There is an overlap between some components of key indicators 12 and 13. The overlap consists in the IDs 435, 558 and 559. ID 435 of key indicator 12 (https://fsi.taxjustice.net/PDF/12-Consistent-Personal-Income-Tax.pdf) focuses on the comprehensive scope of the personal income tax system by assessing if worldwide income is subject to tax, if lump sum taxation is available and if capital gains and all types of incomes are included. ID 558 and ID 559 of key indicator 13 (https://fsi.taxjustice.net/PDF/13-Avoids-Promoting-Tax-Evasion.pdf) assess the tax treatment of foreign investment income regarding dividends and interests received by a natural person.

As is generally the case for the Financial Secrecy Index, key indicators 12 and 13 apply the weakest link approach. Under this principle, an assessment – a data point – will take the value corresponding to the worse or highest-risk situation possible under the laws, regulations and known practices of a jurisdiction. In effect, the index puts its focus on the situation of highest risk that a jurisdiction enables. Therefore, any, even temporary, exemptions for taxing of interest and/or dividend income would be captured in key indicator 12 but also in key indicator 13 as it reflects an incomplete personal income tax scope. There is a concern that the same policy stance may be double counted across the two indicators.

Broadly speaking, we should expect jurisdictions that have an incomplete personal income tax scope under key indicator 12 due to the existence of lump-sum, territorial or remittance tax regimes (which results in a high secrecy score), to also show exempt treatment for foreign dividends and interests received by a natural person in key indicator 13 (which results in a high secrecy score). Reciprocally, we should expect jurisdictions that have exemptions for foreign source interest and/or dividends under key indicator 13 to also have an incomplete scope for personal income tax in key indicator 12.

However, there are two specific exceptions to this logic. In the first exception, Some jurisdictions have a high secrecy score in ID 435 of key indicator 12 (graded as “=2”, see table 12.5 on page 13 of key indicator 12) because their personal income tax excludes capital gains and may at the same time have a low secrecy score in IDs 558 and 559 of key indicator 13 because they include foreign dividends and interest in their personal income tax base (and provides tax credits for foreign tax paid).

In the second exception, some jurisdictions similarly have a high secrecy score in ID 435 of key indicator 12 (graded as “=1”, see table 12.5 on page 13 of key indicator 12) because the personal income tax regime is territorial and generally excludes foreign income (such as foreign wages, foreign source capital gains or foreign investment income). Yet certain jurisdictions with this kind of “limited territorial” tax system do not have a blanket exemption for foreign income, and rather include foreign investment income in their personal income tax base. Thus, in cases where we determine a high secrecy score in ID 435 (=1) due to the exclusion of foreign capital gains, or in cases where a territorial tax system exceptionally includes foreign investment income in its personal income tax base and tax credits are available for foreign tax paid, it would nevertheless be consistent to obtain a low secrecy score in IDs 558 and/or 559 of key indicator 13.

In order to address the concerns for double counting and/or inconsistency across the two indicators, one option would be to abolish one of the indicators, so as to avoid overlapping data points altogether, and with the effect of reducing the overall weight on these aspects. Another option would be to ensure consistency between those components based on the weakest link approach, and cross-check data between both indicators and the relevant components. A further option would be to follow a principle of “conditional consistency” between both indicators so as to consider e.g. capital gains only in key indicator 12, but not in key indicator 13.