To put the significance of these reviews into context, I provide a brief summary of the work performed by the Global Forum and the background to the “peer review” process.
The predecessor to the Global Forum was founded by OECD in 2001 for the purpose of addressing, in a broad international sphere, money laundering, tax evasion, tax havens and most importantly, tax-related transparency and exchange of information. The Global Forum fundamentally reorganized in 2009 is the world’s largest international organization focusing on taxation with 126 member countries (including EU and OECD member states, the G20, financial centres and a large number of developing countries) one of the most important tasks of which is, among others, to perform the “peer review”, i.e. a comparative analysis to determine to what extent participating member countries comply with the specified transparency and exchange of information criteria. The total of 10 review topics are broken down into the following three large categories:
A – availability of information (3 conditions),
B – accessibility of information (2 conditions),
C – exchange of information (5 conditions).
The peer review is performed in two phases. In phase 1, compliance of the jurisdiction under review with individual conditions is examined item-by-item and one of the following possible ratings are determined for each condition: “in place”, „in place, but” or “not in place”.
Phase 2 examines whether the jurisdiction of the given country applies the 10 conditions properly in practice. In this phase, the following ratings are applied: “compliant”, “largely compliant”, “partially compliant” and “non-compliant”.
In order for a country to participate in phase 2, it must satisfy the requirements of phase 1. If the country would like to improve the rating received in phase 1, it may request a supplementary review. (The two phases are performed at the same time in the case of certain countries.) When both phases are completed, each country receives an overall rating according to the same rating categories as applied in phase 2.
With the new peer reviews published in March 2015 (click here for the complete list) the number of countries completing phase 2 grew to 77. From the 77 countries, currently 4 are rated “non-compliant”: Cyprus, Luxemburg, the Seychelles and the British Virgin Islands. In addition, there are 32 countries, which have only completed phase 1 (phase 1 + a supplementary review in certain cases). 11 of these countries did not satisfy the requirements of phase1 and, therefore, may not request to undergo phase 2 of the review until the deficiencies are eliminated. The result of the phase 1 review of the tax regime of Switzerland was published in June 2011 with the Global Forum rating the country “non-compliant”. The Alpine country then implemented substantial changes in its legal regulations concerning transparency and the exchange of information and requested to undergo a supplementary review in June 2014. The changes are, of course, not only attributable to the result of the peer review but also to the combined impact of the anti-tax evasion measures of the EU, the USA and OECD. The measures prompting change included, for example, the USA’s Foreign Account Tax Compliant Act (FATCA) or the investigations concerning Swiss banks and the unprecedented penalties imposed as a result but we could also mention the amendments to the EU’s Parent-Subsidiary Directive (e.g. due to “hybrid loans”) or the recommendations of OECD’s BEPS (Base Erosion and Profit Sharing) Actions.
The results recently published already found Switzerland suitable to undergo a phase 2 review, i.e. the jurisdiction of the country was found capable of meeting the global transparency requirements in taxation. Phase 2, which addresses transparency in practice, will start in the last quarter of 2015. Switzerland is not the only country in Europe in this situation. It is interesting that the Czech Republic, Latvia, Lichtenstein, Lithuania and Poland have only completed phase 1.
The story also has a Hungarian implication as the result of the phase 2 review of our country was also included in the recently published report. Hungary received “largely compliant” rating. Only 20 of the total of 77 countries were rated “compliant”, 43 were rated “largely compliant”, 10 “partially compliant”, and 4 “non-compliant”.
We have to note that at the same time the European Commission also achieved milestone progress as a new agreement was recently signed with Switzerland for transparency and exchange of information in taxation. According to this agreement, from 2018, Switzerland will automatically share with the member states each year the data relating to the bank accounts opened by EU member state citizens in Switzerland including, among others, the name, address, telephone number and date of birth of the accountholder and all material information relating to the balances on the account.