Automatic Exchange of Information We are entering a completely new era. Are you ready?

         Automatic Exchange of Information 

What is it?

Automatic Exchange of Information agreements are made between the UK and other countries.

These agreements allow the exchange of information between tax authorities of different countries about financial accounts and investments to help stop tax evasion. The United Kingdom (UK) and Turkey (TR) have both signed up. The UK intends to join from September 2017 and TR from September 2018.

Vast amounts of money are kept abroad and go untaxed to the extent that taxpayers fail to comply with tax obligations in their home jurisdictions.

Jurisdictions around the world, small and large, developing and developed, Organization for Economic Cooperation and Development (OECD) and non-OECD, stand united in calling for further action to address the issues of international tax avoidance and evasion.

Co-operation between tax administrations is critical in the fight against tax evasion and a key aspect of that co-operation is exchange of information.

The OECD has a long history of fostering greater tax co-operation and improving all forms of exchange of information – on request, spontaneous and automatic – and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and Article 26 of the OECD Model Tax Convention provide a basis for all forms of information exchange.

A major breakthrough towards more tax transparency was accomplished in 2009 with information exchange upon request becoming the international standard. In recent years, there has been another step change in international tax transparency.

 On 9 April 2013, the Finance Ministers of France, Germany, Italy, Spain and the UK (the countries that developed the FATCA intergovernmental agreements with the United States) announced their intention to exchange FATCA-type information amongst themselves in addition to exchanging information with the United States.

Which countries have signed up?

101 jurisdictions have committed.

 The table below summarizes the intended implementation timelines of the new standard.

 JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2017 (49)

Anguilla, Argentina, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Turks and Caicos Islands, United Kingdom

JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2018 (52)

 Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Barbados, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Cura?ao, Dominica, Ghana, Greenland, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Niue, Pakistan, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Trinidad and Tobago, Turkey, United Arab Emirates, Uruguay, Vanuatu

Who will be subject to exchange of information

Individual who are residents in one jurisdiction and have a financial account that is maintained by a reporting financial institution in another jurisdiction will be subjected to AEOI.

Besides, AEOI also applies to financial reportable account of a legal entity that is held by a “Passive NFE” with one or more controlling persons who is a reportable person in a jurisdiction.

Due diligence procedures consistent with the CRS will be carried out to identity the reportable accounts of individuals and entities, and the following information will be collected:

1. for individual account holder: the name, address, TIN(s) and date and place of birth of each reportable person that is an account holder of the account;
2. for entity account holder, qualified as “Passive NFE”, and that, after application of due diligence procedures consistent with the CRS, is identified as having one or more controlling persons that is a reportable person:
3. Passive NFE: name, address, TIN;
4. Controlling person in the other jurisdiction: name, address, TIN, date and place of birth.

 

What information will be exchanged

Once the reportable financial accounts are identified, the following information will be exchanged:

• the account number;
• the name and identifying number of the reporting financial institution;
• the account balance or value as of the end of the relevant year or other appropriate reporting period or, if the account was closed during such year or period, the closure of the account;
• in case of any custodial account, the total gross amount of interest, dividends and other income generated with respect to the assets held in the account, in each case paid or credited to the account during the calendar year or other appropriate reporting period; and the total gross proceeds from the sale or redemption of financial assets paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the reporting financial institution acted as a custodian, broker, nominee, or otherwise as an agent for the account holder;
• in the case of any depository account, the total gross amount of interest paid or credited to the account during the calendar year or other appropriate reporting period; and
• in case of any account not described above, the total gross amount paid or credited to the account holder with respect to the account during the calendar year or other appropriate reporting period with respect to which the reporting financial institution is the obligor or debtor, including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period.

 

The situation from September 2018

In July 2014 the council of the Economic Co-operation and Development (OECD) approved a new standard for the Automatic Exchange of Financial Information in Tax Matters. It comprises the Competent Authority Agreement and the Common Reporting Standard (CRS), and goes live on 1st January 2016.

This new regime involves the systematic and periodic transmission of taxpayer information by the source country to the residence country concerning various categories of income – it goes much further than just interest income.

This means that tax authorities will automatically receive information on all the financial assets their taxpayers own overseas – without having to ask for it. 

So every tax authority in the participating countries will receive information on all their residents, regardless of whether they have been fully compliant and declaring everything correctly, or hiding assets offshore. 

It will receive information about offshore accounts and investments they may not have been aware of before. So any cases of tax evasion, whether on the investment return or underlying capital sum, will come to light, even if there were no suspicions previously.

The OECD warned this summer that transgressors have a “last window of opportunity” to disclose previously hidden assets and income. 

Local tax authorities will compare data received against tax returns, and where they find discrepancies have good reason to launch a tax investigation.. This could result in the taxpayer having to pay previously unpaid tax, plus interest, plus penalties.

 In some cases they could face criminal prosecution. 

What does this mean for you?

Automatic Exchange of Information – what this means for you?

Tax avoidance (or evasion depending on your point of view) has been a big issue over the last few years. The Panama leaks being a prime example. Organisations like the OECD (Organization for Economic Cooperation and Development) have been trying to combat the issue of international tax avoidance and tax evasion. Their new weapon to combat this is the Common Reporting Standard (CRS). This standard, by 2018, will comprise of 101 countries tax authorities being able to share information of its tax residents, individual and company, with each other.

The goal of sharing information is to ensure ‘nothing is hidden’ and all taxes have been paid in the relevant countries.

Some of you reading this may have received letters from your banks asking about potential offshore assets or if your tax resident in other countries. It is crucial these forms are correctly completed.

 Failure to disclose information on these forms will most likely lead to potential tax investigations.

UK have already signed up to CRS and Turkey will be signed up by September 2018.

If you are going to be affected by this, you will need to review your tax affairs and speak to your tax adviser in regards to best step forward.

We are entering a completely new era. Are you ready?