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Update on cross-border information exchange

A key item on the international tax agenda over the past couple of years has been information reporting and exchange.

The U.S. Foreign Account Tax Compliance Act (FATCA) led the way in this respect, and helped build up strong international political will for wider cross-border information exchange. The basic aim is to prevent tax avoidance: if a large proportion of the world's jurisdictions exchange information about where each nation's residents hold accounts, then the opportunities for cross-border avoidance will, it is hoped, be significantly reduced.
There have been two significant recent developments.
 
In February 2014, the Organisation for Economic Co-Operation and Development (the OECD) released a draft "common reporting standard" (the CRS) in relation to information exchange. Over 40 jurisdictions have indicated a willingness to get involved in this programme, first proposed by the UK and other nations in 2013. The CRS sets out reporting requirements which must be undertaken by "financial institutions" in respect of "financial accounts", and participating jurisdictions will need to implement it domestically, before exchanging the information with other participating jurisdictions by agreement between tax authorities. While the basic architecture of the CRS is modelled on FATCA, there are differences – and it is important to remember that, unlike FATCA, the CRS proposals do not involve any withholding tax. The aim is for the CRS to be implemented by the end of 2016 with first reporting from 2017. The next big development will be the publication by the OECD of commentary and technical guidance on the CRS, expected this summer.
 
Secondly, March 2014 saw EU Member States finally reach agreement to broaden the scope of the EU Savings Directive (the EUSD). These changes were first proposed in 2008 but had been held up by objections from certain Member States. Those objections have now been overcome. The changes try to clamp down on efforts to avoid EUSD reporting, by broadening the range of payments within the scope of the EUSD to include income (not just interest) from securities, and trying to tackle the problem of individuals interposing legal persons or other types of entities or arrangements between themselves and the person required to report under the EUSD. Member States will be required to implement these changes domestically by the start of 2016 to have effect from the start of 2017.
 
The EU has also proposed to widen the scope of information exchange under another directive, the Directive on Administrative Cooperation (the DAC), and its long-term intention is understood to be to amend both the EUSD and the DAC to be consistent with the CRS. This drive for consistency will be welcome to financial institutions who are concerned by the prospect of being subject to a number of slightly varying reporting regimes.


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