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Automatic exchange of information endorsed by 51 jurisdictions

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The new OECD/G20 standard on automatic exchange of information has been endorsed by all OECD and G20 countries as well as major financial centres participating in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes, which took place in Berlin this week. A status report on committed and not committed jurisdictions will be presented to G20 leaders during their annual summit in Brisbane, Australia on 15–16 November.

Fifty-one jurisdictions signed a Multilateral Competent Authority Agreement that will activate automatic exchange of information, based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Early adopters who signed the agreement have pledged to work towards launching their first information exchanges by September 2017. Others are expected to follow in 2018.

The new Standard for Automatic Exchange of Financial Account Information in Tax Matters was recently presented by the OECD to the G20 finance ministers during a meeting in Cairns last September. It provides for exchange of all financial information on an annual basis, automatically. Most jurisdictions have committed to implementing this standard on a reciprocal basis with all interested jurisdictions.

The Global Forum will establish a peer review process to ensure effective implementation of automatic exchange. Governments also agreed improve the standard of exchange of information upon request, by including a requirement that beneficial ownership of all legal entities be available to tax authorities and exchanged with treaty partners.

George Bull (senior partner at Baker Tilly) explained in a client briefing that, under the agreement, tax authorities would be exchanging data, rather than 'information', but this something the UK was well equipped to handle. 'HMRC has gone a long way to establish an IT framework for precisely that process, converting “data” to “information” through its 'Connect' system. The UK therefore seems well-placed to convert the new flow of information into increased tax revenues,' Bull wrote. 'Other nations have yet to indicate how they will achieve this.'

Developing countries

Developing countries have also been invited to join the move towards automatic exchange of information, and a series of pilot projects will offer technical assistance to facilitate the move. Representatives of African countries agreed to launch a new ‘African initiative’ to increase awareness of the merits of transparency in Africa.

‘Race against the clock’

KPMG warned of a ‘race against the clock’ for both governments and financial institutions to meet the ‘ambitious’ timelines. Tom Aston (financial services tax partner at KPMG) said that the implementation of the agreement would impose ‘complex new due diligence and automatic reporting requirements on financial institutions doing business in the signatory jurisdictions. From 2016, these institutions will need to implement new customer on-boarding processes, gather new information and documentation on existing account holders, and put in place systems to report required information to the proper government entities. Equally important, non-financial multinationals will also need to determine their status under the common reporting standard and how they are affected.’

Aston added: ‘Financial institutions … will be working hard to get customer due-diligence procedures in place by 1 January 2016 – less than 15 months from now – and then will turn to meet the deadline for the first reporting of information about non-resident account holders required in 2017.’

Jayne Newton (tax investigations partner at DLA Piper) said that financial institutions will 'welcome efforts to achieve consistency in the obligations, both legal and regulatory, across the participating territories in which they operate'. But she added that 'differences do still exist, particularly when compared to FATCA and the EU Savings Tax Directive. Whilst moves are afoot to iron out these differences, financial institutions still face significant challenges in developing commercial, robust and risk focused procedures.’

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