Cyprus: Recent Developments In Automatic Exchange Of Information
The exchange of information between tax authorities worldwide is about to enter into a new phase of an active gathering and reporting of data. The eradication of tax evasion has now been elevated to a matter of priority amongst OECD states.
There has been an unprecedented push to expand the exchange of information upon request and to remove legal and practical obstacles. Businesses and tax authorities are crossing borders in order to achieve this goal.
The Director of OECD, Pascal Saint-Amans has been actively trying to coordinate information exchange between jurisdictions under a single global standard in an effort to develop tax transparency for many years and from the countries’ response it appears his efforts are coming to fruition.
America’s tax information-sharing agreement FATCA (Foreign Account Tax Compliance Act), aims to stop US citizens using foreign financial accounts for tax evasion, as well as UK FATCA, an agreement between the UK and Crown Dependencies and Overseas.
Last February the OECD released the Standard for Automatic Exchange of Financial Account Information in order to combat tax evasion in certain territories. It imposes obligations on financial institutions to collect and report financial account holder information to their local tax authority. The local tax authority will then automatically exchange information about an account holder resident in a partner country in a period of one month.
In March of this year, there were 44 jurisdictions committed to the early adoption of a Common Reporting Standard (CRS), which is due to start on 1 January 2016. By May, another 19 countries entered the list. These jurisdictions will also comply with a Model Competent Authority Agreement (CAA), which specifies detailed rules on the exchange of information. Both of these agreements will provide greater efficiency in reporting and reduce costs for financial institutions. Until 30 September 2017, reporting to all partner jurisdictions under CRS is expected to begin.
All of the above developments point out to the start of a new era for governments fighting tax evasion and avoidance. The greatest question though, arising in this regards, is the impact this global standard in tax sharing information will have on both businesses and citizens.
The financial services industry is currently cooperating with political leaders to develop a common standard and implement an effective global automatic exchange of tax information. The usage of existing models, such as the European Savings Directive or the new US and UK FATCA, is significant for the success of this important initiative.
Nevertheless, there are many questions remaining unanswered not least of which whether the underlying cost of facilitating disclosures to the extent required by the OECD-automatic exchange of information initiatives and US FATCA will outweigh the benefit.
