The Organisation for Economic Co-operation and Development (“OECD”) recently unveiled plans for a new single global standard for the automatic exchange of tax information, following calls from G20 leaders to increase pressure on those evading taxes and to create trust and fairness in the international tax system.
So far over 40 countries have expressed commitment towards an early adoption of the standard which will require all signatory countries to notify each other, on an annual basis, if its banks or financial institutions have accounts held under the name of that country’s citizens or companies.
The OECD Secretary-General, Angel Gurría has described the new standard as a “game changer” and commented, “This new standard on automatic exchange of information will ramp up international tax co-operation, putting governments back on a more even footing as they seek to protect the integrity of their tax systems and fight tax evasion."
Contents Of The Standard
The standard sets out:
The financial account information to be exchanged;
The financial institutions required to report;
The types of accounts and taxpayers covered; and
Common due diligence procedures to be followed by financial institutions.
The OECD report on the standard provides details of proposed Competent Authority Agreements (“CAA”) which sets out detailed rules for the exchange of information, and Common Reporting Standard (“CRS”) which contains reporting and due diligence rules for signatory countries.
The new proposed standard mirrors work already carried out by the OECD in relation to the automatic exchange of information, incorporating progress made within the EU to reinforce global anti-money laundering standards, and also using some of the framework that has already been implemented by organisations to facilitate the US FATCA.
Implementation Of The New Standard
The implementation will be based on domestic law and the OECD have highlighted the importance of consistency of application across jurisdictions in an effort to avoid creating unnecessary costs and complexity for financial institutions, particularly those operating in more than one jurisdiction.
Implementation information and technical solutions to facilitating the information exchange are yet to be finalised but the OECD expect these to be released during a G20 meeting of finance ministers in September 2014.
Reportable accounts include accounts held by individuals, entities, trusts and foundations. The standard also contains a requirement to examine passive entities to report on the individuals ultimately controlling the entities.
The financial information to be reported from eligible accounts includes account balances, sales proceeds, financial assets, as well as all types of investment income such as interest, dividends and income from certain insurance contracts.
The OECD document highlights that these are minimum expected standards and that countries can ask for more information, the framework is not intended to restrict other types of automatic information exchanges. The scope of the framework is intentionally broad, and similar to FATCA, in an attempt to reduce the risk of circumvention.
This latest effort by the G20 and OECD to ‘tighten the noose’ on tax evaders is the most ambitious to date, while plans for the implementation are still in development tax professionals are sure to be busy already preparing for the implementation of FATCA. Only time will tell how effectively the exchange of such a large amount of information can be facilitated and for now all eyes are on the OECD.