LAUNCH OF A PEER REVIEW PROCESS

Note on Assessment Criteria

2010
 THE ASSESSMENT CRITERIA

Introduction

1. The Terms of Reference note breaks down the standards of transparency and exchange of
information into 10 essential elements under three broad categories: (A) availability of information; (B)
access to information; and (C) exchanging information. This note establishes a system for assessing the
implementation of the standards that corresponds to the Global Forum’s goals of achieving effective
exchange of information and to the subject and structure of the review process for both Global Forum
members and non-members. Briefly, Phase 1 reviews will lead to an assessment of the jurisdictions’ legal
and regulatory framework, accompanied where necessary by recommendations for improvement. Phase 2
reviews will assess the application of the standards in practice, along with recommendations related to all
of the categories, and will ultimately lead to a rating of each of the essential elements along with an overall
rating. This note must be read in conjunction with the Terms of Reference and Methodology notes1.

The Goal of the Rating System

2. The object of the Global Forum’s review process is to promote universal, rapid and consistent
implementation of the standards of transparency and exchange of information. This can be achieved when
international tax co-operation allows tax administrations to effectively administer and enforce their tax
laws regardless of where their taxpayers choose to locate their assets or organise their affairs.

3. The Global Forum’s annual reports already show that the legal and regulatory frameworks in
place today are not equivalent among all jurisdictions. Internationally, there is a broad variation in the level
of implementation of the standards. The progress made by a jurisdiction in implementing the standards,
and likewise a failure to make such progress, should be highlighted as part of the Global Forum’s review
process. In this context the Global Forum reviews should:

 give recognition to progress that has been made,

 identify areas of weakness and recommend remedial actions so that jurisdictions can improve
their legal and regulatory frameworks as well as their exchange of information practices, and

 identify jurisdictions that are not implementing the standards.

4. The assigning of a rating is only one of the components of the review process relevant to
achieving these goals. Recommendations setting out clearly what improvements a jurisdiction needs to
make and, where possible, obtaining the agreement and commitment of the reviewed country to the
recommendation(s) are especially important. Indeed, ratings will always be assigned in light of such

1
See Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of
Information for Tax Purposes CTPA/GFTEI(2009)1/REV2 and Methodology for Peer Reviews and Non-
Member Reviews CTPA/GFTEI(2009)2/REV2.

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recommendations. In order to act as an incentive for jurisdictions to follow recommendations and respond
to ratings given by the Global Forum, however, the system should be dynamic and capable of taking into
account developments as they occur. While the Peer Review Group and ultimately the Global Forum may
not be in a position to re-evaluate jurisdictions immediately each time they make changes to their systems
of exchange of information, there should be an effective system of on-going monitoring that is flexible
enough to respond to a fast-changing environment. In accordance with the Methodology note, the PRG will
consider and elaborate proposed procedures for re-evaluating jurisdictions in light of changes that they
make to their systems for the exchange of information.

5. The review process is intended to be dynamic with the Global Forum continually monitoring the
process as the reviews proceed. Jurisdictions will want to review the recommendations that are addressed
to other jurisdictions to see if these are relevant for them.

Structure of the Rating System

Rating of the essential elements

6. The review process is divided into two phases, one that addresses the legal and regulatory
framework that is in place in a jurisdiction and one that addresses the effectiveness of the implementation
of the standards in practice. As noted, the standards are divided among 3 broad categories and are broken
down into 10 essential elements. The essential elements themselves are further broken down into 31
enumerated aspects. A rating system could therefore take on a number of structures. It is possible to rate
each element and enumerated aspect during both Phase 1 and Phase 2, to rate only essential elements
and/or to give an overall rating. Each aspect of the review process should be evaluated in the manner which
best fulfils the objectives set out above and that promotes an efficient operation of the review process.

7. There are a number of reasons why it would not be appropriate to rate each enumerated aspect.
Not all of the enumerated aspects are relevant to all jurisdictions, whereas there may be cases of certain
considerations that are so specific to a particular jurisdiction that they are not directly covered by a specific
enumerated aspect within an element of the Terms of Reference. The same enumerated aspect may also
have different significance in different cases. Even if the enumerated aspects are not rated per se, they will
each have to be evaluated by the assessment team. Recommendations made by the assessment team will be
as specific as possible and so will generally be directed to the enumerated aspects. In light of these
considerations, the enumerated aspects of the elements will not be given a rating per se in the reports
provided to the PRG. This will allow the PRG (and the Global Forum) to focus their efforts on the main
substantive issues, rather than expending excessive time in discussions of individual ratings, and ensure
that where PRG delegates require further information, this will be contained in the commentary of the
report, or may be presented by the assessment team during oral debate.

Outcomes of Phase 1 reviews

8. A distinction should be drawn between Phase 1 and Phase 2, and between the respective types of
assessment that should be applied to each of them. Phase 1 reviews are concerned with the adequacy of a
legal and regulatory framework for the exchange of information and so they evaluate what is a necessary
but not sufficient condition for the effective exchange of information. Phase 2 reviews consider the
effectiveness of the transparency and exchange of information practices in a jurisdiction and thus these
reviews can reveal whether and to what degree a jurisdiction is in compliance with the international
standards. Consequently, the purpose of a Phase 1 review is to assess the extent to which a jurisdiction has
in place the elements that would allow it to achieve effective exchange of information in practice. For this
reason it would be inappropriate to assign definitive ratings at the end of Phase 1, although whether a
jurisdiction moves to its Phase 2 review will depend on the outcome of the Phase 1 review.

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9. Accordingly, Phase 1 assessments will lead to one of the following determinations in respect of
each essential element:

Determinations – Phase 1
The element is in place
The element is in place, but certain aspects of the legal implementation of
the element need improvement
The element is not in place

These determinations will be accompanied by recommendations for improvement.

10. A jurisdiction will normally qualify for a Phase 2 review once its Phase 1 review has been
completed, even if certain aspects of the elements are identified as requiring some improvements.
Jurisdictions would normally have strengthened their legal and regulatory frameworks where required in
accordance with Phase 1 recommendations. If so, these improvements would be assessed in the context of
the Phase 2 review. Where improvements have not been made, this will also have an impact on the Phase 2
outcome.

11. In cases where a jurisdiction does not have in place elements which are crucial to it achieving an
effective exchange of information in its particular case, the jurisdiction will not move to a Phase 2 review
until it has acted on recommendations to achieve an improved legal and regulatory framework.2 Each case
may be different, and may require individualized attention from the PRG, but a very clear example of such
a circumstance would be a jurisdiction that does not have in place an agreement with any relevant
jurisdiction that provides for the exchange of information in tax matters or a jurisdiction that has no access
to bank or ownership information or where reliable accounting information generally is not available. If the
PRG concludes that the jurisdictions’ legal and regulatory framework does not allow for effective
exchange of information and as a result the Phase 2 review is deferred, then the position will be reviewed
on the occasion of the jurisdiction’s detailed written report to the PRG within 12 months of the adoption of
the report. Once the jurisdiction has sufficiently addressed the recommendations made in the Phase 1
report, then its Phase 2 review shall be scheduled.

Outcomes of Phase 2 reviews

12. In contrast to Phase 1, it is appropriate in the context of a Phase 2 review to provide ratings of the
jurisdiction’s compliance with the standards, as the effectiveness of implementation of the essential
elements can be rated once an appropriate subset of jurisdictions has been assessed. Through the Phase 2
reviews, jurisdictions will have the opportunity to demonstrate (whether through quantitative data or other
factors) that implementation of the essential elements is effective in practice.

13. While each of the essential elements will be rated, the ultimate object of the exercise is to
evaluate the overall effectiveness in practice of a jurisdiction’s system for exchange of information. The
issuance of an overall rating will best achieve both the recognition of progress by jurisdictions toward the
level playing field and the identification of jurisdictions that are not in step with the international
consensus.

2
Jurisdictions chosen for combined reviews are from among those with established systems of exchange of
information and experience with its practice. Where the Phase 1 aspects of the combined review indicate
that elements which are crucial to the jurisdiction achieving an effective exchange of information are not in
place, this should be brought to the attention of the PRG chair and vice-chairs to determine whether an
adjustment to the schedule of reviews should be made.

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14. The Phase 2 evaluation, including the overall rating, would be applied on the basis of a four-tier
system:

Rating Phase 2 – Exchange of Information

Compliant The essential element is, in practice, fully implemented.

Largely compliant There are only minor shortcomings in the implementation of the essential element.

Partially compliant The essential element is only partly implemented.

Non-compliant There are substantial shortcomings in the implementation of the essential element.

Application of the Rating System

15. Peer reviews and non-member reviews require informed judgements to be made by the assessors
and the members on the basis of the information provided to them. Jurisdictions must implement the
international standards in a manner consistent with their national legislative and institutional systems, and
so the methods by which compliance is achieved may differ from jurisdiction to jurisdiction. What is
essential is that a jurisdiction is able to respond to a request for information in a manner that enables the
exchange of information to be effective. Responsibility for ensuring a fair and consistent outcome of the
reviews as a whole and the application of the rating system in particular will fall to the PRG, which should
have an active role in ensuring that similar cases are treated similarly and that real distinctions in the
effectiveness of the systems for the exchange of information in different jurisdictions are reflected in the
assessments given to each. Of course, the assessment teams will play a crucial role in this regard as they
will be charged with crafting the draft report for approval of the PRG.

16. In determining the ratings for the essential elements in Phase 2 reviews, assessors must exercise
judgment in terms of whether shortcomings in the implementation of an essential element are minor or
substantial, and how such shortcomings translate into ratings in a four-tier system. In coming to this
determination, assessors must ultimately evaluate what impact the shortcomings have on effective
exchange of information. This can include an appraisal of the extent to which the impediment was cited by
the jurisdictions’ exchange of information partners, or whether the type of information or request
concerned relates to a large portion of the jurisdiction’s flows of income or investment. For example, a
jurisdiction may have a deficiency in providing information in practice in respect of companies that have
issued bearer shares, but only allow the issuance of such shares in limited circumstances and the
jurisdiction’s exchange of information partners have not cited this as a significant problem. In such a case
this may be regarded as a shortcoming that would not, on its own,3 lead to a determination that the
jurisdiction is only Partially or Largely Compliant in respect of element C.1.

17. It is also important to note that assessors will already have considered the impact that a
shortcoming has on the jurisdiction’s practical ability to exchange information when formulating their
recommendations. Assessors should ensure that the classification of a shortcoming as minor or not is
consistent with the tenor of the recommendations issued in connection with it. It would be unusual if a
particular shortcoming is regarded as minor, but its remedy required the jurisdiction to take quite serious
and involved steps to remedy it. For example, if assessors determine that a jurisdiction has an inadequate
infrastructure for exchange of information and have made a recommendation for significant and wholesale

3
Whether a series of shortcomings amounts to a deficiency that would lead to a determination that the
jurisdiction is only Partially or Largely Compliant will depend on the individual circumstances.

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changes, then this should correspond to more than a minor shortcoming in the practical exchange of
information. Conversely, if assessors do not uncover significant difficulties in the jurisdiction’s practical
experience with exchange of information, then this should impact the urgency of the recommendation
regarding the jurisdiction’s infrastructure.

18. While the overall rating will be based on a global consideration of a jurisdiction’s compliance
with the individual essential elements, this cannot be a purely mechanical approach. This will require
judgment, taking into account the outcomes from the Phase 1 and Phase 2 reviews and the manner in which
jurisdictions have responded to any recommendations made. In particular, the Compliant category should
not be viewed as an unobtainable goal that requires perfection as consideration must be given to the fact
that some jurisdictions engage in extensive exchange of information including in a variety of sophisticated
cases, whereas others may be limited to delivering information on a much more limited scale. This
judgment must take into account the nature, complexity and scale of information requests made to the
jurisdiction.

19. It will be important to complete Phase 2 reviews for a subset of jurisdictions representing a
geographic and economic cross-section of the Global Forum before finalising ratings, in order to ensure
that application of the ratings system is consistent across jurisdictions. This is because the ratings
determination is likely to require some comparative perspective, without which early ratings may not be
consistent. Thus, the publication of ratings should be taken up by the Peer Review Group and ultimately
the Global Forum at such time as a representative subset of Phase 2 reviews is completed, which would be
expected to be within the first mandate.4 In the interim, to ensure that the work of the Global Forum
progresses expeditiously and promotes rapid and consistent implementation of the standards, both Phase 1
and Phase 2 reports will be published with full assessments as they are adopted by the Global Forum.

Conclusion

20. A variety of considerations have an impact on the choices made in designing an assessment
system, from theoretical and substantive factors to practical concerns inherent in any undertaking of this
nature. Ultimately, the goal is to create a system that can be fairly and efficiently applied and which
encourages continuing progress towards effective exchange of information across a broad universe of
jurisdictions each having its own unique characteristics. The assessment system balances these factors
against the objectives of the assessment system. Phase 1 reviews assess jurisdictions’ legal and regulatory
framework coupled with recommendations for improvement for the essential elements in categories A
(availability of information), B (access to information) and C (exchanging information). Phase 2 reviews
will include recommendations related to all of the categories, and be accompanied by ratings for each of
the essential elements, as well as an overall rating, as soon as a representative subset of reviews is
completed.

4
The PRG will review the question of when ratings should be assigned and advise the Steering Group,
which in turn would consult the Global Forum.

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 For more information

Global Forum on Transparency and

Exchange of Information for Tax Purposes
www.oecd.org/tax/transparency

Centre for Tax Policy and Administration work

on Tax Evasion
www.oecd.org/tax/evasion