31 October 2014
www.bdo.lu
TAX TRANSPARENCY: OECD AUTOMATIC
EXCHANGE OF INFORMATION
AGREEMENT SIGNED IN BERLIN
By 1 January 2016, Luxembourg financial institutions must have their IT
systems adapted in order to be able in 2017 to exchange information on
financial accounts held directly or indirectly by EU and non EU residents.
On 29 October, the “Multilateral Competent
Authority Agreement on Automatic Exchange of
Financial Account Information” (MCAA) prepared
by the OECD has been signed in Berlin. This
landmark agreement gives birth to an international
automatic exchange of information (AEOI). The
first exchanges should occur between tax
authorities in 2017 and should cover interest,
dividends and gross sales proceeds received
(directly and indirectly) in 2016 by residents of
participating countries. The balance or value of
the financial accounts would also have to be
communicated by the financial institutions.
As for FATCA and the amended Directive
2011/16/EU on administrative cooperation in the
field of taxation (DAC) (please refer to our Tax
Alert of last 15 October 2014 in this respect),
financial institutions required to provide
information are not only banks but also insurance
companies, investment funds or any other
investment vehicle.
Therefore, in the future, Luxembourg financial
institutions might be subject to 3 different
reporting obligations:
- FATCA for U.S. clients,
- the revised DAC for clients resident in the E.U.,
and
- the OECD AEOI for clients resident in a
participating country other than the U.S. or an
E.U. Member State.
The Luxembourg financial institutions will have to
be able to manage the addition of new countries
participating to the OECD AEOI.
The genesis of the automatic exchange of
information
U.S. FATCA. In 2010, the United States enacted
FATCA, which introduced a comprehensive AOEI by
requiring non-U.S. financial institutions to provide
annually U.S. tax authorities with data on the
financial accounts maintained directly or indirectly
by persons considered as U.S. for U.S. tax
purposes.
E.U. revised DAC. In 2013, a number of European
countries (the G5 composed of France, Germany,
Italy, Spain and the U.K.) announced their
intention to develop a multilateral AEOI, based on
FATCA principles. This initiative ended up with the
revision of the E.U. DAC.
OECD AEOI. The G20 Finance Ministers and Central
Banks Governors endorsed in 2013 the European
initiative. In September 2014, the G20 approved
the global AEOI standard known as the "Standard
for Automatic Exchange of Financial Account
Information - Common Reporting Standard” (CRS)
developed by the OECD (which actually will be
used as well as the standard for the DAC reporting
purposes). The MCAA is the international
agreement activating the OECD AEOI.
What has been signed in Berlin?
On 28 and 29 October 2014 was held in Berlin the
7th meeting of the Global Forum on Transparency
and Exchange of Information for Tax Purposes.
The Global Forum is the international body
ensuring the implementation of the internationally
agreed standards of transparency and exchange of
information in tax matters.
The current standard is the exchange upon request
as provided by article 26 of the OECD Model Tax
Convention. Through the peer review process, the
Global Forum is monitoring the effectiveness in
each jurisdiction of this kind of exchange of
information.
The signature of the MCAA adds automatic
reporting to the international exchange of
information processes.
At the Global Forum meeting, 51 jurisdictions
signed the MCAA which is a multilateral framework
agreement. The MCAA specifies the principles
concerning the information that will be
automatically exchanged and the timing of the
reporting. The CRS document provides for the
details. While the MCAA is multilateral, the actual
AEOI will be bilateral and will come into effect
between the participating countries that notify
their readiness.
Amongst the 51 signatories (click here for the list
of countries), the early adopters have pledged to
work towards a first reporting by September 2017.
The others signatories are expected to follow in
2018.
31 October 2014
www.bdo.lu
Luxembourg, alongside Gibraltar and the U.K.
Crown Dependencies and overseas territories, is
one of the early adopter signatories. Other
international financial centres, such as Hong Kong,
Monaco, Singapore or Switzerland, have not yet
signed the MCAA but have committed to
implement the CRS and begin the transmission of
information by the end of 2018. In total, 93
jurisdictions (including the 51 signatories) have
committed to implement the CRS, with 58 for first
exchanges in 2017 and 35 in 2018 (click here for
the current list of commitments). An updated
status report shall be presented to the G20 at the
next summit in Brisbane, on 15-16 November 2014.
The jurisdictions that have committed but not yet
signed – or any other jurisdiction – may join the
process at a later stage by signing the MCAA or
bilateral agreements.
During the press conference following the signing
ceremony, questions have been asked regarding
the U.S. position. Indeed, the U.S. have not signed
the MCAA nor even committed to the CRS. An
equivalent level of reciprocal automatic exchange
of information from the U.S. is expected to be
performed via the FATCA IGAs signed with partner
jurisdictions. However, currently, the U.S. does
not have any legal instrument to enforce U.S.
financial institutions to collect data necessary for
reciprocal exchanges under an IGA. It is only on
30 July 2014 that the Treasury Department’s
Financial Crimes Enforcement Network issued a
notice of proposed rules requiring U.S. financial
institutions to collect such data. Therefore the
road to full reciprocity with the U.S. seems still to
be quite long.
What’s next and some outstanding questions
When to be ready? Financial institutions might
have to adapt their systems in order to be able in
2017 to extract for their database all the
information relating to 2016 that needs to be
transmitted.
For OECD AEOI purposes, an account of a person
resident in a participating country would be a preexisting account if it was opened on or before
31 December 2015. For a resident of a
participating country, a new account would be an
account opened as from 1 January 2016.
Therefore, new account opening procedures will
have to be introduced by 1 January 2016 in order
to record the tax residence of the accountholders.
The due diligence procedure is comparable to the
one imposed by FATCA to detect US reportable
accounts.
The due diligence procedures for pre-existing high
value individual accounts (i.e. higher than
$1.000.000) will need to be completed by 31
December 2016, whereas the due diligence for
pre-existing low value individual accounts
(including those lower than $50.000 as there is no
de minimis for pre-existing individual accounts)
and for entity accounts will need to be completed
by 31 December 2017.
As for the exchange of information upon request,
the Global Forum intends to establish a peer
review process to ensure effective implementation
of the OECD AEOI.
Regarding Luxembourg and the other E.U. Member
States, it will be interesting to see how the Global
Forum will interact with the E.U. Commission in
monitoring the E.U. jurisdictions. Common
interpretation of terms may certainly need to be
worked out as well in order to avoid inconsistency
for European financial institutions.
We shall keep you updated on significant
developments as they arise.
If you would like to discuss any aspect of the AEOI
(FATCA, DAC or OECD AEOI) in more detail, please
contact your usual BDO adviser or the BDO
operational tax team.
Bertrand Pradalier
Sylvie Maestri
Gerdy Roose
Tax Manager
Tax Director
Tax Partner
+352 45 123 517
+352 45 123 589
+352 45 123 371
[email protected]
[email protected]
[email protected]
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