On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD), at the request of the G8 and the G20, released a proposed global standard for the automatic exchange of financial account information through their model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS).
This standard follows in the footsteps of the US Foreign Account Tax Compliance Act (FATCA) and is explicitly modelled on the approach taken in FATCA’s Intergovernmental Agreement Model 1. Under the OECD’s plans, reporting financial institutions will report financial account information on reportable account holders to their national tax authority. The receiving tax authority will in turn provide this information to other tax authorities under an automatic basis of exchange.
This FATCA-like approach is good news for financial institutions to the extent that it drives a common standard for information exchange and allows them to leverage existing and planned FATCA processes and systems. However, there are differences between the two and financial institutions will need sufficient time to implement the standard.
It is important to note, that the standard has no direct legal force but the expressed desire of the OECD and of the financial industry will be that the standard is implemented in a uniform way across adopting jurisdictions. Fragmentation of the standard into a series of either local or regional variations will be extremely difficult for financial institutions operating in multiple countries. The OECD are aware of this risk and the background information, released alongside the draft standard, stated that: ‘The OECD, working with G20 countries, will seek to ensure the standard remains a single standard also over time and that as much as possible it continues to be interpreted and operated consistently across different jurisdictions’.
The political will to implement this standard can be clearly seen with over 40 jurisdictions already publically known to support early adoption. This could see jurisdictions seeking to sign agreements in 2014, with new customer due diligence procedures required in 2015 and reporting in 2016. That said, this is ambitious and to some degree is contingent on appropriate guidance and interpretation being available to allow for implementation. Guidance is currently being drafted and this is due to be released in time for the September G20 Finance Ministers’ meeting. Given the number of difficult areas within the standard, clear guidance is crucial.
The next step in the road to implementation is this week’s G20 meeting in Sydney. It is expected that there will be public statements of support from would-be adopting jurisdictions and the timelines may also become clearer. Financial institutions will need to continue to monitor developments and consider how to strategically respond to this development and the wider focus on tax transparency.
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The OECD's common reporting standard
On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD), at the request of the G8 and the G20, released a proposed global standard for the automatic exchange of financial account information through their model Competent Authority Agreement (CAA) and Common Reporting Standard (CRS).
This standard follows in the footsteps of the US Foreign Account Tax Compliance Act (FATCA) and is explicitly modelled on the approach taken in FATCA’s Intergovernmental Agreement Model 1. Under the OECD’s plans, reporting financial institutions will report financial account information on reportable account holders to their national tax authority. The receiving tax authority will in turn provide this information to other tax authorities under an automatic basis of exchange.
This FATCA-like approach is good news for financial institutions to the extent that it drives a common standard for information exchange and allows them to leverage existing and planned FATCA processes and systems. However, there are differences between the two and financial institutions will need sufficient time to implement the standard.
It is important to note, that the standard has no direct legal force but the expressed desire of the OECD and of the financial industry will be that the standard is implemented in a uniform way across adopting jurisdictions. Fragmentation of the standard into a series of either local or regional variations will be extremely difficult for financial institutions operating in multiple countries. The OECD are aware of this risk and the background information, released alongside the draft standard, stated that: ‘The OECD, working with G20 countries, will seek to ensure the standard remains a single standard also over time and that as much as possible it continues to be interpreted and operated consistently across different jurisdictions’.
The political will to implement this standard can be clearly seen with over 40 jurisdictions already publically known to support early adoption. This could see jurisdictions seeking to sign agreements in 2014, with new customer due diligence procedures required in 2015 and reporting in 2016. That said, this is ambitious and to some degree is contingent on appropriate guidance and interpretation being available to allow for implementation. Guidance is currently being drafted and this is due to be released in time for the September G20 Finance Ministers’ meeting. Given the number of difficult areas within the standard, clear guidance is crucial.
The next step in the road to implementation is this week’s G20 meeting in Sydney. It is expected that there will be public statements of support from would-be adopting jurisdictions and the timelines may also become clearer. Financial institutions will need to continue to monitor developments and consider how to strategically respond to this development and the wider focus on tax transparency.
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