JITSIC six years on

Dave Hartnett, Permanent Secretary for tax, HM Revenue and Customs, takes BusinessIFC readers behind, "the closed doors" of the Joint International Tax Shelter Information Centre (JITSIC) and outlines the organisation's work and expanding plans for the future.

Since its inception in 2004, the Joint International Tax Shelter Information Centre (JITSIC) has proved something of an engima to tax advisers internationally who often ask for more transparency. Here I aim to lift the veil and say something about JITSIC's work, and what the future may hold.

Membership

JITSIC was formed in 2004 as a distinct international unit established under a Memorandum of Understanding between tax administrations. It is staffed by delegates seconded for extended periods with the simple remit: to supplement the work of their tax administrations in identifying and curbing cross border tax avoidance by operating more effectively through double taxation agreements.

When the Commissioners of Australia, Canada and the United States and I first conceived of the idea we knew it had great potential but it was by no means certain how much it could achieve. It was, however, clear to us that we needed to make a step change in our existing relationships if we were to make real inroads into identifying, understanding and addressing tax avoidance.

Japan joined within a year and in 2007 JITSIC opened an office in London to host delegates from Australia, Japan and the United States complementing the existing facility in Washington, DC where the IRS hosts delegates from Australia, Canada and the United Kingdom.

Soon JITSIC will be operating on a bigger scale with China, France, Germany and the Republic of Korea participating.

Governance

 Some tax advisers say that too much information is being exchanged. Right from the beginning we have recognised the importance of operating within bilateral treaties and it has been a requirement of all representatives that they have Competent Authority (CA) status, and are experienced tax professionals within their own administrations. All case-specific written exchanges and case conferences occur on a purely bilateral basis within the terms of the relevant treaty and are moderated by the appropriate CAs. There is strict control of the information exchanged. We err on the side of caution.

More generally, the question might be phrased as "Is JITSIC bad for taxpayers?". My response is an emphatic no. As JITSIC has developed, it has become clear that the information and knowledge-sharing taking place between tax authorities has benefited all parties. Most of the cases JITSIC look at are complicated and it often isn't clear at first whether what either tax authority would consider tax avoidance is in fact present. In the absence of JITSIC involvement, issues are often difficult for investigators simply through a lack of expert advice on other countries' regulatory and commercial constraints, let alone their tax system.

In many cases the exchanges of information and case conferences do lead to a view that avoidance is present but in all cases they also mean that we clarify the real risks, uncertainities and arguements much more quickly. These exchanges can involve testing a taxpayer's commercial rationale for a series of transactions, including whether both tax authorities are being told the same story: it may surprise you to know that occassionally this not the case! This all helps to resolve contentious matters as fast as possible, saving costs for the public purse as well as for business.  

Case conferences, moderated by CAs, can be arranged between tax experts in some cases within days or even hours of an issue being raised. This a far cry from the days of exchanges being managed entirely by post and with all the confusions introduced by misunderstandings of language as well as the complications of different tax and regulatory systems. The discovery and exposure of foreign tax credit generators took place in JITSIC as did much of preparatory work for the UK's 2005 arbitrage legislation.

Significantly for business, there have been a number of cases, one or two even reported to me by tax advisers, where the involvement of JITSIC has resulted in a decision that there is no avoidance. The transactions of concern were carried out for entirely sensible commercial purposes - case closed.

Multinational engagement

From the viewpoint of taxpayers not engaging in avoidance, JITSIC helps to ensure a level playing field between multinational corporations and between them and domestic corporations. International tax advisers will no doubt recognise that the JITSIC type of multinational engagement is something that they themselves have been doing for years.

Since 2009, JITSIC's work programme has expanded to reflect issues of interest in other international groupings such as the OECD Forum on Tax Administration. These have included issues arising from the economic crisis, offshore arrangements, transfer pricing administration and High Net Wealth Individuals. 

More generally, in addition to case specific exchanges of information, participants regularly exchange anonymised details of new avoidance schemes and trends. This is very valuable in keeping everyone abrest of "real-time" developments as they are seen on the ground. We may have to live with the fact that we are always going to lag behind tax planners but this does help to level the playing field, shortening the time between schemes being put into play and member countries becoming aware of them.

Finally, JITSIC members share developments in case law and tax legislation, along with a wide range of administration and policy issues. These can range, for example, from discussions about different approaches to the development of tax professionals, to how well GAAR's are operating, to the success of the UK's avoidance disclosure regime.

What the future might hold

JITSIC will continue to play an important role in tackling cross-border avoidance by taxpayers of all descriptions. It fits naturally within the current international agenda as seen in, for example, the OECD and G20, of increased use of information exchange, sharing of intelligence between tax authorities and focus on cross-border avoidance and arbitrage. 

JITSIC is probably already at, or approaching, its optimum size. Going forward, it can serve as an example for other groups of countries, with common cross-border interests, of how strong and valuable relationships between tax authorities can be built on a foundation of treaty moderated information exchange. Who knows, in a few years' time there may be a number of "JITSIC" groups spread around the world.

I hope I have provided a pretty clear flavour of the types of activity taking place behind JITSIC's closed doors. Not all of it requires treaty protection but much of it will always be highly confidential given it is cutting-edge intelligence or might indicate a direction of travel for a member country in tax or operational policy prior to any public announcement.