The world’s tax authorities will have another tool for combating tax evasion under a new standard providing for automatic exchange of financial information issued by the Organisation for Economic Co-operation and Development (OECD) on Thursday. Countries implementing the standard would obtain information from their domestic financial institutions and automatically share it with other countries annually.
The new standard was developed by the OECD in conjunction with the G20 countries and represents the latest round in the OECD’s attempt to reduce tax avoidance by multinational corporations. The standard will be presented to G20 finance ministers for formal endorsement during their meeting February 22nd and 23rd in Sydney, Australia. The OECD says that it has gotten more than 40 countries to commit to early adoption of the standard.
The OECD standard is designed to reduce costs for governments and financial institutions by ensuring that they do not have to deal with a variety of different standards in different countries. The standard lists the financial account information to be exchanged, the financial institutions that must report and the types of accounts and taxpayers covered. It also contains due-diligence procedures for financial institutions to follow.
The financial information to be reported under the standard includes investment income from interest, dividends and similar types of income. It also includes account balances and sales proceeds from financial assets. The financial institutions that are required to report include banks and custodians, brokers, certain investment vehicles and certain insurance companies.
Reportable accounts include accounts held by individuals and entities (including trusts and foundations). The standard includes a lookthrough requirement for passive entities to the individuals who ultimately control these entities.
The OECD says that the due-diligence requirements will have to be enacted into domestic law by countries but that the automatic exchange of information can be implemented under Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or equivalent provisions in various tax treaties.
The standard as released by the OECD does not contain any guidance to help with consistent application of the standard or guidance on technical solutions for implementing the standard. The OECD says such guidance is expected in mid-2014.
—Alistair M. Nevius (firstname.lastname@example.org) is CGMA Magazine’s editor-in-chief, tax.