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At what cost and at whose cost do we serve Regulators beyond our Borders?

At what cost and at whose cost do we serve Regulators beyond our Borders?

March 7, 2014 11:33 AM | Posted by Karen Payne | Print this page

Global tax systems are looking increasingly to harmonise 'disclosure' through the Automatic exchange of information and Tax Transparency, but the cost of this global tax harmonisation seems to me to be borne in large part by the financial services sector – both in Australia and elsewhere.

The Financial System Inquiry will no doubt consider compliance and regulatory costs for our financial services system. It would be useful to understand the extent to which the same information is reported and replicated to satisfy both domestic and international compliance and regulation, including for tax purposes.

Although harmonised domestic and international reporting should help minimise the 'public cost' that is ultimately transferred to the financial services sector, I am not sure that this has been the experience to date. This is especially so because the global tax policy for sharing and collection issues are under review and in flux and domestic systems may be deficient without the benefit of global co-operation, which is yet to be fully achieved. The real question is why this cost is imposed without a clear global strategy in place.

The United States and Australia, for example have recently completed a FATCA agreement that is to be signed very soon. This will impose a high compliance cost on financial institutions which must both identify US accounts and report information relating to US accounts to the Australian Taxation Office. A global extension of the FATCA model is currently being prepared by the OECD, which will require due diligence and reporting on behalf of all participating nations. There are also reporting and exchange requirements to satisfy domestic tax compliance. Tax transparency is a worthy objective … but at what cost and at whose cost and could this be more efficiently achieved for less cost?

Although the government has signalled that its key taxation reform package will commence with a White Paper on taxation reform (within the first two years of government), it would be an opportunity missed for taxation concerns not to be properly considered as part of the Financial System Inquiry.