The Organisation for Economic Cooperation and Development (OECD) has published its proposed global standard for the automatic exchange of information between tax authorities worldwide.
The document closely follows the agreements negotiated between the US and other governments in the last two years for the implementation of the US Foreign Account Tax Compliance Act (FATCA). The principal difference is that the OECD procedures do not contain any US-specific references, since they are intended for information exchange between any two countries. Also, they are couched in terms of the tax residence of individuals, not their citizenship as in the FATCA agreements.
The OECD standard is expected to be adopted by most or all of the G20 jurisdictions and several other financial centres – more than 40 in all. It sets out procedures for each government to collect information from domestic financial institutions and automatically pass it to other signatory jurisdictions every year. The protocol describes the financial information to be exchanged; the institutions that will have to report it; the various types of reportable accounts and taxpayers covered; and the due diligence procedures to be followed by financial institutions.
The common reporting system has been designed with to be very wide scope to eliminate the kind of circumventions that have plagued the EU Savings Directive. It covers all types of investment income, including interest, dividends, insurance policy pay-outs and similar income, but also account balances and the proceeds of selling assets.
Banks are not the only institutions that will have to report. Other covered institutions include brokers, collective investment vehicles and insurance companies. They will have to report all accounts held by individuals, companies and other entities including trusts and foundations. The determinants of whether a trust is a reporting institution or is reported on is much as in the FATCA Model 1-type Intergovernmental Agreements. Reporting institutions will be required to 'look through' entities such as shell companies and trusts and report on the individuals that ultimately control these entities.
The standard includes specific rules on the confidentiality of the information exchanged. Where these standards are not met, countries will be entitled to refuse to exchange information automatically.
As for FATCA, each jurisdiction will have some scope to exempt certain types of low-risk financial institutions from the reporting requirements. The UK's tax authority has already said it will be seeking to use domestic legislation to exclude certain financial products, in particular UK-registered pension schemes. Practitioners might find it helpful to be able to point to a published government intention when providing updates or assurance to clients, said a HM Revenue and Custom’s spokesperson. However the reporting status of express trusts is not yet clear.
The final common standard is expected to be ready in time for the September meeting of G20 Finance Ministers. No timetable has been set for adoption, as jurisdictions that adopt will have to make significant amendments to their domestic law.
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