Are we really lost without TRACE?

Oct 1, 2015 | 0 comments

I read a great article recently by Alix Robertson with subject matter experts Lorraine White of BNY-Mellon and Paul Radcliffe of EY, both of whom I happened to serve with on the European Commission Tax Barriers Business Advisory Group (‘T-BAG’). The article can be found in the September edition of Funds Europe and is called ‘Lost without TRACE’, a rather typically journalistic reference to the OECD group.

Both T-BAG and TRACE had similar objectives and seem, unfortunately, to have run into similar problems. The objective of both groups was to find ways to simplify the withholding tax landscape from its currently anarchic, complex and paper based model into something more fitting for there 21st century. The lack of adoption may seem somewhat curious given that both groups were brought into being so that the financial services sector could collaborate with the coordinatory bodies (OECD for TRACE and the European Commission for T-BAG). Paul and Lorraine served on both, I only served on the T-BAG committee.

Both groups came to similar conclusions, perhaps unsurprisingly given the overlap of personnel and the commonality of objectives. However, that should have been a signal to the various regulators that, no matter which way you look at this landscape, there are some common issues that need solving and some common solutions, at least from a business perspective. And therein lies the problem. While the business people were very glad to propose solutions which would meet their needs as intermediaries, it seems that the coordinatory bodies weren’t as connected to their constituencies as the business people may have presumed.

The OECD project has some interesting aspects, not least is the concept of an investor self declaration, somewhat akin to the US W-8 series, but with automation and standardisation built in (please use LEI in this too). The EU initiative also had some interesting aspects, not least the principle that all long form claims would have a maximum refund period of six months and be submissable electronically. Supported by both groups were the ideas of an authorised intermediary system (again similar to the US QI regulations) and reliance on tax relief at source as the primary modus operandi.

So why has there been no movement? Well, the EU stance at the end of the T-BAG report was that the EC needed to decide whether implementation of the report’s findings (which were all adopted unanimously in principle in 2013) was to be by voluntary adoption (potentially quicker but more fragmented) or by directive (longer time frame but with unanimity, consistently adopted). I was under the impression that the EC was going to have the next committee on from T-BAG aimed at getting the principle into practice in a couple of countries and then using that to facilitate voluntary adoption. The problem is that, from the EC’s viewpoint, all has gone quiet. My guess is that other initiatives with more political or vote winning clout (e.g. FATCA or CRS) have pushed both the OECD and EU initiatives into the long grass. It’s much more interesting to be seen to madly running after those immoral, unfair tax evaders than it is to be restructuring the withholding tax system to be more efficient.

So, I think we should perhaps have had greater engagement from the EC and OECD in terms of making sure that the mandate was underpinned by a commitment to implement within two years. In the absence of that, there was always going to be the political possibility that, however good the ideas, they might get sidelined by other things.

I think we (the industry) may also have underplayed the degree to which these changes would benefit the tax authorities through enhanced movement of capital. While we stressed the lowering in paperwork and the way the changes would help the authorities overcome, for example, the Giovannini barriers – those were not really benefits for the tax authorities today. We also probably over-focused on the business benefits. While laudable, we all know the level of distrust between the regulators and the regulated in the financial services world. So, while perhaps paying lip service to the concepts, it’s likely that the proposals of both TRACE and T-BAG were seen to some extent as self serving for the industry.

All that said, I still believe that the findings of both TRACE and T-BAG were consistent and would indeed deliver major benefits not just for businesses, but also for supportive governments. The question is how do we re-engage the different constituencies and get something done rather than get something talked about?

Image Credit: Adrian Scottow

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Author

Ross McGill

Ross McGill

CEO, TConsult

Ross McGill is the CEO and subject matter expert for TConsult. Ross is a specialist in QI and FATCA operational compliance, cross border tax reclaims, relief at source and information reporting. He over 23 years of experience in financial services, including 19 years at C level; and 30 years’ senior management experience in blue chip FMCG, including sales, marketing and operations.

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