International cooperation against tax evasion: Automatic Exchange of Information from 2017
In late October the international community took a significant step to increase international cooperation to reduce global tax evasion with the implementation of automatic exchange of information by 2017.
At the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes, the Global Forum, attended by all the OECD member states and G20 states as well as international financial centres, fifty one states signed the Multilateral Competent Authority Agreement. The signing of this agreement triggers the automatic exchange of information under the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
The signatory countries include many of the European states including the UK, France, Germany, Italy and Spain and many of their dependencies. These are the ‘early adopters’ which intend to be the first to exchange information by September 2017 with the remaining nations expected to exchange information in the course of 2018.
The Standard for Automatic Exchange of Financial Account Information in Tax Matters, ‘the Standard’, provides for the automatic annual exchange of financial information between signatory states on a reciprocal basis. The exchange will only apply to financial account information of non-residents which will be provided to the tax authorities in the account holder’s country of residence.
Under the provisions of the Agreement signatory states will each year automatically exchange pre-agreed information to discover any tax evasion. The level of information exchanged on request has also been increased to include information on the beneficial ownership of all legal entities, which can be obtained by the national tax authorities and exchanged with signatory states.
It is intended that there will be a process of peer review with the aim of ensuring that there is an effective implementation of automatic information exchange between signatory states.
The Standard is made of two elements –
• The Common Reporting Standard that must be adopted into national law of each signatory state and sets out the reporting standards and due diligence required of financial institutions.
• The Model Competent Authority Agreement links this agreement to the Common Reporting Standard for those states joining the automatic exchange at a later date, after the ‘early adopters’.
At the time of signature of the Agreement, the Global Forum launched an African Initiative as part of the process to encourage developing nations to join the process of automatic information exchange. Pilot projects will be pursued to offer technical assistance and to increase awareness of the benefits of transparency. The Initiative in Africa is to be led by the African members of the Global Forum with, among others, the African Tax Administration Forum.
After the signing of the Agreement the Secretary General of the OECD, Angel Gurria, commented that concrete progress was being made towards winning the fight against tax evasion and ‘The fact that so many jurisdictions have today agreed to automatically exchange financial account information shows the significant change can occur when the international community works together…..we are determined to ensure that developing countries also reap the benefits of greater financial sector transparency’. The UK Chancellor of the Exchequer, Mr George Osborne echoed this comment stating ‘Tax evasion is a scourge…that can only be tackled with a global solution and today’s agreement is a step towards achieving this.’