Automatic exchange of information on a global scale will become a reality in 2017, as 51 countries signed an agreement to share financial information. Another 35 jurisdictions will join the following year.
All Organisation for Economic Cooperation and Development (OECD) and G20 countries, as well as most major international financial centres, signed a “multilateral competent authority agreement” that will activate the automatic sharing of financial data for tax purposes. The signing ceremony took place at the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin on 29th October.
It shows the determination from governments across the globe to prevent tax evasion and capture lost tax revenue. Tax authorities of participating countries will be able to gather much more information on the assets their taxpayers hold abroad.
The OECD explains that automatic exchange of information “can provide timely information on non-compliance where tax has been evaded either on an investment return or the underlying capital sum, even where the tax administrations have had no previous indications of non-compliance”.
58 jurisdictions, known as the “early adopters”, have pledged to make the first exchange in 2017. This includes the UK, Spain, France, Portugal, Cyprus, Malta, Germany, Italy, Isle of Man, Jersey, Guernsey, Gibraltar, Bermuda, Cayman Islands, British Virgin Islands, Ireland, Iceland, Liechtenstein, Luxembourg, San Marino, Seychelles, Argentina and South Africa.
A further 35 jurisdictions have said they will start in 2018. This includes Australia, Austria, Bahamas, Brazil, Brunei, Canada, China, Hong Kong, Monaco, Qatar, Russia, Singapore, United Arab Emirates and, significantly, Switzerland.
Although not one of the early adopters, the Swiss government has adopted mandates to soon begin negotiations with the EU and other countries on automatically sharing data on bank accounts from 2018.
Only a few years ago, in 2008, the then Swiss finance minister Hans Rudolf Merz vowed that banking secrecy would prevail, saying that its foreign opponents would have to “bite the bullet” and accept it.
The US does not appear on any of the lists, since under its own Foreign Account Tax Compliance Act (FATCA) it will start automatically exchanging information with countries around the world from 2015.
After the signing ceremony, OECD Secretary-General, Angel Gurria, commented:
“We are making concrete progress towards the G20 objective of winning the fight against tax evasion… The world is quickly becoming a smaller place for tax cheats.”
The global “Standard for Automatic Exchange of Financial Account Information in Tax Matters” is different from most current bilateral agreements, where authorities have to make formal requests for information. Now they will automatically receive information on all their taxpayers who hold assets in the participating territories.
The standard sets out the financial account information to be exchanged, including –
- Sales proceeds from financial assets
It covers accounts held by individuals and entities, including trusts and foundations. Governments agreed that beneficial ownership of legal entities should be available to tax authorities and exchanged with treaty partners.
The OECD will establish a peer review process to ensure that the automatic exchange of data is effectively implemented. It is encouraging developing countries to join the movement.
UK Chancellor, George Osborne, commented:
“Tax evasion is a scourge across the world that can only be tackled with a global solution, and today’s agreement is a step towards achieving this… The work is certainly not finished, and I would call on all remaining countries to put in the same efforts to stop evasion.”
This OECD standard follows on from the US’ FATCA, established in 2010 to catch American citizens hiding money abroad, and the April 2013 G5 agreement to automatically exchange information, which Britain’s crown dependencies and offshore territories quickly signed up to.
The move towards the end of financial privacy has already had a significant impact on state coffers, as more and more people realise there is nowhere left to hide. According to the OECD, 20 countries have raised $47 billion (€37bn) through voluntary disclosure schemes since 2009.
Cross border tax planning has completely changed over recent 15 years; particularly since the move towards global tax transparency escalated in the wake of the financial crisis.
Where once we used to take financial privacy for granted, we now have to accept that it is history. Tax authorities will have information on our income and assets, wherever we hold them.
One thing has not changed however, which is that every individual has the right to structure their assets in a tax efficient manner. You need to establish how you can use approved tax advantageous structures here in your country of residence to reduce your tax liabilities. It is important to be compliant with local tax law, but it is also important to protect your wealth from taxation wherever possible. You can do both if you take specialist advice.
3 November 2014