Doubts Rise Over CRS Security

By Global Tax Weekly

There seems to be no limit on the type of information that governments are now willing to exchange with each other. First it was details about people’s bank accounts, then it was company transfer pricing information, swiftly followed by tax authority rulings in the European Union and, now, the EU wants to share information on beneficial ownership.

For the time being, bulk information exchange mechanisms remain restricted to the area of taxation. But what next I wonder? Maybe governments could keep an eye on our eating and drinking habits in their fight against obesity and excess and their associated health problems. They could then tailor their “sin” taxes to the individual accordingly, leaving the more virtuous among us unpunished. Perhaps governments could exchange photographs of vacationers tucking into a hearty supper after lazing on the beach all day. Then again, they wouldn’t really need to. People already do that on Facebook.

Anyway, I wish to raise a serious point, something I’ve warned about before in this column: privacy. Like most people, I support international efforts to crack down on tax evaders, criminals, and corrupt officials, but it seems that governments have blinded themselves to the dangers of near-ubiquitous automatic exchange of information. We know how easy it is for hackers to access supposedly secure electronically stored information of all types. Why does the OECD, for example, think the exchanges under the Common Reporting Standard will be so secure?

I guess the answer is that the OECD thinks the confidentiality safeguards in place are more than adequate. Many observers beg to differ however, including international law firm Withers, which warned earlier this month that the CRS “exposes the great majority of tax-compliant individuals to the risk of data breaches (e.g. hacking) when their data is transferred. This data includes detailed confidential information, such as the name and date of birth of the account holder, the name of the bank and the account number, as well as the account balance.”

Partner Filippo Noseda added: “There are also concerns where information is exchanged to countries with low levels of personal security and a number of countries who have jumped on the CRS bandwagon also feature prominently on Transparency International’s Perceived Corruption Index. This problem is exacerbated by the fact that a lot of information exchanged under the CRS is irrelevant for tax purposes, which leads to an over-exposure of compliant clients to systemic risks in their country of residence.”

It would be very ironic indeed if the CRS ends up providing opportunities for further criminal activity, rather than reducing them.

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