On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD) released a common reporting standard (CRS) document, which seeks to establish automatic exchange of tax information as the new global standard for governments.
The CRS model imposes obligations on financial institutions to review and collect information so as to identify where account holders pay tax and then to provide this to their local tax administration.
A total of 42 countries have committed to adopting the CRS and the expectation is that at least some of these agreements will be entered into this year. The documents released are:
- An introduction and overview on automatic exchange of information;
- Text of the model Competent Authority Agreement (CAA); and
- Common reporting standard due diligence processes.
Whilst the documents do not include any specific timelines, it is anticipated that financial institutions in countries which adopt the standard will be required to undertake the necessary due diligence obligations in 2016, with reporting starting in 2017.
The CAA is arranged in seven sections.
Section 1: Deals with definitions.
Section 2: Covers the type of information to be exchanged and includes a requirement to disclose the tax residencies of the account holders.
Section 3: Deals with the time and manner of exchange of the information. Competent authorities are required to exchange the information by September of the year following the year to which the information relates.
Section 4: Requires the competent authorities to notify each other in the event of incorrect or incomplete reporting or non-compliance by a financial institution. Each competent authority is responsible for addressing errors or non-compliance through its domestic laws.
Section 5: Contains the confidentiality and data safeguards that need to be adhered to by the competent authorities. As noted in the overview to the documents, a jurisdiction must have the administrative capacity and process to ensure confidentiality of data received before entering into an agreement and processes. This may mean that certain jurisdictions will be unable to enter into a CRS agreement until they meet these requirements.
Sections 6 and 7: Allow for consultations between the competent authorities, and amendments to the agreement and the terms of the agreement, including suspension in the event of significant non-compliance and termination of an agreement with 12 months’ notice.
The CRS annex deals with due diligence processes to be followed, and sets out the processes for pre-existing individual and entity accounts and for new individual and entity accounts.
While there is much interest in the new documents, experts have stated that it is too early to comment in detail on their full implications until the OECD publishes a commentary on the rules, which is expected to be released in June this year.
In the interim, it is noteworthy that the Swiss Federal Council published a press release on 19 February 2014 that it has instructed the Federal Department of Finance “to prepare a draft for unilateral application of the OECD standard on the exchange of information upon request to all double taxation agreements (DTAs) that are not yet in line with the current international standard”.
OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrators