The Organization for Economic Cooperation and Development has released the full version of the OECD’s new standard for the automatic exchange of tax information across different countries.
Under the Standard for Automatic Exchange of Financial Account Information in Tax Matters, governments are urged to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.
The standard was developed at the OECD under a mandate from the G-20, endorsed by G-20 Finance Ministers in February 2014 and approved by the OECD Council (see OECD Sets Standard for Automatic Exchange of Tax Information Between Countries and G-20 Agrees on Automatic Tax Data Sharing, OECD Says).
Under the standard, financial institutions would be required to collect and provide information about all investment income, financial assets and account balances of their foreign account holders, in a manner similar to what the Foreign Account Tax Compliance Act, or FATCA, requires. The system also incorporates elements from the European Union Savings and Tax Directive and Financial Action Task Force anti-money laundering standards.
The new standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations. The new consolidated version includes commentary and guidance for implementation by governments and financial institutions, detailed model agreements, along with standards for harmonized technical and information technology solutions, notably a standard format and requirements for secure transmission of data.
“The G20 mandated the OECD to work with G20 and OECD countries and stakeholders toward the development of an ambitious information exchange model that would help governments fight tax fraud and tax evasion,” said OECD Secretary-General Angel Gurria in a statement. “Today’s launch moves us closer to a world in which tax cheats have nowhere left to hide.”
The OECD plans to formally present the standard to G20 Finance Ministers at their next meeting in Cairns, Australia, on September 20-21. “Our message will be clear and simple: the automatic exchange of information standard is ready for implementation,” said Gurria.
More than 65 countries and jurisdictions have already publicly committed to implementation, while more than 40 have committed to a specific and ambitious timetable leading to the first automatic information exchanges in 2017. This includes a group of OECD and non-OECD countries which have adhered to the OECD Declaration on Automatic Exchange of Information in Tax Matters as well as a group of early adopters.
The countries and jurisdictions that have publicly committed to implementation of the automatic exchange of information include Andorra, Anguilla, Argentina, Australia, Austria, Belgium, Bermuda, Brazil, British Virgin Islands, Bulgaria, Canada, Cayman Islands, Chile, People’s Republic of China, Colombia, Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Montserrat, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Turks & Caicos Islands, United Kingdom, United States, and the European Union.
More jurisdictions are expected to commit to implement the standard in the run-up to the late October meeting of the Global Forum Transparency and Exchange of Information for Tax Purposes, which brings together more than 120 countries and jurisdictions, to be held in Berlin and hosted by the German Ministry of Finance. A signing ceremony is expected to be held then for a new multilateral agreement that activates automatic exchange once legislation and other conditions are in place. Assistance will be available to support less developed countries, so they benefit from this move towards a more transparent tax environment, and international organizations are ready to co-operate to support these countries.
Even before the standard has become operational, the drive toward greater transparency and better exchange of information is having a tangible effect on taxpayer behavior, the OECD noted. An OECD analysis of voluntary disclosure programs since 2009 shows that more than half a million taxpayers have voluntarily disclosed income and wealth hidden from their tax authorities. Countries have identified more than 37 billion euros (or about $50 billion) from voluntary disclosure programs, which OECD is encouraging countries to consider.
The OECD said it is also updating its policy guidance in this area, contained in a 2010 report, “Offshore voluntary disclosure: comparative analysis, guidance and policy advice.”
The advocacy group Global Financial Integrity said the new standards are an important step forward, but also cautioned that some issues still need to be addressed, particularly in terms of the participation of developing countries.
“The real test will be whether the standards create a functioning and effective system of exchange of financial information, and whether that system is truly global, with low-income countries permitted and willing to participate,” said GFI legal counsel and director of government affairs Heather Lowe in a statement. “We have concerns that some of the provisions may prevent these two critical goals.”
The group continues to have concerns that the provisions regarding identification of who owns or controls bank accounts may not be adequate to make those determinations, and without correct identification of the real people behind the accounts, the system cannot produce results.
“The draft also lacks a framework for determining whether countries meet the data privacy and confidentiality standards referred to in the draft, potentially making that a subjective assessment made by one country about another, which could be used as an easy justification for refusing to exchange information, when the real reasons for the refusal may be market-driven or for political leverage,” Lowe added.
GFI also expressed disappointment that the information being exchanged appeared to be limited to use by tax authorities.
“The flow of illicit money around the world is not just tax evading money, it includes other criminal and corrupt money,” noted GFI president Raymond Baker. “It is a poor use of global resources to collect and exchange this information but then restrict its use solely to tax authorities. The world’s criminal investigators are struggling to trace the money that finances and rewards drug traffickers, corrupt political regimes, and terror networks. Illicit finance is a systemic issue, not just a tax issue, and this new tool should be used to fix the system as a whole.”
The OECD is inviting public comments on how the framework for voluntary disclosure could be further improved and what particular features might encourage even more taxpayers to come forward and take advantage of such programs. Comments should be sent to WP10@oecd.org no later than Sept. 12, 2014.
For further information on the Standard for Automatic Exchange of Financial Account Information in Tax Matters, click here.