Monday, August 31, 2015

OECD Automatic Exchange of Information & Common Reporting Standards

In July 2014, the Organisation for Economic Cooperation and Development (“OECD”) published the Standard for Automatic Exchange of Information (“AEoI”) in Tax matters (herein the “Standard”). The goal of the Standard is to improve cooperation between tax administrations, protect the integrity of tax systems and to clamp down on offshore tax evasions. Amongst the four documents found in the Standard, the Common Reporting Standard (“CRS”) contains the due diligence rules for which Financial Institutions (“FIs”) have to collect and exchange information. This consistency of information exchanged ensures predictability and quality of data analysis and facilitates the optimal use of information by jurisdictions. The OECD further published the CRS implementation Handbook in August 2015 to provide practical guidance to assist government officials in implementing the Standard.

As of January 2015, 97 countries have signalled their intentions to adopt the Standard and 58 of these committing to be early adopters (e.g. UK, Germany and France) by January 2016. The roll-out of the CRS will be in different stages beginning 1 January 2016 and is expected to be completed by December 2017. Singapore is not an early adopter but has agreed to work towards implementing AEoI Standards by 2018. Thus, we would expect the timeline to have a one-year gap from that of the early adopters.

The implementation of the Standard focuses on the residence of the Account Holder instead of citizenship or nationality and in this regard, several indicia may be used to determine the Reportable Jurisdiction of the Account Holder. Some of these include identification of the account holder as a resident of that reportable jurisdiction; current mailing or residence address; standing instructions for fund transfers and hold mail instructions etc. In order to limit the opportunities and avenues tax evaders have to circumvent the system by transferring assets into non-participating jurisdictions or products, the reporting regime covers a comprehensive scope of three components: Reportable Financial Information, Reporting Financial Institutions and Reportable Accounts. (For detailed definition, please refer to “Section VIII: Defined Terms” of the Common Reporting Standard).

The reporting model also contains detailed due diligence procedures that FIs have to consider in identifying the Reportable Accounts. These accounts are differentiated into pre-existing/new as well as lower-value (aggregate balance/value less than USD1,000,000) and high value (more than USD1,000,000) in the case of individual accounts. The varying due diligence requirements of different accounts takes into consideration the feasibility and costs for financial institutions to obtain the necessary information.

Some of the key information FIs are expected to report and exchange between relevant jurisdictions include the name, address and jurisdiction of residence of each Reportable Person that is an Account Holder of the Account and/or the Reportable Person of the Reported Entity. The account number, account balance or value as of the end of the reporting period and total gross amount of interests and other income paid or credited to the account is also expected to be included. Additionally, the name and identifying number (if any) of the Reporting Financial Institution is to be provided.

With the harmonisation of information exchange and globally coordinated effort to combat tax evasion, this could possibly result in “the end of bank secrecy in tax matters”.

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