International bodies such as the G20 (Group of Twenty Leaders and Finance Ministers and Central Bank Governors) and the OECD have started coordinated efforts to gain a truer picture of income and assets worldwide and prevent tax evasion by individuals. The three main reporting and exchange initiatives are the Foreign Account Tax Compliance Act, the European Union Saving Directive and the new Common Reporting Standard.

  1. The Foreign Account Tax Compliance Act: FATCA is a United States regime aimed at US persons with offshore accounts and investments. A US resident for tax purposes is subject to US taxation worldwide. In order to collect information regarding the accounts that US persons hold abroad, the United States has imposed the FATCA regime. Pursuant to this regime, specified types of non-US entities, such as financial institutions, must disclose to the US Internal Revenue Service (IRS) information about their US accounts and the holders of such accounts in order to avoid withholding tax on certain US-connected investments. With respect to each US account (i.e., an account held by a specified US person or a passive non-financial foreign entity (NFFE) with a substantial US owner), the financial institution that maintains the account must report: the name, address, and taxpayer ID number of the account holder, as well as the account number, account balance at year-end or account closure, interest, dividends, other income and gross proceeds.
  2. EU Savings Directive: The EU has been actively addressing tax fraud and evasion in general and information exchange in particular for many years. Among the EU’s weapons are the Savings Directive and the Directive on Administrative Cooperation. The Savings Directive was introduced in 2005 and provides for automatic exchange of information on interest income within the EU and certain non-EU countries and territories (Switzerland, Liechtenstein, Andorra, Monaco and San Marino). Such directive has being revised to broaden its scope. From 2015, the Directive ensured that member states exchange information automatically upon availability on five categories of income and capital: employment, directors’ fees, life insurance products not covered by other directives, pensions and ownership of and income from immovable property. The last proposed changes would also bring the following other items within the directive’s scope: dividends, capital gains, other financial income and account balances.
  3. Common Reporting Standard: In February 2014 the OECD published the text of this single global Standard, drawing extensively on the intergovernmental approach to implementing FATCA. Under this new standard, starting from 2017, financial institutions (such as banks, custodians, brokers, certain collective investment vehicles, trusts and certain insurance companies) resident or having a branch in a participating country[1] will have to follow specific due diligence procedures to report annually the following items: the identity and residence of financial account holders (including certain entities and their controlling persons), account details, reporting entity, account balance/value and income/sale or redemption proceeds. The reportable persons include any individual identified by a reporting entity in one country as resident for tax purposes in a reportable country, as well as certain entities resident in that country or certain entities (‘passive non-financial entities (NFEs)’) having individual controlling (reportable) persons.

[1] JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2017: Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Dominica, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom

JURISDICTIONS UNDERTAKING FIRST EXCHANGES BY 2018 Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Marshall Islands, Macao (China), Malaysia, Monaco, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Saint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay

JURISDICTIONS THAT HAVE NOT INDICATED A TIMELINE OR THAT HAVE NOT YET COMMITTED Bahrain, Nauru, Vanuatu


 

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