Tax transparency: Automatic exchange of information era

Article

The automatic exchange of information era

Moving towards global tax transparency

Aiming to reduce tax evasion, the automatic exchange of information is increasingly becoming the standard system of exchange between tax authorities, with a rapidly growing number of countries participating in initiatives such as the OECD Common Reporting Standard.

Executive Summary

Financial intermediaries (in a broad sense, so not just banks but also including funds, insurance and non-supervised investment structures) worldwide need to implement pre-existing automatic exchange of information frameworks (such as under the FATCA Intergovernmental Agreements), and anticipate upcoming additional exchange of information obligations (such as under the OECD Common Reporting Standard).

Global context

Until a few years ago, the automatic exchange of information outlook was relatively poor:

  • Exchange of information on demand (according to OECD principles, and generally laid down in double taxation treaties) was considered to be the standard system of exchange between tax authorities. Such exchange of information on demand requires a series of stringent conditions to be met before a treaty partner can be obliged to provide information on a taxpayer in their jurisdiction. Depending on local law, the holder of information and/or the taxpayer may also be able to initiate legal proceedings against such a request
  • The automatic exchange of information was limited to the scope of the EU Savings Directive (in force since 2005), which requires the automatic exchange of information between EU tax authorities (with certain non-EU countries and Dependent and Associated Territories of EU member states applying similar or equivalent rules). However, this directive has a very limited scope of application; only the cross-border payment of interest income (as well as distributions and redemptions in certain types of fund) is affected. Additionally, certain banking secrecy jurisdictions (such as Austria, Luxembourg and initially Belgium) were allowed to temporarily apply an anonymous savings withholding tax regime instead

 

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