EU And Non-EU Jurisdictions: Status of Automatic Exchange Of Information For Tax Purposes - CubeIQ Blog - CubeIQ Limited

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EU And Non-EU Jurisdictions: Status of Automatic Exchange Of Information For Tax Purposes

Published by in Risk & Compliance ·
Tags: EUTaxationNonEUTaxationComplianceAMLFATCAOECD

The Convention on Mutual Administrative Assistance in Tax Matters (“MCAA”) was developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010.  The Convention is the most comprehensive multilateral instrument available for all forms of tax cooperation in order to support the top priority for all countries which is to tackle tax evasion and avoidance. Convention also provides the ideal instrument to swiftly implement automatic exchange of information (“AEOI” or “AEI”)

On October 28th and 29th 2014 was held in Berlin the 7th meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum is the world’s largest network for international cooperation in the field of taxation and financial information exchange, bringing together 122 countries and jurisdictions plus the European Union. The Global Forum is also the international body ensuring the implementation of the internationally agreed standards of transparency and exchange of information in tax matters. The current standard is the information exchange upon request as provided by article 26 of the OECD Model Tax Convention. Through the peer review process, the Global Forum is monitoring the effectiveness in each jurisdiction of exchange of information in tax matters. The signature of the MCAA adds the automatic reporting mechanism to the international exchange of information processes.

At the Global Forum meeting, 51 jurisdictions signed the MCAA which is a multilateral framework agreement. The MCAA specifies the principles concerning the information that will be automatically exchanged and the timing of the reporting. The format of the exchange of information will be based on the Common Reporting Standard (“CRS”) developed by the also OECD. While the MCAA is multilateral, the actual AEI will be bilateral and will come into effect between the participating countries that notify their readiness.

In the 51 signatories, among which are Luxembourg, Gibraltar, U.K. Crown Dependencies and overseas territories and Dutch Crown Dependencies and overseas territories, the early adopters have pledged to work towards a first reporting by September 2017. The others signatories are expected to follow in 2018.

The first exchanges should occur between tax authorities in 2017 and should cover interest, dividends and gross sales proceeds received (directly and indirectly) in 2016 by residents of participating countries. The balance or value of the financial accounts would also have to be communicated by the financial institutions.

A number of international financial centers such as Hong Kong, Monaco, Singapore and Switzerland, did not  signed the MCAA but have committed to implement the CRS and begin the transmission of information by the end of 2018.

Since the Berlin signing ceremony on 29 October 2014, today a total of 61 jurisdictions have signed a Multilateral Competent Authority Agreement to automatically exchange information based on Article 6 of the Multilateral Convention. While the agreement is multilateral, the actual exchanges are bilateral. The competent authority agreement is a multilateral framework agreement, with the subsequent bilateral exchanges coming into effect between those signatories that file the subsequent notifications under Section 7 of the agreement.

In total, 93 jurisdictions (including the 61 signatories) have committed to implement the CRS, with 58 for first exchanges in 2017 and 35 in 2018.

U.S. position:  U.S. have not signed the MCAA nor even committed to the CRS. An equivalent level of reciprocal automatic exchange of information from the U.S. is expected to be performed via the FATCA IGAs signed with partner jurisdictions. However, currently, the U.S. does not have any legal instrument to enforce U.S. financial institutions to collect data necessary for reciprocal exchanges under an IGA. It is only on 30 July 2014 that the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a notice of proposed rules, Treasury Issues Proposed Rules to Enhance Financial Transparency (07/30/2014)”, requiring U.S. financial institutions to collect “Customer Due Diligence” information, including identifying the true beneficial owners of accounts.

Financial institutions will have to adapt their systems in order to be able in 2017 to extract from their database all the information relating to 2016 transactions that needs to be transmitted.
The first exchanges that will occur between tax authorities in 2017 will cover interest, dividends and gross sales proceeds received (directly and indirectly) in 2016 by residents of participating countries. The balance or value of the financial accounts would also have to be communicated by the financial institutions.
Financial institutions required to provide information are not only banks but also insurance companies, investment funds or any other investment vehicle.


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