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OECD - New Global Standard for Automatic Exchange of Information 

Global Tax Adviser

 

February 18, 2014

 

David Francescucci
National Leader, Transfer Pricing and Value Chain Management

 

The OECD released its global standard for automatic exchange of financial account information on February 13, 2014. According to the release, this global standard was developed by the OECD and G20 countries, in close cooperation with the EU. The standard is based on the U.S. FATCA Model 1 intergovernmental agreement (IGA). The U.S. FATCA tax and reporting provisions acted as a catalyst for this move toward automatic exchange on a multilateral basis. The standard is expected to be approved by the G20 Finance Ministers and Central Bank Governors at their meeting of February 20-22.

The new standard provides a common global approach for jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. To that end, the standard sets forth the financial account information to be exchanged; the financial institutions that need to report; the different types of accounts and taxpayers covered; as well as common due diligence procedures to be followed by financial institutions.

 

The global standard consists of two components:

 

  • The Common Reporting Standard (Reporting Standard), which contains the reporting and due diligence rules to be imposed on financial institutions,
  • The Model Competent Authority Agreement (Model CA), pursuant to which governments would agree to exchange the information reported.

 

Scope
The Reporting Standard and the Model CA draw heavily from the U.S. Model 1 IGA. The scope of the Reporting Standard is largely the same as the U.S. Model 1 IGA across three key dimensions:

 

  • 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.
  • Financial institutions that are required to report under the Reporting Standard include not only 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). The Reporting Standard includes the requirement to look through passive entities to report on the individuals that ultimately control these entities.

 

Due diligence
The Reporting Standard also describes the due diligence procedures that must be followed by financial institutions to identify reportable accounts and obtain account holder identifying information that is required to be reported.

 

Legal
According to the OECD Information Brief, the Reporting Standard will need to be implemented in the domestic law of an implementing jurisdiction, whereas the Model CA can be executed within existing legal frameworks such as Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters or the equivalent of Article 26 in a bilateral tax treaty. Before entering into a reciprocal agreement to exchange information automatically with another country, it is essential that the receiving country has the legal framework and administrative capacity and processes in place to ensure the confidentiality of the information received and that such information is only used for the purposes specified in the instrument.

 

Next steps
The new global standard will be further developed to include technical solutions to implement the actual information exchanges. These technical solutions, along with a commentary providing further interpretive detail regarding the Reporting Standard, will be prepared in advance of the September 2014 G20 Finance Minister meetings. The commentary to the Reporting Standard is intended to ensure a consistent application and operation of the standard. The technical solutions document will cover information technology matters (including schema and user guide) and standards on the secure transmission of the information.

 

Implementing countries will need to change their domestic legislation to adopt the Reporting Standard and allow their financial institutions to introduce necessary changes to their IT systems and client on-boarding procedures. They will also need to put in place the necessary administrative procedures and systems to exchange information with other participating countries and to process the information they will be receiving from those countries under the standard.

 

For more information, contact your KPMG adviser.

 

 

 

 

 

Information is current to February 18, 2014. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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