Automatic Exchange Of Information As A Global Standard

2013 has seen unprecedented political support for automatic exchange of information. Various multilateral initiatives are being developed, and on 6^th September the G20 announced plans to introduce automatic exchange of information as the global standard.

Banking secrecy was considered set in stone for so long, but the tide has turned. 2013 has seen unprecedented political support for automatic exchange of information. Various multilateral initiatives are being developed, and on 6^th September the G20 announced plans to introduce automatic exchange of information as the global standard.

Governments and tax authorities will start to receive much more information than ever before on their taxpayers’ financial affairs.

In 2009, triggered by the financial crisis, the group of 20 wealthy nations declared that the “era of banking secrecy is over”. Within four years 119 jurisdictions had committed to the global standard for transparency and exchange of information for tax purposes developed by the Organisation for Economic Cooperation and Development (OECD), and around 1,100 new bilateral agreements had been signed.

Tax authorities everywhere have continued to explore more ways to co-operate and prevent their taxpayers hiding assets and income overseas. Activity escalated this year, with the EU, G5, G8 and UK offshore centres all making significant announcements. Even Swiss bankers have suggested that it is time to change direction, initially by dropping banking secrecy for EU residents as part of Savings Tax Directive.

Tax evasion is a global issue, so a model for automatic exchange of information needs to be developed and used worldwide to prevent people moving their money elsewhere. We have therefore seen a move from the traditional bilateral agreements between two counties to multilateral agreements where several countries share vital information.

At the G20 Summit in September, world leaders committed to automatic exchange of information as the new global standard. They “fully endorse the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information” and will work together to present a new single standard and finalise the technical aspects by mid-2014.

Their aim is to have all G20 members automatically exchanging information on tax matters by the end of 2015, and they called on all other jurisdictions to join them by the earliest possible date.

The G20 also pledged to close loopholes that allow tax avoidance by big businesses, and to help developing nations, who are not part of the international convention, to track funds in tax havens and improve their ability to find and prevent tax evasion.

The G20’s latest commitment is viewed as a major breakthrough in the global fight against tax fraud. It will provide authorities with much more power to track down tax evaders and assets hidden overseas.

The European Commission, an early proponent of automatic exchange of information, welcomed the decision:

“This G20 summit cemented the global paradigm shift towards fairer taxation by endorsing the establishment of the automatic exchange of tax information… Since long, the European Union has been and will continue to be at the forefront of this fight. In order to make it a success we will continue to provide our expertise and experience.”

We will need to wait for details of what information will be exchanged and how, but looking at other multilateral agreement proposals we can expect it to include all or many of the following (depending on the type of asset and account): names and addresses of owner, account numbers, name of financial institution, account balances and details of payments made into the account such as interest and other income generated with respect to the assets. This is likely to include accounts held by entities such as trusts.

This will be welcome news for the tax authorities everywhere who need to ensure that their taxpayers pay all the tax due on their overseas assets. The new exchange of information agreements coming into force will enable them to check all the data supplied by taxpayers on their annual tax returns.

In Spain, the authorities will also be in a position to check the information provided by residents on the new Form 720 overseas assets declaration. The consequences for failing to report an asset can be devastating.

The days of financial privacy are long gone. This does not mean that you cannot still arrange your assets in a tax efficient way. There are effective, legitimate arrangements available which can significantly lower your tax liabilities.

11 September 2013