51 COUNTRIES AGREE TO COLLECT FINANCIAL ACCOUNT INFORMATION FROM FINANCIAL INSTITUTIONS FOR EXCHANGE WITH OTHER SIGNATORY COUNTRIES
In the course of our work advocating for reforms to FATCA the Democrats Abroad FBAR/FATCA Task Force also tries to keep an eye on efforts being employed elsewhere to address the problem of illegal tax avoidance. More nations are recognising that in an increasingly globalized world, it is correspondingly easier for taxpayers to move assets into offshore financial institutions in order to potentially evade tax. The Organisation for Economic Coordination and Development (OECD) has responded to long-standing concerns about the use of offshore accounts to hide assessable earnings from tax authorities by developing a coordinated, world-wide program to crackdown on tax evasion.
While we were on (Northern Hemisphere) summer holidays the OECD released its Standard for the Automatic Exchange of Financial Account Information in Tax Matters. On October 29, 2014 all OECD and G20 countries, as well as major financial centres participating in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin, endorsed the standard. FATCA has now gone global.
On November 19 Switzerland became the 52nd jurisdiction to sign the MCAA (Multilateral Competent Authority Agreement) that would allow it to go forward with plans to activate automatic exchange of financial account information in tax matters with other countries beginning in 2018.
The MCAA sets out the conditions for the annual exchange of account information between the competent authorities of two countries in accordance with the OECD standard.
Signatory states to the MCAA will participate in the automatic exchange of information on taxpayers’ assets, bank accounts and interest payments outside of their home countries. At this writing the United States is not one of the signatories to the MCAA.
For those with a keen interest in how this “global FATCA” will work, the implementation rules are available in the Common Reporting Standards.
In summary, the Common Reporting Standard:
- - Imposes obligations on financial institutions to review and collect information that identifies the account holder’s country of residence.
- - Requires the financial institution to then provide certain specified account information to the home country’s tax administration.
- - Expects financial institutions – including banks, insurance companies and investment funds - to undertake due diligence on account holders starting in 2016, with reporting (for existing signatory nations) starting in 2017.
What’s up with US non-participation?
For a long time many suspected that reciprocity would be FATCA’s undoing. That is, though the US government had no hesitation in imposing FATCA on the rest of the world, many believed the US would be loathe to impose reciprocal obligations on US banks and brokerage houses to likewise report to other governments on the US accounts of their taxpayers. Is non-participation in the OECD CRS the anticipated breakdown in reciprocity? Perhaps not.
There are some seven or eight steps international treaties must take in order to be ratified under US law. It is a straightforward, but a lengthy process. It is possible that the US is missing from the group of nations acting as signatories to the CRS because the agreement to automatic tax information exchange is still going through the ratification process. Given the aversion the GOP has had to the US FATCA it is not hard to imagine their utter refusal to commit the US to a global FATCA. Now that the Republicans control the US Senate ratification of the OECD CRS looks like a very low probability.
Be that as it may, a Republican-led effort to repeal US FATCA would look particularly retrograde in a world making an ever-greater commitment to financial account and tax transparency.
November 2014
Sources:
http://cooconnect.com/news/oecd-introduces-further-investor-reporting
http://www.childrightscampaign.org/why-ratify/how-does-the-united-states-ratify-treaties
http://economictimes.indiatimes.com/articleshow/45208895.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
http://www.bloomberg.com/news/2014-10-23/swiss-banks-ask-u-s-to-amend-proposed-tax-amnesty-deals.html