The OECD has published its global standard for Automatic Exchange of Information (AEOI), consisting of a model competent authority agreement / arrangement (”CAA”) and a common standard for duel diligence and reporting (common reporting standard or ”CRS”).
What does the AEOI include?
The CRS draws heavily on the US Foreign Account Tax Compliance Act (FATCA) and especially the associated bilateral Intergovernmental Agreements (IGAs), with the process based on tax residence rather than citizenship. In what we see as a sensible and pragmatic move, the CRS follows the IGAs in distinguishing between existing and new accounts, between individuals and entities, and between Higher and Lower Value Accounts (with a US$1million threshold); unlike the IGAs and US FATCA, however, the CRS does not include a de minimis threshold for due diligence on individual accounts, which may add an additional burden on firms, particularly for retail banks.
Similar to FATCA, the CRS also defines certain entities as Non-Reporting Financial Institutions, being entities considered to be lower risk of international tax evasion, including government entities and central banks, certain retirement funds and trusts.
Of interest to, and positive news for, the asset management sector is that certain collective investment vehicles also qualify as Non-Reporting Financial Institutions, termed Exempt Collective Investment Vehicles. These are defined essentially as entities regulated as a collective investment vehicle, provided that all of the interests in the collective investment vehicle are held by or through one or more Non-Reporting Financial Institutions Entities.
The OECD will formally present the standard to G20 finance ministers during a 22-23 February meeting in Sydney, Australia and seek their endorsement. The OECD is expected to then deliver a detailed commentary on the new standard, as well as technical solutions to implement the actual information exchanges during a meeting of G20 finance ministers in September 2014. We understand from previous announcements that the OECD is aiming to implement the AEOI regime in mid-2015; this appears ambitious given the time and consultation needed for implementing legislation in every jurisdiction.
Given that the move towards global tax transparency seems inexorable, this is a positive step to developing a common international standard. However it is not perfect in its current state, particularly on how multilateral agreements will be achieved and inconsistencies minimized. There is some way to go to achieve a truly seamless and pain-free regime for financial firms which bear the burden of further tax transparency rules.