OECD: Automatic Exchange of Information – update

As the world becomes increasingly globalized and cross-border activities become the norm, tax administrations of different countries need to work together to ensure that taxpayers pay the right amount of tax to the right jurisdiction.  To assist with this effort, the Convention on Mutual Assistance in Tax Matters (“the Convention”) was developed jointly by the OECD (Organization for Economic Co-operation and Development) and the Council of Europe.

The Convention provided for all possible forms of administrative co-operation between states in the assessment and collection of taxes and ranges from the exchange of information on request, as well as automatic exchanges, to the recovery of foreign tax claims.

The attached table represents a list of jurisdictions participating in the convention as of October 28, 2016.

In addition, the OCED developed the new global standard on Automatic Exchange of Information called CRS (common reporting standard) that represents the international consensus on automatic exchange of financial account information for tax purposes, the goal of which is to reduce tax evasion. It provides for the exchange of non-resident financial account information with the tax authorities in the account holders’ country of residence. Participating jurisdictions that implement CRS send and receive pre-agreed information each year, without having to send a specific request.

The CRS requires financial institutions to report information on accounts held by non-resident individuals and entities (including trusts and foundations) to their tax administration. The tax administration then securely transmits the information to the account holders’ countries of residence on an annual basis.

The CRS specifies the financial account information to be exchanged, the financial institutions that need to report, and the different types of accounts and taxpayers covered:

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)
• Account balance
• Sales proceeds from financial assets

The financial institutions that are required to report under the CRS:

• Banks
• Custodians
• Other financial institutions such as brokers, certain collective investment vehicles and certain insurance companie

Reportable accounts include accounts held by:

• Individuals (including individuals who ultimately control passive entities which hold reportable accounts)
• Entities (which includes trusts and foundations)

Over 100 jurisdictions have committed to implementing the CRS as of October 28, 2016.

The table below summarizes the intended implementation timelines of the CRS:

*** The United States has not signed an agreement as it has undertaken its own automatic information exchanges pursuant to FATCA since 2015 and has entered into intergovernmental agreements (IGAs) with other jurisdictions to do so.

As can be seen from the above chart, the majority of Western countries will be operating under the CRS pact in 2017.  In order to efficiently and effectively plan and structure your investments, business or wealth management, please contact Dov Weinstein at 077 738 6666 or w@wcpa.co.il.  Dov has 28 years of Israel taxation experience with over a dozen years of international taxation experience.