Our latest edition of frontiers in tax examines the new trends and developments that are transforming the financial services sector. In this issue, we take a closer look at the developments around tax transparency.
In October 2014, at the Berlin meeting of the Global Forum, 51 jurisdictions signed a multilateral competent authority agreement to automatically exchange information.
In previous editions of frontiers in tax, we have reported on the Common Reporting and Due Diligence Standard (CRS) developed by the OECD and G20. The Global Forum on Transparency and Exchange of Information for Tax Purposes was asked by the G20 to monitor and review the implementation of the new standard. While the initial lead was taken by the G20 countries,1 during 2014 the Forum developed a roadmap for developing countries’ participation in the new standard.2 This roadmap provides a stepped approach so developing countries can overcome obstacles in implementing CRS, and the roadmap also identifies the fundamental building blocks necessary to meet the standard.
Many jurisdictions have now committed themselves to this standard. In October 2014, at the Berlin meeting of the Global Forum, 51 jurisdictions signed a multilateral competent authority agreement to automatically exchange information.3 In addition, the meeting demonstrated the resolve of members to drive major improvements in tax transparency:
• the overwhelming majority of Global Forum members agreed to implement the new standard for automatic exchange either by 2017 or by the end of 2018;
• members will now be required to maintain beneficial ownership of information, to ensure that the existing standard on exchange of information on request (EOIR) continues to reflect the evolution of the dynamic EOI environment;
• greater support would be given to developing countries to facilitate their participation in AEoI.4
A group of jurisdictions known as the Early Adopters Group committed themselves to early adoption of the new standard, with the first exchange of information in relation to new accounts and pre-existing individual high value accounts to take place by the end of September 2017.
The timetable implies:
• new account opening procedures to record tax residence and entity status will need to be in place from 1 January 2016.
• due diligence procedures for identifying high-value pre-existing individual accounts will need to be completed by 31 December 2016, while that for low-value accounts will need to be completed by 31 December 2017
• the first exchange of information (for new accounts and pre-existing individual high value accounts) will take place by the end of September 2017
• information on remaining accounts will be exchanged either by the end of September 2017 or September 2018 depending on when financial institutions identify them as reportable accounts.5
In the Asia Pacific region, the early adopters include India, Mauritius and South Korea. Australia, Hong Kong, Japan and Singapore, the existing major financial centers in the region, have undertaken to begin exchange of information by 2018.
Jurisdictions where major multinational financial institutions conduct business are already focused on implementing exchange of information with the United States under the Foreign Account Tax Compliance Act, and this is proving challenging in many cases. In order to streamline progress on AEoI, the CRS has been closely modeled on FATCA. But it is misleading to view AEoI as simply FATCA 2.0. The scope of AEoI is much broader; and in some respects, solutions already being developed for FATCA may be insufficient as it relates to AEoI. Financial institutions and others therefore face the double challenge of responding to both sets of requirements.6
The G20 report on the developing countries roadmap stresses that signing a FATCA agreement does not necessarily indicate an advanced state of readiness to move towards AEoI: as we have seen, there may be substantial differences in the scope and processes required to implement FATCA as compared with the CRS. Mechanisms designed to send information to the United States directly from individual financial institutions may not translate into implementing the new standard, which requires multilateral information flows with information passing through tax authorities on each side.7
Implementing the CRS thus involves four complementary actions:
• translating the reporting and due diligence requirements into domestic law
• selecting a legal basis for the exchange of information: many jurisdictions already have appropriate legal instruments in place, including bilateral double tax treaties and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters
• putting in place the administrative and information technology infrastructure to collect and exchange the necessary information
• protecting confidentiality and data safeguards by effective legal and operational measures.8
Despite the strength of their commitments in principle, countries in the Asia Pacific region, both the existing major centers and the developing countries, have a lot of work to do.
• Mauritius is currently focused on FATCA implementation. The Mauritius Revenue Authority issued practical guidance on implementation to financial institutions, businesses, their advisers, and officials in November 2014.
• The income tax authorities in India are in the process of finalizing common rules for FATCA as well as the CRS: draft rules have been circulated to financial institutions for comment. The authorities have also circulated a draft of the reporting form, which covers US as well as other reportable accounts. Due diligence for CRS is scheduled to begin on 1 January 2016.
• The Ministry of Finance in South Korea announced on 30 October that they would be among the early adopters, and expect to start exchanging information with the US from 2015.
• In Australia, the government’s recent mid-year economic fiscal outlook indicated that they will start implementing the CRS in 2017, with the first exchange of information in 2018. The Australian Tax Office and Australian Treasury are currently in discussions with industry over the development of local rules, legislation and guidance.
• Hong Kong’s current policy only allows exchange of information on request (EOIR) under comprehensive avoidance of double taxation agreements (CDTAs) or tax information exchange agreements (TIEAs). Some measures have already been taken to update the legal framework to reflect evolving standards, and the priority now is to expand the network of CDTAs and sign further TIEAs on an as-needed basis. Hong Kong authorities have stated that their commitment to this process rests on the condition that AEoI is conducted on a reciprocal basis with appropriate partners who can satisfy the relevant requirements on protection of privacy and confidentiality of information.
During 2015, the government plans to prepare detailed legislative proposals and engage local stakeholders, while continuing to update the Global Forum on the progress of implementation measures. Following passage of the necessary domestic legislation in 2016, automatic exchange would begin at the latest at the end of 2018.
• In Japan, implementation of the CRS is scheduled to begin in 2017. A draft overview of the regulations has been circulated to industry associations for review and comment, and a draft of the full regulation is expected to be published shortly.
• Singapore is the world’s fourth largest offshore financial center with an estimated SGD$1.63 trillion of assets under management,9 and as one of the existing major financial centers in the region, has undertaken to begin exchange of information by 2018.
1 In particular France, Germany, Italy, Spain and the UK
2 cf Global Forum on Transparency and Exchange of Information for Tax Purposes, Annual
Report 2014, http://www.oecd.org/tax/transparency/GFannualreport2014.pdf
4 Global Forum on Transparency and Exchange of Information for Tax Purposes, Berlin,
Germany 28-29 October 2014, Statement of outcomes,
5 Joint statement by the Early Adopters Group, October 2014,
6 cf Automatic Exchange of Information: the Emerging Global Standard, Frontiers in Tax,
KPMG, September 2014
7 cf Automatic Exchange of Information: A Roadmap for Developing Country Participation, Final
Report to the G20 Development Working Group, 5 August 2014
8 Roadmap, ibid
9 Total assets managed by Singapore-based asset managers as at end-2012. Source: Monetary
Authority of Singapore (23 July 2013). MAS Annual Report 2012/13 Press Conference: Opening
Remarks by Ravi Menon, Managing Director, Monetary Authority of Singapore.