 Thank you very much The title of this talk is dust global financial transparency improved tax compliance among the rich in developing countries It is a joint work with laukel arson who is in Copenhagen and Nadine the needle from Munster What you see in these slides is our views like this is not necessarily those of South African institutions and authorities You know, so this is really a work in progress So I'm very happy to take comments and suggestions from you like either now or after the talk And I'm also a little bit worried about presenting it here because we have people who are much more knowledgeable about South Africa than myself in the room So again, that's I mean, I hope to get to get Good and candid feedback from from you guys All right And so this talk really ties like very directed to what anti those just talking about because what we mean by global financials transparency here Is really like this kind of automatic information change that we just had introduced All right So we know that there is a lot of wealth a lot of assets that are invested through Offshore Financial Center So there's one estimate up here of six trillion dollars that corresponds to around ten percent of household wealth Globally and there are other estimates out there You know similar magnitude so There's also evidence that you know that a lot of this wealth at least Historically has not been tax compliant. So people would use these offshore accounts to you know, hide money from tax authorities And there's also now evidence from many countries that this is really like these assets are really concentrated at the very top of the Wealth distribution. This is money like belonging to the very wealthiest people in our societies So so this like makes you worried that this like these offshore financial centers. They really facilitate Offshore tax evasion among the very wealthiest on a on a big scale so The global policy community has taken this quite seriously in the sense that they have actually Like implemented a policy that any just ended. I just talked about At a global level that is a very ambitious attempt to tackle this kid this issue So automatic and mystic change means concretely that if I tomorrow Travel to Zurich and open a Swiss bank account Well, then the home like my home tax authorities will like be informed about kind of the account balance and the income accrued to that Account next year. So makes making it very hard for me to now kind of in principle to evade taxes that income And so this is hugely ambitious Why well because why this is in a way, it's the first serious attempt to roll out like Automatic third-party information On a global level and we know that third-party report is mission is kind of it may be the most powerful tool to really counter tax non-compliance That said, it's also true that this kind of cooperation comes with many many practical Challenges and obstacles I've been working now like in three countries with tax authorities and it it is just it's very difficult to really Use this information in the same way as you know third-party report information from from domestic sources still like there's still a lot of scope for But anyway, but so what we are what we after in this prop put a project that is implemented in South Africa is really to understand like How this like very ambitious policy how and how much it contributes to tax compliance in developing countries? Allowing ourselves to generalize a little bit from the South African case And so this is the paper in a nutshell So we use administrative micro data from South Africa to assess the policy and we are basically after three questions So one is the scope of the policy like so basically how much? South African owned wealth does is covered by this new third-party reporting And also how is this wealth distributed within South Africa? But also try to say something about what we call exposed non-compliance So basically after this policy has been implemented So how large is then the gap between the income that we think people that we think people really have abroad which you can say this is the income reported by by foreign banks and then The income that people themselves report on their tax return like the self-reported foreign income So that would be like a measure of the compliance gap that still exists after the policy has been put in place and Then finally real real try to say something about like compliance responses So basically can we can we can we see that? I mean that the policy has had an effect in itself by kind of pushing people to to to self-report More forwarding so that's a little bit the story about like how did we how did we get to the exposed compliance non-compliance? We've seen the data and time is short to let me just give you a preview of the fire of preview of the findings here Like before I go into the details. So at least you you get this take away with you So the scope of the policy we find that the South African taxpayers or personal taxpayers have assets around 500 billion South African rent on offshore Accounts and like it's heavily concentrated in the highest income groups and most of it is located We used to call a tax hates this corresponds roughly to 5% of the household wealth in South Africa that is on these these foreign accounts In terms of exposed compliance are basically just really comparing kind of the offshore income that the foreign banks report That South Africans have to what they themselves report on their tax return So just that they're still like a pretty significant gap that basically What the banks report is like three times larger than what people themselves report on their tax return So just think that there is I mean and this is there a number of caveats here And one is really that I mean our data set for now only runs until 2017 like the tax data set This is really kind of like really the first year where this information Was available meaning that you know that it might have improved a lot over time This is something that we are keenly interested in in finding out and Then when we study compliance responses so really kind of basically what we're doing is comparing people who who who who like received or like where reports on their foreign accounts are File at different points in time and see can we see like some systematic patterns in when they start to self-report more and We find very little of that like basically like very small kind of self-reporting responses to this like onset of bank reporting and Again, this could be like something that reflects just that we are looking at the very early time period And they might have improved over time hopefully All right, so let me Dig into it. So just very briefly on the data. So we use two data sources So first we have people's personal income tax returns and what is interesting here is of course like both like they are total income We can say something about where people are in the income distribution But also we can see like very specific and specific information on different income components For example for an interest income point different income and so and we can match that with these CRS forms that are submitted by foreign banks at the individual level So that requires however that that there is like a tax ID number on the serious one That's not always the case and also that it actually does match to something in this universe of Personal income sector. That's also not the case always I'll come back to that in a second So here's a picture that illustrates kind of the like the aggregate account or Aggregate account balances of South Africans in foreign banks and how it has involved over time So this is what I call offshore wealth here And you can see that it kind of it climbs over time is the black line up to around 500 billion rent in 2020 there's also like a split on what we call tax havens and non havens And you can see that like around two-thirds of this South African wealth abroad is placed in in tax havens like Switzerland Luxembourg, Singapore, Cayman Islands and so on So this you could get the impression here that this is something that's increasing a lot over time In fact, this mostly reflects, you know, this that the more and more jurisdictions are reporting to South Africa So if you look at kind of different reporting waves one of the time You can see that this is roughly constant most of the increase is just because the serious is kind of being faced in So So like aggregate offshore wealth around 500 billion rents again This kind of roughly in line with previous estimates and also what people is doing wealth accounting have have use and And you know like so the number of reasons why this actually might understate True offshore wealth for example, there are some asset classes not covered here There might be imperfect reporting by banks There might be more accounts that are held kind of through personal holding companies that are really household wealth too and so on so All right, so how am I doing on time? I forgot to start the timer Okay, I'm doing fine. Good so So now let me come back to the if you want to kind of to say something about who are the owners of this Offshore wealth we need to kind of to do to use this match to personal income tax returns and So this turns out to be a little bit tricky So in fact we can only match something like 40% of of these serious returns to to income tax returns And that reflects two things so first like often times. There is just no tax ID number So that that's that's one thing and then there are other cases where these 10 numbers just don't match to any Tax deferred and I think like so this can probably be improved at least the last part of it But I think this also kind of speaks to to a real challenge, you know that that also Angela mentioned And that's probably become smaller over time But just that it's not super easy to get like a package of data from foreign tax authorities and then just match it on your own Tax return to something that really requires some work before you can you can actually use this for something useful What is a little bit reassuring is that now we can kind of take the universe of these serious reports And then we can compare kind of the characteristics of those accounts across those that are matched those men and those that just I mean Within those that cannot be matched those that have and do not have a tax ID number and it turns out that you know that that That accounts that are high balance that are kind of large accounts that belong to that are high income That are active and that are in havens actually are more likely to have a tin number and also If they have a tin number to match to a tech deter so this kind of goes Against the idea that kind of really sophisticated and smart tech invaders can somehow avoid that they are That their account is reported. It seems to be the opposite actually So there seems to be little kind of yeah That can be actively done here to escape magic So let me just say something about kind of the income gradient in this offshore account ownership Just to to make the case that also in South Africa It's the case that you know that these accounts mostly belong to very high-income people. So this on the x-axis here are broken down like Created these income groups. So by the so the first group is the bottom death side and the next death side There's one and at the very top you have the furthest to the right You have the zero point zero one percent of income tax earners And here I'm just showing you kind of the share people who have an account in the CRS And you can see that this is around 30% of the very top income earners who have like a foreign account in the CRS Even despite kind of the imperfect matching, right? So that makes it even more impressive and really below the top 5% there's almost no one who has a foreign account If you take the total kind of Universe of assets and just say what what share belongs to different positions of the income distribution You get this picture where you can see that like around 30% so one-third of the total assets Belong to the to the top zero point zero one percent like a very tiny group that really owns like a big Fraction of these of these foreign assets. So so like in other countries like this this issue here It's really about like like wealthy people high-income people who have these foreign accounts How much non-compliance is there? So again So so let me just show you go right to the picture So this is what I what I alluded to earlier where we basically we make we just compare two time series here so the gray time series is basically like the foreign financial income that South Africans report on their personal tax return and the black line is The foreign financial incomes that foreign banks say that South Africans have in those banks and you can see That there's a gap here, right that there's something like a four billion SAR on on people's tax returns, which compares to around 14 billion SAR Ransorry on on on these foreign reports Suggesting a gap around 10 10 billion Rans here that would then be kind of under estimate on under reporting of offshore financial income So that is in 2007 and we would love to and we are working on kind of Extending this gray line to see like how this develops over time It could be that you know this non-compliance gap it it shrinks as tax authorities are doing their work, you know, they are kind of Cracking down on people who have a gap on their tax return and so on and there's something we really like to to look into Finally this question so how did we get there so like can we can we see evidence of any? Like so compliance responses to an amazing change again what we are doing I won't go into the details here, but we basically can comparing people who because they had assets in different countries They get reported on at different points in time So there is like a first year as wave here who where the report the first report Arise in 2016 and then they are like a later wave where the first report arrives later on We can kind of use that to identify a compliance response so if you just look at At the extensive margin, so just basically an indicator of whether you have any foreign income on your account So on your tax return you can see that you know something that that looks like a response So kind of that this is like the differential probability of so reporting poor income of those who get it the first report 2016 versus those who get it in 2018 or 19 you can see like it's not that they are like on perfectly Parallel to reactaries before kind of these reports start hitting the ground But but there is something like a differential increase in 2016 when these first reports arrive But as well as hit the small you can see it's only like something like 3% so like 3% of points our response If you look at the intensive margins are basically among those who who have foreign income is does is there like an and percentage increase that is larger like for those who get a Report versus those who don't it doesn't really look like there is anything at this point So let me conclude I think my time is up So just like if you look at the aggregate offshore wealth of Africans it amounts to around 500 billion rent Which is like roughly 5% of national wealth and it's highly concentrated in the highest income groups It looks like just comparing kind of time series for people's own self-reported Foreign income and the bank reported for an income that there is like a still significant compliance gap of around 10 billion rent in income and this is as of 2017 who realize have that updated and And finally like we don't see a lot of evidence of kind of behavioral responses that people you know Start reporting more for an income at the point when these Foreign information reports start arriving Thank you very much