THE COMMON REPORTING STANDARD

Achim Pross, OECDMonica Bhatia, Global Forum

4th Meeting of the OECD Parliamentary Group on Tax

19 October 2015, Paris

CONTEXT AND BACKGROUND

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AEOI the basics: what, how and why?What?

• Systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country.

• A core form of tax cooperation as provided for by DTAs/the MAC.

How?

• Information on various potential categories obtained by a tax authority (e.g. dividends, interest, royalties, salaries, pensions, changes in residence, value added tax refunds etc.).

• Exchanged with tax authorities of treaty partners.

Why?

• The taxpayer’s country of residence can check its tax records to verify offshore income/assets have been accurately reported.

• Deterrence impact and voluntary compliance.

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History of AEOI

‘81

Design of the Paper Standard

Format

‘92

Standard Magnetic

Format (SMF) Adopted

‘03

Approval of EU Savings Directive (builds on SMF)

‘05

Standard Transmission Format (STF)

Adopted – incorporated

into EUSD

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Recent developments

US FATCA 2010• Annual automatic information

reporting.• Reporting by Foreign Financial

Institutions of accounts held for US taxable persons.

• Wide definition of Financial Institution and Financial Accounts.

• Standardised due diligence rules.• Very often implemented through

IGAs backed by domestic legislation.

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Recent developments

• Intergovernmental agreement supported by domestic legislation.

• Reporting by Foreign and US Financial Institutions.

• Due diligence rules more closely building on anti-money laundering procedures.

• Commitment to develop standardised reporting arrangements.

FATCA: an intergovernmental approach

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Recent developments

Early Adopters

Group

Calls for a new single international standard - most effective and efficient

“We commit to establish the automatic exchange of information between tax authorities as the new global standard …” Jul 13

“… we fully support the OECD work with G20 countries aimed at presenting such a new single global standard for automatic exchange of information by February 2014 and to finalizing technical modalities of effective automatic exchange by mid-2014.” Sep 13 “We committed ourselves to early adoption of the Common Reporting Standard, through joining the initiative first launched by France, Germany, Italy, Spain and the UK in April 2013.” Mar 14

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Recent developments“… we endorse the global Common Reporting Standard for the automatic exchange of tax information (AEOI) …”

“We will begin to exchange information automatically with each other and with other countries by 2017 or end-2018 …”

G20 Leaders, Nov 2014

“We welcome financial centres’ commitments to do the same and call on all to join us.”

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Recent developments

“The European Council invites the Council to ensure that, with the adoption of the Directive on Administrative Cooperation by the end of 2014, EU law is fully aligned with the new global standard.” Mar 14

European Union

In Dec 14 the Directive implementing the Standard was adopted, with exchanges taking place from 2017.

• Implements the new Standard.

• AEOI based on Article 6 of the Multilateral Convention.

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Recent developmentsOn 29 October 2014, 51 jurisdictions signed a multilateral competent authority agreement to automatically exchange information.

Currently 61 signatories and more to follow

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Recent developmentsIn addition to the 52 signatories, over 40 more jurisdictions have committed to the Global Forum that they will implement the Standard to a timetable resulting in exchange in 2017 or 2018.

CRS BUILDING BLOCKS AND COUNTRY IMPLEMENTATION

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CRS: the basic framework

Country B

Country A

Financial Institutions located

in A

Country A tax administration

Country B tax administration

Account Holders

resident in B

Domestic legal obligations to report

information

Account Holders

resident in A

Financial Institutions located

in B

Agreements and systems to exchange information

Systems/procedures to obtain, process, use and protect the information

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Building blocks

Domestic legislation

International agreements

Administrative and IT capacity

Confidentiality and data safeguards

The Standard

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Domestic legislation

1. Needed to ensure the information to be exchanged is reported by financial institutions

2. Must be consistent with the Standard

3. Must be in place in good time before the obligations commence (e.g. in advance of 1 January 2017 for exchange to a 2018 timetable).

4. Several approaches/policy options available

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International agreements

Multilateral Competent Authority

Agreement

Multilateral Convention Art. 26 DTC

TIEA including

AEOI

Legal basis• Permits automatic

exchange.• Legal protections

(use of data)

Exchange details• What is to be

exchanged• Timing of

exchange

Bilateral Competent Authority

Agreements

A RELATED OECD PROJECT: TRACE

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• TRACE Implementation Package: a standardised system for claiming withholding tax relief at source on portfolio investments.

• Based on the same infrastructure and technical solutions as CRS: – FIs follow similar due diligence procedures to determine

tax residence of account holders – FIs report annually similar information about account

holders to governments – Same IT solutions (XML schema, transmission systems)

TRACE: what is it?

• Investors foregoing relief to which they are entitled (also possibly impacted BEPS work on treaty abuse)

• Limited assurance for governments that investors are effectively entitled to benefits obtained (e.g. fraudulent refund claims)

• Significant and unnecessary administrative burdens for all stakeholders due to lack of standardisation and archaic paper based procedures

Why TRACE?

EOI FOR TAX PURPOSES: ROLE OF THE GLOBAL FORUM

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Commitments to implement

20172018Technical assistance offered

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Mandate

Monitor

Support

Review

Ensure the delivery of the commitments to AEOI

All members to implement the Standard effectively

Peer review to ensure effective global implementation

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Implementation support

Tools

Handbook, FAQs,

multilateral agreements

Confidentiality

assessments, Help Desk,

peer learning

Training

9 events so far, 400

delegates

More planned

Pilot Project

sPeer assisted implementati

on

5 pilots underway +

bilateral programs

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Looking ahead: Targets in 2016

1. Critical to deliver the commitments to the AEOI Standard. Monitoring will be ongoing, with increased targeted support

2. Complete the multilateral confidentiality assessments

3. Continue support for lower capacity jurisdictions to benefit from the AEOI Standard

4. Develop the peer review mechanism: likely to be staged review targeted to risk areas

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AEOI: A call to action• Bringing about transparency and international tax

cooperation needs legislative changes

• Need for political leadership to push through difficult reforms

• Timelines are short – but necessary to ensure we take advantage of this new standard quickly

• Build linkages to other tax reform and transparency efforts including tax modernisation and anti-money laundering

• Effective use of information received – return on the investment

• Ensure developing countries are not left behind

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Useful resources

Questions and comments:Achim.PROSS@oecd.org

Monica.BHATIA@oecd.org

AEOI PORTAL: http://www.oecd.org/tax/automatic-exchange/

ROLE OF THE GLOBAL FORUM: EXCHANGE OF INFORMATION

ON REQUEST

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Introduction

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Problem• Taxpayers are

mobile, tax authorities are not

• Result: knowledge imbalance

Making transparency the norm • End of bank

secrecy • Increasing

requests for information

Levelling the playing field• Financial centres • Access for lower

capacity countries

EOI on Request – state of play

• Global Forum - inclusive participation of 127 members and 14 international organisation observers

• Robust peer review process - 215 reviews completed, 86 jurisdictions rated for overall compliance

• Global acceptance that transparency is the norm – all major financial centres significantly improved

• Assistance for lower capacity members now a core function. Working with international development agencies; Global Forum recognised in Addis Ababa Declaration

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EOIR – A strengthened standard

• A new round of peer reviews commencing in mid-2016

• Drawing on lessons learned and looking closely at both legal frameworks and practical effectiveness

• A strengthened standard: availability of beneficial ownership information; the quality of EOI exchanges; group requests

• A strengthened process: closer monitoring of responses to peer review recommendations

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EOI on Request – the next five years

• Completion of the next round of reviews • Greater awareness and use of EOI by all, including

lower capacity members – thus strengthening the impact of tax transparency on domestic resource mobilisation

• 2016 onwards: two complementary pillars of EOI – on request and automatic (and requests likely to increase dramatically)

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