Due to the recent developments aiming at tax transparency, private individuals in various countries start to reassess their asset and income situation. Non-tax compliant individuals should submit a voluntary disclosure as soon as possible.
As a consequence of the global fight against tax evasion in the wake of the financial and debt crisis, the OECD adopted the Automatic Exchange of Information (AEoI) standard back in July 2014. It requires financial institutions – particularly banks, but also insurers and investment firms – to gather financial information on clients with a tax liability in other countries and disclose this information annually to the tax office in the client’s country of residence through the local tax authority.
The Common Reporting Standard (CRS) defines in detail which information needs to be submitted on which accounts. The information to be submitted extends to all investment income and sales proceeds as well as the balance of accounts or custody accounts. However, unlike under the tax agreements with the UK and Austria, investment income does not have to be calculated in accordance with the relevant law on securities taxation; instead, the gross income or gross sales proceeds to be credited can be reported. There is therefore no need to calculate accumulated fund income, for instance. AEoI applies to both individual and company accounts.
To prevent the AEoI from being circumvented using passive legal entities that do not conduct any commercial activities, such as trusts, foundations and domiciliary companies, the CRS requires financial institutions to identify the persons controlling such asset management vehicles and to disclose this information to their country of residence.
The standard adopts a very broad definition of what constitutes a controlling person, including not only the beneficial owners of a vehicle but also, for example, settlors of trusts or foundations as well as trustees (even though the latter typically do not have to pay taxes on the trust’s assets. In view of the AEoI entering into force, it is therefore important that all controlling persons involved in a vehicle comply with their tax obligations in their country of residence.
Given that information will be exchanged from 2017 regarding 2016 between the early adopter countries and one year later by Switzerland and that there is already today certain tax transparency (e.g. group requests), means that there is not really any time left between now and 2017. All clients are to be tax-compliant by that time. Private clients are therefore well advised to start regulating their situation under the AEoI right away. Furthermore, wealth management structures must be analysed in detail to determine who needs to be reported under the AEoI.
KPMG provides international solutions, calling on our in-house specialists from the KPMG network with knowledge of the local tax law. We offer our clients the opportunity to have throughout the process a single contact person with the client’s individual situation and coordinates the process with the utmost discretion.