SwissBanking
The online magazine of the Swiss Bankers Association
April 16, 2014

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The automatic exchange of information in tax matters is coming

The automatic exchange of information in tax matters is coming

The OECD published the first two core documents for the future global standard on the automatic exchange of information in tax matters at the end of January 2014. One thing is already clear: The global financial industry will once again have to rise to a significant challenge.

Over the course of the last year, the G20 countries increasingly and clearly stated their commitment to strengthened collaboration in the area of the exchange of information in tax matters. In early April 2013, they instructed the OECD to develop a global standard for the automatic exchange of information (AEI).

At the beginning of February 2014, the OECD Committee on Fiscal Affairs published the first two key elements of the AEI: The Model Competent Authority Agreement (CAA) and the Common Reporting Standard (CRS). Two further elements – a detailed commentary for the consistent application of the standard and guidelines on technical implementation – are currently being developed.

Model Competent Authority Agreement (CAA)

The CAA is a model agreement that serves as the basis for bilateral agreements. It defines which information must be shared and how. In addition, the model agreement guarantees

  • sufficient protection of data;
  • adherence to the principle of speciality, which ensures that the information exchanged is used only for the purpose intended by the agreement;
  • reciprocity.

Common Reporting Standard (CRS)

The CRS defines the financial institutions that are required to report, the information that must be reported as well as which accounts must be reported. In addition, it describes the due diligence measures that must be adhered to in the identification and reporting of accounts.

Not only banks are required to report, but also certain investment and insurance companies. The information to be exchanged includes, amongst other things, all types of income – including sales proceeds, but not capital gains – and account balances. The scope of application extends both to accounts belonging to individuals as well as to those of companies and legal entities such as foundations and trusts.

Imprecise definitions and cumbersome standards will result in legal uncertainty for the institutions that implement them.

The beneficial owners of the accounts or the “controlling persons” of passive companies and structures must be identified in accordance with the Financial Action Task Force on Money Laundering (FATF) guidelines. In order to guarantee that the conditions for competition are equal, it is therefore necessary to ensure that the FATF guidelines are implemented consistently internationally. This is the only way to make sure that the partner states, as provided for in the CAA, exchange the same information (reciprocity).

The rules for identification and documentation outlined in the CRS are complex, as they lean heavily on the highly-complicated procedures set out in the FATCA model. Imprecise definitions and cumbersome standards will result in legal uncertainty for the institutions that implement them. National legislation and guidelines as set out by the local authorities will therefore play a very important role.

The AEI is coming, and it’s coming soon...

It can be assumed that the OECD Committee on Fiscal Affairs will approve the standardised OECD model including the detailed commentary and the guidelines for technical implementation in June 2014. The OECD Council, the leading body of the organisation, is expected to give the go-ahead for the overall model in the third quarter of 2014. On 20/21 September 2014, the model as well as the technical implementation guidelines and the detailed commentary will be presented at the G20 Finance Ministers and Central Bank Governors Meeting in Cairns. The G20 countries are obliged to adopt the standard as soon as it has been ratified by the OECD Committee.

In order to pave the way for the AEI, a highly comprehensive and fair regularisation of the past must be striven for.

Challenges for the future

The Swiss Federal Council stated last June that Switzerland will introduce the new standard provided that it is recognised and implemented by the G20 countries, the OECD members and all important financial centres of the world. This could be the case as early as the beginning of 2016. From a Swiss point of view, there still remain important political and strategic questions that must be settled beforehand, such as the securing of bilateral market access. Furthermore, in order to pave the way for the AEI, a highly comprehensive and fair regularisation of the past must be striven for. The Swiss government and financial industry will face many challenges in these dynamic times.

The activities of the Swiss Bankers Association (SBA)

In light of global developments, the SBA is taking a constructive position with regards to the AEI. It is working to ensure that an approach is developed that guarantees both a level playing field for competition across national boundaries, as well as a cost-efficient implementation. Various SBA committees have followed and examined this topic throughout its stages of development. Furthermore, the SBA is represented by a number of experts in the consultative committee of the OECD, the Business and Industry Advisory Committee (BIAC), and contributes regularly to OECD discussions. The SBA also enjoys a highly constructive exchange with the State Secretariat for International Finance Matters (SIF) and is active in the European Banking Federation.