On February 13 The Organisation for Economic Co-operation and Development (OECD) released a document—Standard for Automatic Exchange of Financial Account Information—that is the latest step towards automatic exchange of information (AEOI) globally about bank accounts and other financial assets held offshore.
Read the OECD report.
Following in the wake of FATCA, this new proposed standard is intended to facilitate such information exchange between participating countries.
Automatic exchange of information (AEOI)
The legal basis for AEOI will either be the Multilateral Convention on Mutual Administrative Assistance in tax matters, or alternatively a bilateral treaty. In either case the OECD’s standard then envisages a bilateral Competent Authority agreement providing for automatic exchange of information.
Information exchange is envisaged to be reciprocal, but the same framework could in principle be used when there is no desire for reciprocity. In addition to the envisaged bilateral agreements implementing the exchange of information between tax administrations, the OECD document provides common reporting and due diligence rules that will need to be implemented into domestic law of participating countries.
The OECD document makes the point that this is intended to be a minimum standard—countries can ask for more information—and crucially, it is not intended to restrict other types of AEOI. This raises the prospect that financial institutions might be required to report under multiple AEOI regimes simultaneously, thus significantly increasing cost and complexity.
Like FATCA in some aspects
As with the US FATCA regime, the scope will be broad to reduce the risk of circumvention. Thus, it will apply not just to banks, but also to certain brokers, investment firms, and some insurance companies.
Many aspects of the OECD proposals are consistent with the Model 1 IGA approach under FATCA. However, there are a number of areas where the standard deviates from the Model 1 IGA—such as the removal of minimum threshold limits and new account opening definitions. This will considerably increase the amount of work required.
The OECD document includes sample text of two documents as attachments.
The OECD will shortly release a commentary which will attempt to establish a common standard for implementation and application.
Although these new rules are intended to improve efficiency and reduce costs for financial institutions, whether these goals can be achieved will very much depend on whether individual countries are consistent in the way they implement the rules and how these interact with other similar regimes such as FATCA and the EU Savings Directive. The broader scope of today’s proposed rules also is of concern for the same reasons. The experience of tax professionals with these other regimes suggests that assessing the impact of the proposed new rules and gearing up for their implementation on a potentially global basis are likely to be major tasks ahead -particularly given the speed with which these proposals could be introduced.
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