the global CBCR network is a representation of this position.

The global CRS exchange network

CRS exchange network.png

(Again, size by degree (number of links); node colour by region; and network layout by ‘ForceAtlas2‘.)

The global CRS network provides a somewhat more developed but not substantially different picture of the new political economy and geography of global tax information exchange. The fact that we have 62 countries (as opposed to 45) and more than twice the number of exchange agreements makes for a more pronounced illustration.

Again, it is worth noting some points on the data. Once more, EU is massively present. This is partly because of its speed in implementing effective CRS legislation. Thus, 35% of CRS exchange relation are down to EU instruments, including EU Directive 2014/107/EU. However, EU members have also been active in concluding agreements with non-EU members. The remaining 65% of exchange relations are concluded as individually negotiated CRS MCAAs, plus ten exchange agreements through the UK CDOT (Crown Dependencies and Overseas Territories International Tax Compliance Regulations). We can also see that, again, the US is absent. However, here we should not expect it to develop a network at a later stage. Due to the presence of FATCA, the US’ own financial account information standard, there has been no desire to also sign up to the CRS. Finally, the CRS network is also expected to increase and broaden its geographical scope over the coming years as the remaining of the AEOI-committed countries (100 at the time of writing) conclude and report on exchange agreements.

Beyond that, the political geography of the CRS network is notably similar to that of the CBCR network: It’s all about Europe and OECD members, with a few small offshore centres mixed in. Like the CBCR network, the absence of developing states has also contributed to criticism of the CRS standard. Once again, we can also see that it’s very much an “you’re in or you’re out” picture. 62 countries have CRS exchange agreements, and only one (Bonaire, Saint Eustatius and Saba) has less than 29 agreements in place.

Another nugget that I found quite interesting in the data: There are around 350 CRS agreements that are only reported by one of the two jurisdictions to the OECD. All other relationships are reported by both jurisdictions. For instance, Anguilla’s CRS exchange agreement with Argentina is only reported to the OECD by Anguilla, not Argentina. And there is a certain trend with these 350 agreements. They are all reported by the following countries: Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Croatia, Cyprus, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Monaco, Montserrat, Netherlands, Romania, Saint Vincent and the Grenadines, Turks and Caicos Islands. Most of these countries are small (island) states with noteworthy financial centres, or what some might label tax havens.

There are a few possible explanations, but my guess as to what is going on here is this: Countries most at risk of reputational damage and political wrath from non-compliance are making sure they report all of their exchange relations to the OECD as soon as possible. They simply want to make sure it is noticed when they are conforming to expectations, when they are “doing good”.

The global tax information exchange network (CBCR + CRS)

Total global information exchange network

(Size by weighted degree (number of links, weighted by strength); node colour by region; and network layout by ‘ForceAtlas2‘.)

Here, I’ve added the CBCR and CRS relationships together, giving us a picture of who is truly able to access modern global tax information flows. The bolder the link, the more weight it has, indicating access to both CRS and CBCR information from international exchange.

Having noted caveats to the data above, the picture that emerges here is, as we might have expected, more pronounced but similarly indicative as the individual CBCR and CRS networks. The observations barely need repeating, but for good measure: there’s EU/OECD dominance with a few financial centres mixed in, an absence of the US and developing countries, and a strong in-or-out dynamic.

Given the current structural factors contributing to this network layout, the main factor with potential to substantially change this picture is change in the overall political economy of global tax governance. This may yet happen, e.g. through the BEPS Inclusive Framework, but may also very well not happen due to geopolitics or other factors.

There will be more analysis to do on this data, and it will be interesting to follow the longitudinal development of these networks. I will certainly continue my work in this area, as I’m sure others will. For now, however, a very interesting picture is emerging of the new political economy and geography of global tax information exchange.

Thoughts on the final EC public country-by-country reporting proposal

A week ago, I blogged on the (at the time) upcoming proposal from the European Commission on public country-by-country reporting, saying it was “in no man’s land”. With the benefit of being a week on, and the actual proposal having been presented on Tuesday, I thought it would be good to reflect on my earlier blog and the proposal itself. It is still early days, of course, and the proposal is months if not years of negotiations away from coming into effect, but still I might provide some initial comments:

Firstly, assessing my previous blog, I may have been wrong on some points. In particular, I had thought there was continued US opposition to the public nature of documentation in the proposal. However, Jonathan Hill, the EU Commissioner for financial stability and financial services, explicitly said at the press hearing that the Commission had consulted with US regulators before publishing the final proposal, indicating that they were, at the least, not opposed.

Furthermore, the accompanying impact assessment on public CBCR made it clear that the proposal is viewed as an alignment with US Dodd-Frank rules, which require certain companies to file country-by-country-like information to the SEC. Clearly, this is an important reason why the EC chose the particular reporting model it did, i.e. public EU-zone + tax haven reporting for EU-based companies (headquartered or with subsidiaries), with group turnover above €750m, of course.

Thus, from the EC perspective (and, probably, the US Treasury perspective), the proposal could be marketed as creating a level playing field between EU and US companies:

I am not sure how accurate that is, given the wide discrepancies between the US rules and the EC CBCR proposal, in particular as Dodd-Frank rules only apply to extractive companies.

Next, I could have overestimated the lack of consistency of the EC proposal with the OECD/B20 BEPS consensus, reached just last year on the exact same topic. The EC would not put forth this proposal if there wasn’t significant support behind it. And it seems that those in the supporting ranks do not care about the OECD agreements from a year past. Or maybe it is exactly the agreement on the template that is underpinning the EC proposal? My intuition was, and still is, that the BEPS consensus would weigh heavily. But even OECD’s “Tax Director” Pascal Saint-Amans sounded rather resigned to the EC proposal in an interview with  TPWeek.

Still, I predicted the straightforward dismissal of the proposal from NGOs, and similarly with business criticism (although it has been rather more quiet than I expected, in particular compared to the BEPS process).

Of course, I had not predicted the inclusion of “tax havens” in the report, but this was only made possible by the PanamaPapers, although the Commissioners were not shy to frame the revision in terms of “their continued work on transparency”.

Now, on to the proposal itself: It was, all in all, as expected. There will be things here and there once people dig through the details, e.g. on definitions of subsidiaries and specific data points. But the main question people are left with is: How on earth is the EU going to agree on a tax haven blacklist? The EC tried in 2015, was heavily criticised, and then had to give it up. And they have tried before, like others before them, often with similar and predicted results. They have given themselves six months to find agreement, having previously failed for years. Tough job.

Blacklisting is fundamentally a political power game hiding behind “objective criteria”. It can be effective (in particular if you are targeting small states), but there are a host of issues associated with it. You can be sure that anyone trying to put UK overseas territories, Switzerland, EU-members Luxembourg or Ireland, or the US on the agenda for the list will find strong opposition. Even if the EU countries do find agreement, there are indications it will be along the lines of the OECD Global Forum work where, currently, only three (four, if you include the US, which the OECD doesn’t) jurisdictions do not comply with agreed standards. So it might be a very slim list, and then what’s the point of going through all the trouble?

In terms of justifying the chosen approach, the Commissioners made some very interesting remarks. Two key reasons came forward: 1. Level playing field (cf. above), and 2. Avoiding double taxation. Now, the second point was highlighted especially with regards to the scope of the reporting, i.e. 3rd country data. It was clear from Jonathan Hill’s remarks that, besides the competitiveness of EU companies, the key concern was that 3rd country tax authorities would get their hands on the data and use it for “improper purposes”. Now, this is rather astonishing. The EU and its Member States have agreed in the OECD BEPS process to provide 3rd country tax authorities with the exact same data, as long as they sign tax treaties or information exchange agreements with, e.g., EU countries. So if the EC is now saying that they are concerned the data will get to 3rd countries, is that not to undermine the entire BEPS framework for filing and sharing? Or was it the thought all along that developing countries should not easily be able to obtain the data? I could also be overinterpreting, but that was my reading of Hill’s comments.

A few other interesting tidbits from my read through the impact assessment:

  • The version made available on the EC website was marked “provisional”, and with good reason. It was based on the original, leaked proposal, where the preferred outcome did not include reporting on tax haven activity. This, to me, is a rather clear indication that the EC is adjusting its impact assessment to fit the preferred political outcome, which, again to my mind, seems somewhat problematic.
  • The OECD actually, formally lobbied the EC to follow the BEPS approach. This is highly unusual. Why would they need to? They coordinate with great frequency. Perhaps the OECD felt the need to formally express concerns over EU’s actions not being in line with BEPS.
  • One reason put forth by the EC why they did not pursue a common, voluntary EU ‘Fair Tax label’ was that the Fair Tax Mark has, so far, attracted very few large companies. EC thinks a voluntary code would not be successful. And they’re probably right, given the limited discussions of the role of tax in the corporate responsibility agenda.
  • The impact assessment also included the figure below, which provides a very good overview of the EC conceptualisation of the public CBCR proposal. It’s interesting to see how they framed the issue in terms of public scrutiny as a driver of corporate responsibility (i.e. not engaging in aggressive tax planning, etc.). They could have chosen a number of other angles, so the choice bears significance.


Finally, I will add that the impact assessment is a great read for anyone interested in tax politics, tax research, tax economics, transparency, etc. It is an extremely thorough piece of work, with detailed discussions, references and analysis throughout. It provides a useful encyclopedia for understanding many of the topics related to tax and transparency.

And it’s only 162 pages. Happy reading!

The EU public country-by-country reporting proposal: In no man’s land?

On Tuesday, the European Commission will present its final proposal for public country-by-country reporting, alongside its impact assessment. We know quite a lot about this proposal, given that it was leaked a few weeks back. It is based on the OECD BEPS template for country-by-country reporting, but has key differences from the rest of the recommendations. In particular:

  • The CBCR report is to be made public. (BEPS recommendation is only to file with tax authorities, who can then exchange the report.)
  • 3rd country (non-EU) data is to be aggregated, rather than broken down country-by-country. (BEPS recommendation is for data broken down country-by-country).
  • Other smaller changes

Tons of reactions have ensued, covering every range of the positive-to-negative spectrum. Here, I will try to formulate my own thoughts on the leaked proposal, from the perspective of someone who has closely studied the evolution of country-by-country reporting and its policy processes over the past few years:

My overarching impression is that the proposal is in somewhat of a no man’s land.

I will explain what I mean below, but first I should note that the leaked EC proposal is exactly that, a proposal. And an unfinished one at that. It’s a draft. That means there is still scope for changes before the publication. In fact, the leak might be purposeful on side of policy-makers, in order to manage expectations and get a better grasp of the reactions of stakeholders, as a basis for potential changes before or after publication. The Commission may also have used the opportunity to flag a real or carefully constructed position in order to guide the direction of the policy debate going forward. (This was a tool used, for instance, by OECD policy-makers in the BEPS process).

But back to the no man’s land:

In terms of political support, we know there is backing from some EU Member States and certainly from EU institutions (EC and EP in particular) for the type of transparency proposed in the draft. However, we also know there are reservations among key EU Member States for publication of the data contained in the country-by-country report.

And we know that this proposal is directly opposed to the hard-fought OECD/G20 BEPS Action 13 consensus, agreed and endorsed by OECD members and G20 countries – many of which are EU states – just one year ago. It also sticks in the opposite direction, in terms of publicatioon, from the EU non-public country-by-country reporting Directive, which was presented just two months ago(!).

And we know the Treasury of the US, the EU’s largest trading partner and key partner in the OECD BEPS project and other international tax reform efforts, is strongly against publication of the country-by-country report.

We also know that NGOs and tax justice campaigners, are wildly unhappy with public country-by-country reporting, a priority campaign point for years, being restricted to the EU zone (they’d want to see activity broken down for countries deemed tax havens, etc.).

And we might say that developing countries would not have much use for a report that aggregates 3rd country numbers (which includes, of course, both developing countries, smaller financial centres and large economies), as it would not reveal much detail on the activities pertinent to developing countries. (Although you might also argue that developing countries care less about public CBCR than, e.g., tax administration capacity-building and other issues.)

Businesses, meanwhile, largely favour (relatively) narrower reporting requirements and certainly not public reporting, as the OECD BEPS Action 13 process and recent years’ EU-level debates have shown. So the proposal does not seem to come close to their interests either.

And I think it is fair to say that, generally, tax lawyers and other tax professionals have not been particularly positive towards public reporting.

Now, the European Commission is, of course, not in the business of legislating based on US or OECD interests, developing country interests, NGO interests, business interests nor tax lawyer claims as such. First and foremost, it is tasked with proposing legislation by and for the group of EU Member States. However, it would be wrong to assume that businesses, NGOs, developing countries, key trading partners and tax experts are considered EU rule-making.

This is, I concede, to simplify things greatly. The actors concerned with public country-by-country reporting are not inherently cut into neat categories – there are shades of grey all along the spectrum. But I it is a fair conclusion to say many of the actors involved in the country-by-country reporting debate would find the EC proposal unsatisfactory.

So is it all just a big compromise – hitting the middle ground, so to say? Maybe. Or maybe hard, perceived, material interests are not all that matter in EU rule-making. Ideas might matter too, in the tax arena. As Martin Hearson discussed recently, the power of rhetoric should not be underestimated in international tax. And neither should the expertise and networks of professionals involved in the technical policy process. Could these explain the EC public CBCR proposal? Is the European Commission on the right track in the ideational battleground of international tax transparency? Maybe. It can certainly ride along on the transparency wave, most recently boosted by the #PanamaPapers. It may work, although there’s not a strong connection between the Panama leak and CBCR. And has the EC public CBCR proposal been brokered successfully by well-connected and knowledge experts? Maybe, but my impression is “probably not”. The EC usually do their groundwork well, but this time it doesn’t seem to align with the BEPS Action 13 consensus, which I would argue was successfully negotiated in the technical community.

So, can a proposal seemingly in such a political no man’s land succeed? Or could the analysis above be wrong on key points, and the proposal will smoothly sail to implementation? The proposal is still to be formally presented, negotiated, amended, agreed, enacted and implemented, so there is a long way to go. I am looking particularly forward to following its route.


An initial country-by-country look at Danish banks

Few things in the international tax community are as vehemently discussed right now as country-by-country reporting. Don’t know what country-by-country reporting is? That’s for another post. (Google should provide sufficient answers).

Often forgotten, however, is that we already have country-by-country reporting (to some extent) for banks and certain other financial institutions, mandated by the EU CRD IV. Analyses published elsewhere by tax justice campaigners have used the publicized reports to highlight UK and French banks’ utilisation of tax havens.

I was surprised to see that no analyses had been published (to my knowledge) on the first country-by-country reports from Danish banks, mandated by the EU CRD IV. So why not take a look at it here?

The first batch of reports cover the 2014 and 2015 fiscal years. To get an initial look, I extracted data from the annual reports of the four largest banks in Denmark: Danske Bank, Nordea, Jyske Bank and Sydbank:


I will be looking into the data in greater detail, but for now, some initial observations (subject to the usual disclaimers*, of course):

  • It is clear that the banks do not utilise secrecy jurisdictions to an extent comparable to French or UK banks. (Many reasons may be for that – also for another post).
  • Besides the close-to-home markets (Scandinavia) and large foreign markets (UK, Russia, US, Germany), the banks as a group book most profits in Luxembourg, Singapore, Lithuania and Ireland.
  • Employees in some countries conventionally discussed as benefactors of profit shifting – such as Singapore and Luxembourg – are generally more ‘productive’ than employees in high-tax countries – such as Denmark, Sweden and Norway. On average, employees in the former group generate 1,25 times the income and 2 times the profit of employees in the latter group. However, employees in Switzerland and Gibraltar, for instance, are among the least productive on average.
  • On average, the most ‘productive’ employees are based in the US (generated €830k profits/year – Nordea only) as well as the UK (€521k) followed by Singapore (€457k) and Luxembourg (€336). For comparison, an average Danish employee (the vast majority) generated €114k.

Questions and comments are welcome. Or go explore the data yourself:

The full data is available through Google Sheets here.

* The production of data across banks might not be completely comparable due to differences in methods; there are questions regarding the sample size; the analysis was not cross-checked, reviewed or validated by anyone else; etc.