taxtransparency_G8report

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A STEP CHANGE IN TAX TRANSPARENCY

OECD REPORT FOR THE G8 SUMMITLOUGH ERNE, ENNISKILLEN, JUNE 2013

Delivering a standardised, secure and

cost effective model of bilateral automatic

exchange for the multilateral context


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Cover page picture: www.shutterstock.com - Business and communications concept


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ASTEPCHANGEINTAXTRANSPARENCY

Deliveringastandardised,secureandcosteffective

modelofbilateralautomaticexchangeforthe

multilateralcontext

OECD

REPORT

FOR

THE

G8

SUMMIT

June

2013


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ORGANISATIONFORECONOMICCOOPERATIONANDDEVELOPMENT

TheOECD is a unique forumwhere governmentswork together to address the economic, social andenvironmentalchallengesofglobalisation.TheOECDisalsoattheforefrontofeffortstounderstandandtohelpgovernments respond tonewdevelopmentsand concerns, suchas corporategovernance, theinformationeconomyand thechallengesofanageingpopulation.TheOrganisationprovidesa settingwheregovernmentscancomparepolicyexperiences,seekanswerstocommonproblems, identifygoodpracticeandworktocoordinatedomesticandinternationalpolicies.

The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic,Denmark,Estonia,Finland,France,Germany,Greece,Hungary,Iceland,Ireland,Israel,Italy,Japan,Korea,Luxembourg, Mexico, theNetherlands, New Zealand,Norway, Poland, Portugal, the Slovak Republic,

Slovenia,Spain,

Sweden,

Switzerland,

Turkey,

the

United

Kingdom

and

the

United

States.

The

European

UniontakespartintheworkoftheOECD.


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TABLEOFCONTENTS

EXECUTIVESUMMARY..................................................................................................................................... 4

I.Introduction.............................................................................................................................................. 5II.Keyfeaturesofastandardisedmultilateralautomaticexchangemodelonfinancialinformation........71.Commonagreementonscopeofreportingandexchangeincludingrelatedduediligenceprocedures............................................................................................................................................... 72.Legalbasisandconfidentiality............................................................................................................. 83.TechnicalandITaspects....................................................................................................................... 9

III.Makingithappen.................................................................................................................................... 91.Enactbroadframeworklegislation.................................................................................................... 102.Selectalegalbasisfortheexchangeofinformation......................................................................... 10

3.

Adapt

the

scope

of

the

reporting

and

due

diligence

requirements

and

coordinate

guidance

to

ensureconsistencyandreducecost...................................................................................................... 124. DevelopcommonorcompatibleITstandards.................................................................................. 13

ANNEX:USINGRECENTBILATERALAGREEMENTSTOADVANCETOWARDSASTANDARDISEDMULTILATERALMODEL................................................................................................................................. 15


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EXECUTIVESUMMARY

Vastamountsofmoneyarekeptoffshoreandgountaxedtotheextentthattaxpayersfailtocomplywith tax obligations in their home jurisdictions. Jurisdictions around the world, small and large,developinganddeveloped,OECDandnonOECD,standunitedincallingforfurtheractiontoaddresstheissuesofinternationaltaxavoidanceandevasion.

Andchangeistakingplace.Amajorbreakthroughtowardsmoretransparencywasaccomplishedin2009withinformationexchangeuponrequestbecomingtheinternationalstandardandtherestructuredGlobal Forumon Exchangeof Information andTransparency forTaxPurposes starting tomonitor theimplementationofthestandardthroughpeerreviews.

Now,thereisanotherstepchangeininternationaltaxtransparencydrivenbydevelopmentsaroundtheglobe,includingintheUnitedStatesandEurope,withunprecedentedpoliticalsupportforautomaticexchangeofinformation.InApril2013theG20FinanceMinistersandCentralBankGovernorsendorsed

automaticexchange

as

the

expected

new

standard.

Anticipatingthesedevelopmentsandinlightoftheincreaseinautomaticexchangeagreements,theG8PresidencyrequestedareportfromtheOECDtoanalysehowjurisdictionscouldbuildontherecentdevelopments to implement automatic exchange in a multilateral context. It invited reflections onspecificationsfortheinformationtobeexchanged,thelegalbasisfortheexchangeandconsiderationofthenecessaryplatformtoexchangetheinformation.

Thisreport,preparedundertheauthorityoftheOECDSecretaryGeneral,respondstothatrequest.It sets out the key success factors for an effectivemodel for automatic exchange, provides relevantbackgroundandoutlinesfourconcretestepsneededtoputsuchamodelintopractice:(i)enactingbroadframework legislation to facilitate the expansion of a countrys network of partnerjurisdictions, (ii)

selecting(or

where

necessary

entering

into)

alegal

basis

for

the

exchange

of

information,

(iii)

adapting

thescopeof reportingandduediligence requirementsandcoordinatingguidance,and (iv)developingcommonorcompatibleITstandards.Thereportalsoprovidespotentialtimeframesforeachoftheactionitems.

The report recognises that offshore tax evasion is a global issue requiring global solutions otherwisethe issue issimplyrelocated,ratherthanresolved.WithmoreandmorejurisdictionsjoiningtheConventiononMutualAdministrativeAssistance inTaxMatters thereexistsa clear legalbasis forcomprehensiveautomaticexchangewithstrictsafeguardsprotectingconfidentiality.Bilateraltaxtreatiesalso provide such a legal basis and within the European Union, Directives provide a specific legalframeworkforautomaticexchangeof informationregarding interest incomeandcertainothertypesofincomebetween its27(soon28)members.Thisreportnotesthataglobalsolutionalsomeansaglobal

standard

to

minimise

costs

for

businesses

and

governments,

while

at

the

same

time

enhancing

effectiveness,maintainingconfidenceinopenmarketsandbestservingsocietyatlarge.Aproliferationofinconsistentmodelsisinnobodysinterest.


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I.Introduction1

1. As theworldbecomes increasinglyglobalised it isbecomingeasier forall taxpayers tomake,hold andmanage investments through foreign financial institutions, something thatnot long agowasaccessibleonlytoaselectfew.Vastamountsofmoneyarekeptoffshoreandgountaxedtotheextentthat taxpayers fail to complywith taxobligations in theirhomejurisdiction.Offshore tax evasion isaseriousproblemforjurisdictionsallovertheworld,OECDandnonOECD,smallandlarge,developinganddeveloped.Cooperationbetweentaxadministrationsiscriticalinthefightagainsttaxevasionandakeyaspectofthatcooperationisexchangeofinformation.

2. TheOECDhasa longhistoryofworkingonallformsofexchangeof informationonrequest,

spontaneous,and

automatic

and

the

Multilateral

Convention

on

Mutual

Administrative

Assistance

in

TaxMattersandArticle26oftheOECDModelTaxConventionprovideabasisforallformsofinformationexchange.OverthepastfewyearsmuchprogresshasbeenmadebytheOECDandtheGlobalForumonTransparencyandExchangeofInformationforTaxPurposesinimprovingtransparencyandexchangeofinformationonrequest.2

3. Morerecently,political interesthasalsofocussedontheopportunitiesprovidedbyautomaticexchange of information. On 19 April 2013 the G20 Finance Ministers and Central Bank Governorsendorsed automatic exchange as the expectednew standard and calledupon theOECD to reportonprogress indevelopinganewmultilateral standardonautomaticexchangeof information, taking intoaccountcountryspecificcharacteristics.3TheG20decisionfollowedearlierannouncementsbyanumberofEuropeancountriesoftheirintentiontodevelopandpilotmultilateraltaxinformationexchangebased

on

the

Model

Intergovernmental

Agreement

to

Improve

International

Tax

Compliance

and

to

Implement

FATCA,developedbetweenthesecountriesandtheUnitedStates (hereaftertheModel1 IGA).On9April 2013, the Ministers of Finance of France, Germany, Italy, Spain and the UK announced theirintention to exchange FATCAtype information amongst themselves in addition to exchanging

1 Thisdocumentandanymapincludedhereinarewithoutprejudicetothestatusoforsovereigntyoveranyterritory,

tothedelimitationofinternationalfrontiersandboundariesandtothenameofanyterritory,cityorarea.

2 One hundred twenty jurisdictions from around the world have committed to the international standard of

transparencyandexchangeof information (EOI)on requestandjoinedtheGlobalForum;100peer review reportshavebeencompletedandpublished;652recommendationshavebeenmadeforjurisdictionstoimprovetheirabilitytocooperate intaxmatters;more than1100EOIrelationships thatprovide fortheexchangeof information in taxmatterstothestandardhavebeenestablished;and68jurisdictionshavealreadyintroducedorproposedchangestotheirlawstoimplementmorethan300recommendations.MoreinformationontheworkoftheGlobalForumcanbefoundonthefollowinglink:http://www.oecd.org/tax/transparency.

3 Paragraph 14 of the communiqu states (in part): Wewelcomeprogressmade towards automatic exchange of

informationwhichisexpectedtobethestandardandurgealljurisdictionstomovetowardsexchanginginformation

automaticallywiththeirtreatypartners,asappropriate.WelookforwardtotheOECDworkingwithG20countriesto

report back on theprogress in developing ofanewmultilateral standardonautomatic exchange of information,

takingintoaccountcountryspecificcharacteristics.TheGlobalForumwillbeinchargeofmonitoring.


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informationwith theUnited States.4On13April2013,Belgium, theCzechRepublic, theNetherlands,Poland, and Romania also expressed interest in this approach, which by May 14 had already beenendorsedby17countries,5withMexicoandNorwayjoiningtheinitiativeinearlyJune.

4.

Further

the

United

Kingdom

recently

agreed

to

automatically

exchange

information,

on

the

basis of the intergovernmental approaches developed with the United States, with its CrownDependencies (the Isle ofMan,Guernsey and Jersey) andmany of itsOverseas Territories (Anguilla,Bermuda,BritishVirginIslands,CaymanIslands,Gibraltar,Montserrat,andTurksandCaicosIslands).Allthesejurisdictionshavealsomade commitments tojoin thepilotprojectwith France,Germany, Italy,Spainand theUK.AlsoonMay30 theOECDMinisterialcalledon alljurisdictions tomove towardsautomatic exchange of information and to improve the availability, the quality and the accuracy ofinformationonbeneficialownership,inordertoeffectivelyactagainsttaxfraudandevasion.

5. ThisreportrespondstoarequestbytheG8Presidencytoanalysehowjurisdictionscanbuildonthe recent increases in bilateral automatic exchange agreements to efficiently implement automaticexchangeoffinancialaccountinformation(hereinafterfinancialinformation)inamultilateralcontext.6It first discusses the key success factors for an effective model for automatic exchange of financialinformation,astheywereidentifiedinrecentworkconductedattheOECDandsummarisedinitsreportonautomaticexchangedeliveredtotheG20in2012(partII).Itthensetsoutfourconcretestepstoputsuchautomaticexchange intopractice includingpossibletimeframesforthedeliveryofeachstep(partIII).TheAnnexprovidesbackgroundontherecentbilateralagreementsbasedontheModel1 IGAandhowtheycanbeusefulinadvancingtowardsastandardisedautomaticexchangemodel.

4 Theysaid:Animportantpartofthefightagainstinternationalevasionandfraud istaxtransparency.Asyouknow,

followingthepassageoftheU.S.ForeignAccountTaxComplianceActwehaveallbeeninjointdiscussionswiththe

U.S.astothemosteffectivewayofconcludingintergovernmentalagreementstoprovideforautomaticinformation

exchange.Thesediscussionshaveresultedinamodelagreementwhichminimisesburdensonbusinesswhileensuring

effectiveandefficientreciprocalexchangeofinformation.

5 Cf.theJointStatementof17countrieson14MayatECOFIN.

6 This reportdoesnotcoverEUspecificaspects,as theyarebeyond thescopeof the report.TheEUparticipates in

OECDmeetingsandthereisclosecooperationinmanyareasincludingontechnicalstandards.TheEUhasdeveloped

awealth

of

expertise

in

automatic

exchange

of

information

between

tax

administrations

as

atool

to

combat

cross

bordertaxevasioninthedirecttaxarea.The2003SavingsDirectiveoninterestincomeprovidesfordetailedrulesoncollectionandexchangeofinformation.The2011DirectiveonAdministrativeCooperationobligesmemberstatestoautomaticallyexchange informationonseveralothertypesof income.TheEU,closelycooperatingwithOECD,hasalsodevelopedstandardcomputerizedformats(andrelatedinstructions)formemberstatestaxadministrationstoautomaticallyexchange informationunderthesetwodirectives.OnMay22,theEUCouncilunanimouslyagreedtogivepriority toeffortstoextendautomaticexchangeof informationat theEUandglobal levelandwelcomed theongoingeffortsmadeintheG8,G20andOECDtodevelopaglobalstandard(Councilconclusions22May2013).


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II.Keyfeaturesofastandardisedmultilateralautomaticexchangemodelonfinancialinformation

6. Asageneralmatter,foramodelforautomaticexchangeoffinancialinformationtobeeffectiveitmustbe specificallydesignedwith residencejurisdictions tax compliance inmind rather thanbe a

by

product

of

domestic

reporting.

Further,

it

needs

to

be

standardised

so

as

to

benefit

the

maximum

numberofresidencejurisdictionsandfinancialinstitutionswhilerecognisingthatcertainissuesremaintobedecidedby local implementation.Theadvantageofstandardisation isprocess simplification,highereffectivenessandlowercostsforallstakeholdersconcerned.Aproliferationofdifferentandinconsistentmodels would potentially impose significant costs on both government and business to collect thenecessary informationandoperatethedifferentmodels. Itcould leadtoafragmentationofstandards,whichmay introduceconflictingrequirements, further increasing thecostsofcomplianceandreducingeffectiveness.Finally,becausetaxevasion isaglobal issue, themodelneedstohaveaglobalreachsothatitaddressestheissueofoffshoretaxevasionanddoesnotmerelyrelocatetheproblemratherthansolving it. It is against thisbackground that theG20 inApril calledupon theOECDworkingwithG20countriestodevelopamultilateralstandardandtoreportprogressatthenextG20meetinginJuly.TheGlobalForumhasbeenchargedwithmonitoring.

7. In2012theOECDdeliveredtotheG20thereportAutomaticExchangeofInformation:Whatitis,Howitworks,Benefits,Whatremainstobedone,7whichsummarizesthekeyfeaturesofaneffectivemodel for automatic exchange. Themain success factors for effective automatic exchange are: (1) acommonagreementonthescopeofreportingandexchangeandrelatedduediligenceprocedures;(2)alegal basis for the domestic reporting and international exchange of information; and (3) commontechnicalsolutions.

1.

Common

agreement

on

scope

of

reporting

and

exchange

including

related

due

diligence

procedures

8. Aneffectivemodelforautomaticexchangeofinformationrequiresanagreementonthescopeof the information to be reported by domestic financial institutions and exchanged with residencejurisdictions.Thiswillensurethatthereportingbyfinancialinstitutionsisalignedwiththeinterestsofthe

residencecountry.

It

will

also

increase

the

quality

and

predictability

of

the

information

that

is

being

exchanged. Theresultwillbesignificantopportunitiesfortheresidencecountrytoenhancecomplianceandmakeoptimaluseof the information (e.g. throughautomaticmatchingwithdomesticcomplianceinformationanddataanalysis).

9. Inorderto limittheopportunitiesfortaxpayerstocircumventthemodelbyshiftingassetstoinstitutionsor investing inproducts that arenot coveredby themodel a reporting regime requires abroadscopeacrossthreedimensions:

The scope of financial information reported: A comprehensive reporting regimewould coverdifferent typesof investment income including interest,dividendsandsimilar typesof income,andalsoaddresssituationswhereataxpayerseekstohidecapitalthatitselfrepresentsincomeor

assetson

which

tax

has

been

evaded

(e.g.

by

requiring

information

on

account

balances).

7 http://www.oecd.org/tax/exchangeoftaxinformation/automaticexchangeofinformationreport.htm


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The scopeofaccountholders subject to reporting:Acomprehensive reporting regime requiresreporting not only with respect to individuals, but should also limit the opportunities fortaxpayerstocircumventreportingbyusinginterposedlegalentitiesorarrangements.Thismeansrequiring financial institutions to look through shellcompanies, trustsor similararrangements,

includingtaxable

entities

to

cover

situations

where

ataxpayer

seeks

to

hide

the

principal

but

is

willingtopaytaxontheincome.

Thescopeoffinancial institutionsrequiredtoreport:Acomprehensivereportingregimewouldcovernotonlybanksbutalsoother financial institutionssuchasbrokers,collective investmentvehiclesandinsurancecompanies.

10. Besidesacommonagreementonthescopeofthe informationtobecollectedandexchanged,an effective model of automatic exchange of financial information also requires an agreement on arobustsetofduediligenceprocedurestobefollowedbyfinancial institutionsto:(i) identifyreportableaccountsand(ii)obtaintheaccountholderidentifyinginformationthatisrequiredtobereportedforsuchaccounts. Theduediligenceproceduresarecriticalastheyhelptoensurethequalityoftheinformationthatisreportedandexchanged.

2.

Legal

basis

and

confidentiality

11. A standardised multilateral automatic exchange model requires a legal basis for: (i) thedomestic reporting obligation and (ii) the exchange of the information. The reporting obligationswilltypicallybe included indomestictax legislation,withduediligenceprocedurestoensurethequalityofthe data set out in regulations or guidance. There are different legal bases upon which automaticexchangecouldtakeplace,andwhichalreadyexist,includingabilateraltreatywithaprovisionbasedonArticle 26 of the OECD Model Convention or the Multilateral Convention on Mutual AdministrativeAssistance inTaxMatters.TheNordicConventionalsoprovides suchabasisandwithin theEuropeanUnion,Directives provide a specific legal framework for automatic exchange on interest income andcertainothertypesofinformationbetweenits27(soon28)members.

12. All treaties and exchange of information instruments contain strict provisions that requireinformationexchangedtobekeptsecretorconfidentialandlimitthepersonstowhomtheinformationcanbedisclosedandthepurposesforwhichtheinformationmaybeused. TheOECDrecentlyreleasedaGuideonConfidentiality,Keeping itSafe8whichsetsoutbestpractices relatedtoconfidentialityandprovidespracticalguidanceonhowtoensureanadequate levelofprotection.Beforeentering intoanagreementtoexchangeinformationautomaticallywithanothercountry,itisessentialthatthereceivingcountry has the legal framework and administrative capacity and processes in place to ensure theconfidentiality of the information received and that such information is only used for the purposesspecifiedintheinstrument.9

8 http://www.oecd.org/tax/exchangeoftax

information/keepingitsafetheoecdguideontheprotectionofconfidentialityofinformationexchangedfortaxpurposes.htm

9 Cf.thereferencetoexchanginginformationautomaticallywiththeirtreatypartners,asappropriate[underlining

added].Paragraph14,G20FinanceMinistersandCentralBankGovernorscommuniqu,April19,2013.


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3.TechnicalandITaspects

13. Thedevelopmentofcommontechnicalsolutionsforreportingandexchangeofinformationisacriticalelementinastandardisedexchangesystem especiallyonethatwillbeusedbyalargenumberof

countries

and

financial

institutions.

Standardisation

will

reduce

the

overall

costs

for

governments

and

financialinstitutions.

14. First, the technical reporting formats must be standardised so that information can becaptured,exchangedandprocessedquicklyandefficiently in a costeffectivemannerby the receivingjurisdiction.

15. Second,secureandcompatiblemethodsoftransmissionandencryptionofthedatamustbeinplace. ManyjurisdictionsalreadyelectronicallyexchangeinformationonrequestanddosoonthebasisofprotocolsdevelopedbytheOECD. Themethodoftransmissiongenerallytakesplacedirectlyfromonecountrys exchange of information portal to the other countrys exchange of information portal(commonly called pointtopoint) or,within the EU, such exchanges take place byway of a securenetwork (CCN).Nordic countries exchange automatically under theNordic Convention over a securenetwork.

In

addition,

the

information

being

exchanged

must

be

encrypted

and

the

encryption

and

decryption methods must be compatible with the systems in both the sending and the receivingjurisdiction.

III.Makingithappen

16. Key developments are already under way. Five European countries, each an OECD and EUmember(France,Germany,Italy,SpainandtheUnitedKingdom),developedwiththeUnitedStatestheModel 1 IGA.10 The Model 1 IGA provides for reporting by financial institutions to their local taxauthorities,whichthenexchangethe informationonanautomaticbasiswiththeresidencejurisdictiontax authorities. This approach is consistent with the general architecture of automatic informationexchangethatisalsoused intheEUcontext,for instancefortheEUSavingsDirective.TheModel1IGA

furthercontains

acommitment

to

work

with

interested

jurisdictions,

the

OECD

and

where

appropriate

theEUonadaptingthetermsofthe IGAtoacommonmodelforautomaticexchangeof information,including the development of reporting and due diligence standards for financial institutions.

11 The

United States is already in discussions with over 75 jurisdictions and as more bilateral automaticexchangeagreementsarebeingsignedtheFinanceMinistersfromthesamefiveEuropeancountriesinajointletterstated:

Webelievethattheseagreementsrepresentastepchangeintaxtransparency,enablingusto

clampdownfurtherontaxevasion.Wewillbe lookingtopromotetheseagreementsasthe

10 Both theOECDand theEuropeanCommissionwelcomed thesedevelopments.Welcoming theagreements in July

2012OECDSecretaryGeneralAngelGurrasaid: Iwarmlywelcomethecooperativeandmultilateralapproachonwhichthemodelagreementisbased.WeattheOECDhavealwaysstressedtheneedtocombatoffshoretaxevasion

whilekeepingcompliancecostsaslowaspossible.Aproliferationofdifferentsystemsisinnobodysinterest.Weare

happytoredoubleoureffortsinthisarea,workingcloselywithinterestedcountriesandstakeholderstodesignglobal

solutions to globalproblems to the benefit of governments and business around the world. In February 2012Mr.emeta,EUCommissionerforTaxationsaid:"TheEUandUSAshareastrongobjective:totackletransbordertaxevasionandensurenationaltreasuriescancollectwhattheyaredue.Iamconfidentthatthisnewdevelopmentwill

pavethewaytoachievethisinabusinessfriendlymanner."

11 Cf.Article6,paragraph3ModelIIGA.


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newinternationalstandard,includingthroughthevariousinternationalfora,withtheultimate

aimofagreeingamultilateralframework.

17. Asdiscussed intheAnnex,theModel1IGAcontainsanumberofkeyfeaturesofaneffective

automatic

exchange

model.

This,

along

with

the

fact

that

governments

and

financial

institutions

around

theworldarealreadyinvestingtoimplementit,makestheModel1IGAalogicalbasisonwhichtobuild.At the same time account should also be taken of the system and corresponding IT tools used inconnectionwiththeEUSavingsDirectivesoastokeepcoststoaminimumforgovernmentsandfinancialinstitutions.

18. Thesedevelopmentsofferanopportunitytomovetowardsastandardisedmodelofautomaticexchangeof informationandavoidthepossibilityofafragmentationofstandards,whichwould imposesignificantly higher costs on financial institutions and governments. Four steps can now be taken (anumberof themarealreadyongoingat theOECD) to implementa standardisedmultilateralmodelofautomaticexchange:

1.Enactbroadframeworklegislation

19. MostjurisdictionswillneedtoadoptlegislationtoimplementtheModel1IGAandinparticularthe domestic reporting obligations. This presents an opportunity to create in one step a broaderframework legislation facilitating the subsequent expansion of a countrys network of partnerjurisdictions.Theframeworklegislationcouldallowtheexecutivetoexpandreportingtoaccountholdersthatare residentsofotherjurisdictionsbywayof regulationand/oradministrativeguidance,providedrelevantconditionsaremet.

Thetimingforenactinganylegislationwillvarybycountry,butpreparationofdraftlegislationisalreadyadvanced inmanyjurisdictionsmaking itpossible inprinciple toaccomplish this stepquitequicklyandinmanyinstancesalreadyduring2013.12

20.

Themain

purpose

of

such

framework

legislation

would

be

to

allow

additional

jurisdictions

to

be

addedwithouttherequirementtoseparatelyamendprimary legislationeachtimeanewagreement isenteredinto.Itwouldthusnotneedtoprovideforthedetailedreportingandduediligencerequirementswhichcouldbecontainedinsecondarylegislationand/oradministrativeguidance.

2.

Select

a

legal

basis

for

the

exchange

of

information

21. Different legalbasesforautomaticexchangesof informationreportedunderacomprehensivereportingregime(i.e.,coveringdifferenttypesof investmentincomeandfinancialinformation,applyingto individuals and certain entities, and covering awide range of financial institutions)13 already exist.WhilebilateraltreatiessuchasthosebasedonArticle26oftheOECDModelTaxConventionpermitsuchexchanges14, it may be more efficient to establish automatic exchange relationships through a

multilateral

information

exchange

instrument.

The

Multilateral

Convention

on

Mutual

Administrative

12 Notalljurisdictionswillrequirenewlegislation. Insomejurisdictions(e.g.Mexico)existinglawsandrelatedpowers

may already be broad enough, thus requiring only implementing guidance.Otherjurisdictionsmay have alreadylegislated(e.g.theUnitedKingdom).

13 Cf.paragraph8above.

14 Cf.paragraph9oftheCommentaryonArticle26oftheOECDModelConvention.


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Assistance inTaxMatters(Convention)15,asamended in2011, issuchan instrument. ItprovidesforallpossibleformsofadministrativecooperationbetweenStates,containsstrictrulesonconfidentialityandproperuse,andpermitsautomaticexchangeof information.16Oneof itsmainadvantages is itsglobalreach: more than 60 countries, including all G20 countries, have either signed the Convention or

committedto

do

so

17

with

further

signatures

expected

before

the

September

2013

G20

Summit

in

St.

Petersburg.18

22. Automatic exchanges under the Convention require a separate agreement between thecompetentauthoritiesoftheparties,whichcanbeenteredintobytwoormorepartiesthusallowingfora single agreementwith several parties (with actual automatic exchanges taking place on a bilateralbasis). Such an agreement would activate and operationalise automatic exchange between theparticipating countries. It would specify the information to be exchanged and would also deal withpracticalissuessuchasthetimeandformatoftheexchange.

A draftmodel competent authority agreement has already been prepared in connectionwithongoingworkdiscussedmore fullybelowandwillbediscussedatameetingofOECDandG20countries inJunewhichalsoincludesaconsultationwithbusiness.Amodelagreementcouldbeavailableasearlyasthesecondhalfof2013.

23. Implementing broad framework legislation allowing the executive to expand reporting toincludeotherjurisdictions,coupledwithasingleorstandardisedcompetentauthorityagreement,wouldthenprovideafastandeffectivewaytoimplementtheautomaticexchangemodel.

24. Jurisdictions could also rely on their existing bilateral treaties or certain tax informationexchange agreements19with essentially the same competent authority agreement as that tobeusedunder theConvention,provided theyalreadyhaveabroadenough treatynetworkandthecompetentauthorityagreement is standardised toensureconsistencyand retainoperabilityof themodel. Asanalternative, jurisdictions could enter into a multilateral intergovernmental agreement or multipleintergovernmentalagreementsthatwouldbeinternationaltreatiesintheirownright(coupledwithmore

limitedcompetent

authority

agreements).

However,

given

the

need

for

separate

ratification

such

an

approachwouldbemoretimeconsuming. TheNordicConventionalsoprovidessuchabasisandwithintheEuropeanUnionDirectivesprovide abinding legal framework for automatic exchangeon interestincomeandcertainothertypesofinformationamongits27(soon28)members.

15 TheMultilateralConventionwasdevelopedjointlybytheCouncilofEuropeandtheOECDandopenedforsignature

bythememberstatesofbothorganisationson25January1988.TheConventionwasamendedtorespondtothecalloftheG20atitsApril2009LondonSummittoalignittotheinternationalstandardonexchangeandtoopenittoallcountries, in particular to ensure that developing countries could benefit from the new more transparentenvironment.Itwasopenedforsignatureon1stJune2011.

16 SeeArticle6.

17 Foralistofsignatorycountriesandfurtherinformationseewww.oecd.org/ctp/eoi/mutual

18 InviewofthenextG20Summit,wealsostronglyencouragealljurisdictionstosignorexpressinterestinsigningthe

Multilateral Convention on MutualAdministrativeAssistance in Tax Matters and call on the OECD to report on

progress.Seeparagraph14of19AprilCommuniquofG20FinanceMinistersandCentralBankGovernors.

19 The OECD Model Tax Information Exchange Agreement (TIEA) does not provide the legal basis for automatic

exchange.However,certainindividualTIEAsdo.


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Given that automatic exchange can be based on a number of existing instruments includingbilateraltreaties,certaintax informationexchangeagreements,and theConvention,andgiventhatmore and morejurisdictions arejoining the Convention a broad legal network for suchexchangesalreadyexistsandislikelytohavegrownsignificantlybytheendof2013.

3.

Adapt

the

scope

of

the

reporting

and

due

diligence

requirements

and

coordinate

guidance

to

ensure

consistency

and

reduce

cost

25. DevelopingastandardisedmodelforautomaticexchangecandrawontheModel1IGA20,withamendments required to support a standardised multilateral model that addresses the needs of allparticipatingjurisdictions and remains administrable for both financial institutions and participatingjurisdictions. These changes include simplifying the rules by removing U.S. specificities that are notneededorfeasibleforamultilateralapproach,dealingwithanydifferenteffectivedatesfromthoseusedfortheModel1 IGA itselfandbuildingonwhatalreadyexistsfor instance intheEUcontextand inthearea of antimoney laundering standards.21 Work in this area started at the OECD in 2012 and isprogressing rapidly.OECD andG20 countriesdiscusseddraftproposalsat their lastmeeting inMarch2013 and thenextmeeting is scheduled for June. For thepurposesof illustration, examplesof areaswheresuchchangesareneededinclude:

Thresholds:TheModel1IGAprovidesathresholdamountbelowwhichanaccountdoesnothaveto be reported but also allows financial institutions to report all accountswithout applying athreshold.Thresholdsmayreducetheburdenforsomefinancialinstitutionsandcertaintypesofaccounts (or eveneliminateany reportingobligation),but alsoadd complexity,especially in amultilateral context. For a multilateral model, removing such thresholds could be a possiblesimplification. TheEUSavingsDirective,forinstance,hasnosuchthresholdamounts.

Exceptionstoreportableaccountholders:WithrespecttoindividualaccountholderstheModel1IGA covers both residents and citizens of the United States. As most jurisdictions only taxresidentsnotcitizens,themultilateralmodelwouldonlyneedtocoverresidents.Withrespectto

entities,the

Model

1IGA

covers

all

types

of

U.S.

entities

but

specifically

excludes

12

categories

of

lowrisk/generallycompliantentitieswhicharedefinedbyreferencetoU.S. legislation.Suchanapproach in a multilateral context, where every country would specify a list of differentexceptionsbyreferencetodomesticlaw,maybedifficultforfinancialinstitutionstooperateandmayalsobedifficulttolegislatedomestically.Asimplifiedapproachneedstobedeveloped.

Due diligence procedures: The due diligence procedures required by the Model 1 IGA couldgenerallybeusedwithcertainmodificationstoremoveU.S.specificities,suchasrelianceonU.S.forms and the removal of identification requirements associated with citizenship. InspirationcouldalsobetakenfromtheduediligenceproceduresincludedintheEUSavingsDirective.Duediligenceproceduresmayalsohavepotential synergies inhelpingensure that source taxationrulesareproperlyapplied.

20 TheU.S.alsodevelopedanothermodelintergovernmentalagreement(theModel2IGA)whichprovidesfordirect

disclosure of account information from the financial institutions to the U.S. IRS. The Model 2 IGA seems lesscompelling as a template for a multilateral standard for automatic exchange as it requires that all financialinstitutionssetupindividualcommunicationlineswithmultipleresidencejurisdictions.

21 The Model 1 IGA already refers to the FATF Recommendations, both for purposes of identifying the financial

institutionsrequiredtoreportandforcertainaspectsofthecustomerduediligenceprocedures.


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13

Exceptionstoreportingfinancialinstitutions:TheModel1IGAprovidesforcertaincategoriesoffinancial institutions thatareexplicitlyexcluded from the reportingobligations. Someof theseexclusionsmaybeinappropriateorunworkableinamultilateralcontext.22

26.

Atamore

detailed

level,

common

guidance

will

also

need

to

be

developed

to

ensure

consistency and standardisation of the reporting and due diligence requirements introduced byjurisdictions in their domestic rules. Given that implementation will be based on domestic law, it isimportant to ensure consistency in implementation acrossjurisdictions to avoid creating unnecessarycosts and complexity for financial institutions in particular those with operations in more than onecountry resulting from different interpretations in different jurisdictions. This will require commonguidancewhichisalogicaloutcomeoftheOECDworkdescribedabove.

Buildingonongoingwork,detailedguidance isbeingadvancedwithpossible finalisationduringthefirsthalfof2014.

4.

Develop

common

or

compatible

IT

standards

a)The

reporting

format

27. A standard format for theexchangeof information isessential toensure themodel remainseffective and administrable. The OECD has brought together its member countries, the EU, andrepresentativesofthebusinesscommunitytoassistinthedevelopmentofareportingformat(schema)for implementingFATCAwhich isbasedon STF23and incorporatesmanyelementsofFISC153.24 It isexpected that thiswillbe flexibleenough tobeused for reportingandexchangeunderamultilateralexchangemodel,subjecttominoramendments.

b)Compatibletransmissionmethodsandagreedlevelsofencryption

28. Already a number of jurisdictions have experience in exchanging tax information through

electronicmeans

and

using

agreed

encryption

standards.

25

In

its

effort

to

prepare

for

FATCA

implementation,theUnitedStatesisworkingtodevelopasecuredataexchangeprocessthatintendstoallow jurisdictions to exchange data securely based on agreed encryption protocols and softwarecompatibility solutions. Thisprocess couldpotentiallybeusedby interestedjurisdictionsnotonly forexchangebutalso fordatacollection.Thus there shouldbeno reason tobelieve thatwhatexistsandwhatisbeingdevelopedshouldnotbesusceptibletosupportautomaticexchanges.

22 Forinstance,theexclusionoflocalforeignfinancialinstitutions(FFIs)seemstobeoflimitedrelevanceoutsideofthe

FATCA context: one of the conditions provides thatwhere those FFIs identify an account of a nonresidentU.S.specified person, they need to report such accounts as if they were a reporting FFI. Translated for a commonreportingstandard,thisconditionwouldmeanthatalocalFFIwouldberequiredtoreportallaccountsheldbynonresidentaccountholders,whichmakestheexclusionmeaningless.

23 STF (Standard Transmission Format) is a standard format for automatic exchange of tax informationwhichwas

developedbytheOECDandusesXMLlanguage.

24 FISC153isthestandardthatisusedfortheEUSavingsDirective.

25 EUcountriesexchangeinformationundertheSavingsDirectivemainlythroughemailfiletransmissionsoverasecure

network(CCN)maintainedbytheEuropeanCommission,NordiccountriesexchangeautomaticallyundertheNordicConventionoverasecurenetworkandothercountriesexchangeelectronicallyusingencryptedemails.


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14

Thereportingschemaandafirstversionoftherelated instructionscouldbefinalisedwithinthesecondhalfof2013.Securetransmissionsystemseitheralreadyexistor,wheretheydonot,canbe established by interested jurisdictions, based on ongoing work in time for the firsttransmissionofinformation.


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15

ANNEX:

USING

RECENT

BILATERAL

AGREEMENTS

TO

ADVANCE

TOWARDS

A

STANDARDISED

MULTILATERAL

MODEL

29. Thediagrambelow illustratesthepotentialfordevelopingastandardisedautomaticexchange

model

building

on

the

Model

1

IGA

and

recent

bilateral

agreements.

The

lines

marked

by

the

numbers

1

and2showtheflowofinformationrequiredunderaModel1IGA.Inbothcases(totheUnitedStatesand

from the United States to countries A and B respectively) the customer/accountholder provides

information to the financial institution which is then reported by the financial institution to the tax

authorities in their countryof residence. The taxauthorities in countriesA andB thenautomatically

exchange

the

information

with

the

tax

authority

in

the

United

States

and

the

United

States

automatically

exchangeswiththetaxauthoritiesincountriesAandB,respectively.Thelinemarkedbynumber3shows

the

possibility

of

leveraging

on

implementation

of

the

Model

1

IGA

to

allow

countries

to

exchange

similar

information

with

other

countries.

30. Jurisdictionsthataremakingchangestodomesticlaw,includingadoptingduediligencerulesfor

financialinstitutions,forpurposesofimplementingaModel1IGAwillhaveaninterestinleveragingsuch

changes

to

use

them

to

establish

automatic

exchange

relationships

with

respect

to

accountholders

from

certainotherjurisdictions that themselves are introducing similar rules. Further, financial institutions

around the world are currently making significant investments to comply with FATCA. Aligning a

multilateral

model

with

the

Model

1

IGA

will

allow

financial

institutions

to

leverage

on

this

investment


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16

andreducetheircompliancecost.Atthesametimesuchamodelalsoneedstotake intoaccountwhatexistsandhasalreadybeendevelopedforinstanceintheOECDandtheEUcontexts.

31. Further,theModel1IGAhasanumberofthekeyfeaturesofaneffectiveautomaticexchange

model

discussed

above,

therefore

making

it

a

key

development

for

standardised

automatic

exchange

globally.

32. First,itcontainsdetailedrulesthatprovideforareportingregimewithacomprehensivescope:

Itcoversawiderangeof financial institutions (includingnotonlybanks,brokersandcustodiansbutalsocertain insurancecompanies,trustsandcollective investmentvehicles, includinghedgefundsandprivateequityfunds).

Itprovidesforreportingonaverybroadrangeoffinancialinformationincludingaccountbalance,gross amount of interest/dividends/other income and proceeds from sale or redemption ofpropertyinacustodialaccount,andincomefromcertaininsurancecontracts.

Itrequires

reporting

in

respect

of

individuals

and

entities

with

an

additional

requirement

that

financialinstitutionslookbehindcertainentitiestodeterminethebeneficialowners,whichlimitsthe opportunities for circumventing the model by interposing shell companies, trusts,foundationsorothercorporatevehicles,whethertaxableornot.

33. Second, it includesanumberof features toensure the information that isexchangedmeetscertainqualitystandardsandcanbeeffectivelyusedbytheresidencejurisdictionincluding:

Therequirementtocapturetaxpayeridentificationnumbers(TINs)ofaccountholderswheretheyexist.26

Detailed due diligence procedures to be followed by financial institutions in order to identify

reportableaccountholders.

These

procedures

often

rely

on

know

your

customer

rules

followed

by financial institutions under applicable antimoney laundering rules, which increases theireffectivenessandreducescosts.

34. Third,itreliesonrelationshipsandprocessesthatalreadyexistfinancialinstitutionsreportingto their domestic tax authorities and one tax authority exchanging information with another taxauthorityandthathaveproventowork.Finally,itisdesignedforglobalapplication.

26 In1997theOECDCouncilissuedarecommendationontheuseoftaxpayeridentificationnumbersinthe

internationalcontext;see:http://search.oecd.org/officialdocuments/displaydocumentpdf/?doclanguage=en&cote=c(97)29/final


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Tis work is published on the responsibility of the Secretary-General of the OECD. Te opinions expressed and arguments

employed herein do not necessarily reflect the official views of the Organisation or of the governments of its membercountries.Tis document and any map included herein are without prejudice to the status of or sovereignty over any territory, to thedelimitation of international frontiers and boundaries and to the name of any territory, city or area.


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Vast amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with

tax obligations in their home jurisdictions. Jurisdictions around the world, small and large, developing

and developed, OECD and non-OECD, stand united in calling for further action to address the issuesof international tax avoidance and evasion. Co-operation between tax administrations is critical in the

fight against tax evasion and a key aspect of that cooperation is exchange of information.

The OECD has been a driving force in fostering such co-operation and has a long history of developing

standards on all forms of exchange of information on request, spontaneous, and automatic and

the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and Article 26 of the

OECD Model Tax Convention provide a basis for all forms of information exchange.

A major breakthrough towards more transparency was accomplished in 2009 with information

exchange upon request becoming the international standard and the restructured Global Forum on

Exchange of Information and Transparency for Tax Purposes starting to monitor the implementation of

the standard through in-depth peer reviews.

Now, there is another step change in international tax transparency driven by developments around the

globe, including in the United States and Europe, with unprecedented political support for automatic

exchange of information. In April 2013 the G20 Finance Ministers and Central Bank Governors

endorsed automatic exchange as the expected new standard.

Anticipating these developments and in l ight of the increase in automatic exchange agreements, the

G8 Presidency requested a report from the OECD to analyse how jurisdictions could build on the

recent developments to implement automatic exchange in a multilateral context.

This report responds to that request. It first discusses the key success factors for an effective model

for automatic exchange of financial information, as they were identified in recent work conducted at theOECD and summarised in its report on automatic exchange delivered to the G20 in 2012. It then sets

out four concrete steps to put such automatic exchange into practice including possible timeframes

for the delivery of each step. The Annex provides background on the recent bilateral agreements

based on the Model 1 IGA and how they can be useful in advancing towards a standardised automatic

exchange model.

www.oecd.org

OECD Paris

2, rue Andr-Pascal, 75775 Paris Cedex 16

Tel.: +33 (0) 1 45 24 82 00

taxtransparency_G8report

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