The OECD wants to see countries automatically share information on money held in bank accounts

The OECD wants to see countries automatically share information on money held in local bank accounts

By Economics Editor Sean Whelan

Once upon a time tax dodging was relatively easy; you just got your cash to the Isle of Man or Jersey and slipped it into a bank account owned by a nominee holding company.

And there the trail would end.

Over time it has become harder and harder to get away with this old trick, and today the OECD published a plan to make simple tax dodging by off-shoring really difficult to pull off.

The document is a new standard for the automatic exchange of financial account information.

It’s a suitably boring, bureaucratic name for a manual that would help revenue authorities to automatically collect and swap information on what seems like any money held in any account in any of the countries that sign up to this plan.

Ireland is signing up to this, and it looks like if you are an Irish resident and have any money in any account in any signatory country – even cash obscured behind a trust or foundation – Dublin Castle will know about it.

Here’s what the OECD says is included in the scope of the information exchange:

-The financial information to be reported with respect to reportable accounts includes all types of investment income (including interest, dividends, income from certain insurance contracts and other similar types of income) but also account balances and sales proceeds from financial assets.

– The financial institutions that are required to report under the CRS do not only include banks and custodians but also other financial institutions such as brokers, certain collective investment vehicles and certain insurance companies.

– Reportable accounts include accounts held by individuals and entities (which includes trusts and foundations), and the standard includes a requirement to look through passive entities to report on the individuals that ultimately control these entities.

The OECD’s Centre for Tax policy and administration has carefully worked out a standard format for financial institutions to automatically gather this information and automatically report it to the tax administration in the country in which they operate.

Pascal Saint-Amans (yes, him again) says the OECD has worked closely with the banking industry to produce a technical standard for IT systems, with the aim of collecting a large amount of information in a standard format, processing it in a standard IT system, and reporting it in a standard (and therefore easily comparable) format to tax authorities, who will then be able to automatically share it with each other.

And there are quite a lot of countries that have done this – including the aforementioned Isle of Man and Jersey; the Crown Dependencies, as they are known.

There are also the more exotic British overseas territories, which include those notably tax-light tropical paradises Bermuda, the Cayman Islands and the British Virgin Islands.

Indeed, with 40 countries committed to doing this to date, the list of agreeable locations for tax dodging (i.e. legally safe for one’s cash, and whose stamp in one’s passport does not cause instant reputational damage) is becoming alarmingly short.

As you would expect of an OECD initiative, most of the EU states are fully behind it (though Austria seems to have some difficulties, as it did with the EU savings directive, on which this new plan is in part based.  That’s the one where EU states automatically exchange information on interest earned in bank accounts anywhere in the EU).

And the Americans are on board, as the other bit of existing legislation it is based on is FATCA (the foreign accounts tax compliance act, which requires signatory states to pass on bank account information of US citizens and companies on their territory to Uncle Sam’s tax gatherers).

You may recall last year the Taoiseach made  much of the fact that Ireland was the fourth country in the world to sign up to FATCA (this was at the height of the international outrage about US multinationals and their tax arrangements in this country).

Using FATCA, America’s tax authorities know all about US companies operations (and US citizens) in Ireland.

Using the new standard, they will get even more information about “non-resident” Irish companies, like the ones that hold intellectual property rights for high tech companies in signatory states like Bermuda (where the corporation tax rate is 0%).

The watchword is transparency.

Without a clear idea of where money is, there is little prospect of moving forward with a comprehensive tax reform that will bring tax law into the age of the digital economy.

How fast is it going to happen?

Today’s document is going for political approval to a G20 meeting of Finance Ministers and Central Bank governors next week.  A second part – technical standards for IT systems, will go to another G20 meeting in September.  That’s how fast.

The process got a big political impetus last June in Fermanagh, at the G8 Summit (where the Taoiseach and some other non-G8 leaders turned up and committed to the “Lough Erne Declaration”.  Amongst its paragraphs:

“We commit to establish the automatic exchange of information between tax authorities as the new global standard, and will work with the Organisation for Economic Cooperation and Development (OECD) to develop rapidly a multilateral model which will make it easier for governments to find and punish tax evaders”.

And here is the so called “pilot group” of countries that are signed up for this OECD initiative, and part of their statement of support:

Joint Statement by Argentina, Belgium, Colombia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, South Africa, Spain, Sweden, United Kingdom; the UK’s Crown Dependencies of Isle of Man, Guernsey and Jersey; the UK’s Overseas Territories of Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, Turks and Caicos.

“Tax evasion is a global problem and requires a global solution, removing the hiding places for those who would seek to evade their legal obligations. We therefore strongly support the development of the single global standard for automatic exchange of information between tax authorities. This will provide a step change in our ability to clamp down on this harmful and abusive activity which reduces public revenues and increases the burden on those who pay their taxes”.

This new information sharing arrangement applies to all tax cases, personal and corporate.

As we mentioned a few weeks ago, the OECD has fast evolving plans for dealing with the separate but related area of corporation tax through its base erosion and profit shifting (BEPS) programme.

As Fergal O’Rourke, PwC Ireland’s head of tax, told the Ibec CEO confernce this week “the corporate tax system that will emerge over the next two or three years will serve us for the next twenty years – the professional lives of all of us here”.

His advice to the business leaders gathered in the Convention Centre – engage with the process, it will shape your business.

Good advice.  The last consultation round in the BEPS process yielded just one submission from Ireland – from the Accountants consultative body, CCAI.

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