Effective International Information Exchange as a Key Element of Modern Tax Systems: Promises and Pitfalls of the OECD's Common Reporting Standard

Public Sector Economics, 1(2), 2017

20 Pages Posted: 24 Oct 2017

See all articles by Stjepan Gadzo

Stjepan Gadzo

University of Rijeka - Faculty of Law; IBFD

Irena Klemencic

Institute of Public Finance, Zagreb

Date Written: October 19, 2016


Today's global economic environment is characterized by the high mobility of capital and labour across national borders. Against the backdrop of a legal framework governing taxation of cross-border income, this may lead to double taxation on the one hand, as well as provide opportunities for tax evasion and tax avoidance on the other. It is well-established that a prerequisite for effective taxation of foreign-sourced income earned by "domestic taxpayers" (i.e. tax residents) is the system of administrative co-operation across national boundaries, mainly in the form of exchange of tax-relevant information between tax authorities. Since the lack of information-exchange mechanisms is linked with tax havens and the proliferation of “harmful tax practices”, the OECD put the issue high on the global political agenda as early as 1998. Further developments strengthened the importance of the exchange of information, leading to the so-called "big bang" of 2009, i.e. to a significant increase in the number of concluded tax information exchange agreements, caused by the growing concern about international tax evasion and avoidance in the post-crisis period.

Nowadays the so-called automatic exchange of information (AEOI) between tax authorities has emerged as a new global standard. This is mostly due to the development of specific national and international models, aimed at enhancing inter-governmental cooperation in fighting offshore tax evasion. In this regard special attention should be drawn to the 2014 release of the OECD’s Common Reporting Standard (CRS), which is based on the idea that banks and other financial institutions should play a crucial role in providing information on taxpayer’s income and assets to tax authorities around the globe.

The aim of this paper is to explore some of the most important implications of the adoption of the CRS as a global AEOI model. While there are marked advantages of the new standard – mainly related to its potential in curbing large-scale offshore tax evasion – some important concerns arise as to its implementation on a global level. Particular attention will be paid to the issue of coordination of the CRS with the other information exchange models (e.g. FATCA) and to the problem of protecting taxpayers’ rights and information.

Keywords: Tax Law, International Tax Law, Exchange of Information, Automatic Exchange of Information

JEL Classification: K34

Suggested Citation

Gadzo, Stjepan and Klemencic, Irena, Effective International Information Exchange as a Key Element of Modern Tax Systems: Promises and Pitfalls of the OECD's Common Reporting Standard (October 19, 2016). Public Sector Economics, 1(2), 2017. Available at SSRN: https://ssrn.com/abstract=3057963

Stjepan Gadzo (Contact Author)

University of Rijeka - Faculty of Law ( email )

Hahlic 6
Rijeka, 51000

IBFD ( email )

H.J.E. Wenckebachweg 210
Amsterdam, 1096 AS

Irena Klemencic

Institute of Public Finance, Zagreb ( email )

Smiciklasova 21
Zagreb, 10000

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