1. Exchange of Information - A Customs Perspective Chang-Ryung HAN Research Unit, Office of the Secretary General World Customs Organization

2. Contents Background EOI between Customs administrations EOI between Tax authorities and Customs administrations Use of Foreign Exchange Transactions Data 2

3. Background The WCO is an intergovernmental organization dealing with Customs matters, representing 180 Customs administrations around the world. The WCO’s mission is to provide leadership, guidance, and support to Customs administrations to secure and facilitate legitimate trade, realize revenues, protect society, and build capacity. While the proportion of Customs duties of overall tax revenues has decreased, Customs revenue collection remains significant, especially in developing countries. Contribution>= 25%>= 10% and < 25%< 10% Customs (%)60.332.86.9 Table 1: Customs’ contribution to tax revenue Source: WCO Annual Report 2014-2015 3

4. Information that Customs seeks to obtain via EOI i.Trade transactional information from trade documents (e.g., prices, quantity, and quality of commodities, and transaction partners) The goals of EOI i.To improve the levying of taxes on cross-border trade ii.To investigate and deter illicit trade Types of EOI (usually on request) i.Bilateral EOI ii.Regional EOI (e.g.., US Customs and Immigration Enforcement’s (ICE) trade data sharing program) iii.Automatic EOI: Export declarations fed into import declarations? Not yet 4 EOI between Customs administrations

5. EOI btw Tax authorities and Customs administrations 5 Organization Types of Customs administrations Source: WCO Annual Report 2014-2015

6. EOI btw Tax authorities and Customs administrations Customs administrations → Tax authorities i.Exchange of trade data (i.e., purchases/sales data) between Customs and tax authorities can help detection of undeclared/misdeclared taxation sources for both parties ii.Monetary instruments import / export data can help tax authorities detect unreported incomes or assets iii.Customs investigation of trade-based money laundering is useful to discover cross-border tax evasion 6

7. EOI btw Tax authorities and Customs administrations Customs administrations ← Tax authorities i.Tax authorities’ sharing purchases/sales data with Customs administrations can help detect unreported / misreported declarations ii.Tax authorities’ data on tax payers’ incomes and assets will be helpful for Customs administrations to recover tax arrears Foreign Customs → (Foreign Tax) or (Customs) → Tax authorities i.The values of import goods in 3 rd countries may be helpful for tax authorities in tackling malicious transfer pricing of MNEs 7

8. Use of Foreign Exchange Transactions data Flow of goods vs. Flow of money, trade payments. Cross-referencing between customs declarations and foreign exchange transactions for trade payments Trade payment declaration ? 8 PlayerSymptomDiagnosisPossible offence ImporterValue declared < Value paidUndervaluatio n Evasion of trade taxes; capital flight Value declared > Value paidOvervaluationEvasion of corporate income tax; embezzlement of domestic buyers (e.g., government) ExporterValue declared < Value received Undervaluatio n Evasion of corporate income tax Value declared > Value received OvervaluationExport subsidy fraud; capital flight

9. Conclusion The WCO is developing guidelines to facilitate EOI between tax authorities and customs administrations. The WCO welcomes suggestions by CIAT for this project. 9

10. 10 Contact for questions or suggestions: chang-ryung.han@wcoomd.org