Treasurer Joe Hockey with US Treasury secretary Jack Lew, on Friday. Photo: Louise Kennerley
The battle against offshore tax evasion is gaining momentum after Australia and the US struck a deal to combat tax-dodgers and G20 members prepared to sign off on a scheme for the automatic exchange of tax information.
American Treasury Secretary, Jack Lew, and federal Treasurer, Joe Hockey, announced in Sydney on Friday that the US and Australia had completed an agreement under America's Foreign Account Tax Compliance Act that targets “non-compliant” taxpayers using foreign bank accounts.
The announcement was made prior to this weekend's G20 Finance Ministers and Central Bank Governors meeting in Sydney, which is set to endorse a separate scheme for the automatic exchange of information between international tax authorities in a bid to crack down on offshore tax evasion.
This “single global standard” has been developed by the Paris-based Organisation for Economic Cooperation and Development.
The globalisation of the world's financial system has made it increasingly simple for individuals and corporations to hold and manage offshore investments.
Trillions of dollars have been deposited abroad in order to minimise or completely avoid taxation.
There is growing international concern about the long-term erosion of government revenue that results from offshore tax evasion, especially its impact on states' capacity to fund social services such as health and education.
OECD Secretary-General Angel Gurria says the single global standard for exchanging information would put governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion.
"This is a real game changer,” he said earlier last week.
“This new standard on automatic exchange of information will ramp up international tax co-operation.” More than 40 countries have already committed to the early adoption of the automatic information exchange.
The Australian government has made international tax reform one of the priorities of its year-long presidency of the G20, which kicks off with this weekend's meeting of Finance Ministers and Reserve Bank Governors.
The meeting will be a who's who of global finance including Janet Yellen, the first female chair of the US Federal Reserve, and International Monetary Fund chief Christine Lagarde along with finance ministers who preside over 85 per cent of the world economy.
Mr Hockey said on Friday the G20 will “work though” ways to ensure “greater transparency and fairer outcomes in the disclosure of tax liabilities and tax collections”.
Mr Lew said the G20's work on tax co-operation was among its most important new initiatives.
“Automatic exchange of information has quickly become the new global standard and I believe the G20 should continue to provide its full support and encourage all nations to adapt,” he said.
A declaration following the G20 Leaders Summit in St Petersburg in September supported the OECD work on the new single global standard for automatic exchange of tax information.