Automatic Exchange Of Information To Become Global Standard

Tax authorities are receiving an unprecedented amount of information on overseas income and assets, and use this to collect unpaid taxes. In future they will receive even more information on our assets and wealth.

The EU led the call for automatic exchange of information in 2000 when it proposed its Savings Tax Directive. The global financial crisis was then a wake-up call for the rest of the world, with the G20 Group announcing in 2009 that the “era of banking secrecy is over”.

Over the next four years around 1,100 bilateral tax information exchange agreements were signed. With tax evasion being a global issue, governments realised that a model for automatic exchange of information needs to be developed and used worldwide. This led to a pivotal shift to multilateral agreements, where several countries will automatically share information with each other. The aim is to develop this into a global standard.

Tax authorities are already receiving an unprecedented amount of information on overseas income and assets, and use this to collect unpaid taxes. In future they will receive even more information on our assets and wealth.

2013 developments

February/March – Isle of Man, Guernsey and Jersey agree to enter into automatic exchange of information agreements with the UK.

April – G5 (UK, Spain, France, Germany, Italy) decide to develop and pilot an automatic exchange of information system to prevent tax evasion and provide a template for wider multilateral data sharing. 12 other EU countries sign up in May.

April – Luxembourg and Austria say they will end banking secrecy for EU residents. European Court of Justice obliges Gibraltar to share financial information with Spain.

May – European Council commits to adopting a revised Savings Tax Directive by the end of 2013, to cover all types of savings income and products generating interest or equivalent income. They agree to negotiate with Switzerland, Liechtenstein, Monaco, San Marino and Andorra to ensure they apply equivalent measures.

June – European Commission commits to extend exchange of information. The Administrative Cooperation Directive starting in January 2015 will cover employment, directors’ fees, life insurance, pensions and property, and possibly also dividends, capital gains and other financial income and account balances.

May/June – Swiss Private Bankers Association calls for automatic exchange of information instead of bilateral agreements with individual EU countries. A Swiss government panel report suggests Switzerland should be ready to share data with the EU.

June – G8 declares that “tax authorities across the world should automatically share information to fight the scourge of tax evasion”.

June – International Consortium of Investigative Journalists launches an interactive database to help “crack open the historically impenetrable world of offshore tax havens”.

September – G20 commits to introduce automatic exchange of tax information as the global standard by 2015, and calls on all other jurisdictions to join by the earliest possible date.

Information to be exchanged

The G5 pilot is based on the model agreements negotiated with the US to comply with its Foreign Account Tax Compliance Act (FATCA). It is reasonable to assume this will be the basis for a global standard. Under FATCA the information to be exchanged is:

• Name and address of account holder
• Account number
• Name of financial institution
• Account balance (at year end, appropriate reporting period or before closure)
• For portfolio accounts, total gross interest, dividends and other income generated by the assets and paid or credited to the account
• For deposit accounts, gross interest paid or credited
• For any other type of account, total gross amount paid or credited.

We expect more countries and territories to sign up to the new global standard, to protect their reputations and avoid being blacklisted.

Hiding assets is no longer an option. More and more information about your financial affairs will become available to the authorities. Organising your affairs legitimately and tax efficiently will enable you to ensure that you are compliant, while minimising your tax liabilities so you can make the most of what you have.

23 September 2013

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised and generalised; an individual is advised to seek personalised professional tax advice.