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1 A STEP CHANGE IN TAX TRANSPARENCY OECD REPORT FOR THE G8 SUMMIT Vast amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with LOUGH ERNE, ENNISKILLEN, JUNE 2013 tax obligations in their home jurisdictions. Jurisdictions around the world, small and large, developing and developed, OECD and non-OECD, stand united in calling for further action to address the issues of international tax avoidance and evasion. Co-operation between tax administrations is critical in the fight against tax evasion and a key aspect of that cooperation is exchange of information. The OECD has been a driving force in fostering such co-operation and has a long history of developing standards on all forms of exchange of information – on request, spontaneous, and automatic – and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and Article 26 of the OECD Model Tax Convention provide a basis for all forms of information exchange. A major breakthrough towards more transparency was accomplished in 2009 with information exchange upon request becoming the international standard and the restructured Global Forum on Exchange of Information and Transparency for Tax Purposes starting to monitor the implementation of the standard through in-depth peer reviews. Now, there is another step change in international tax transparency driven by developments around the globe, including in the United States and Europe, with unprecedented political support for automatic exchange of information. In April 2013 the G20 Finance Ministers and Central Bank Governors endorsed automatic exchange as the expected new standard. Anticipating these developments and in light of the increase in automatic exchange agreements, the G8 Presidency requested a report from the OECD to analyse how jurisdictions could build on the recent developments to implement automatic exchange in a multilateral context. This report responds to that request. It first discusses the key success factors for an effective model for automatic exchange of financial information, as they were identified in recent work conducted at the OECD and summarised in its report on automatic exchange delivered to the G20 in 2012. It then sets out four concrete steps to put such automatic exchange into practice including possible timeframes for the delivery of each step. The Annex provides background on the recent bilateral agreements based on the Model 1 IGA and how they can be useful in advancing towards a standardised automatic exchange model. Delivering a standardised, secure and cost effective model of bilateral automatic www.oecd.org exchange for the multilateral context OECD Paris 2, rue André-Pascal, 75775 Paris Cedex 16 Tel.: +33 (0) 1 45 24 82 00

2 This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. *** The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Cover page picture: © www.shutterstock.com - Business and communications concept

3 A CHANGE IN TAX TRANSPARENCY STEP a standardised, secure Delivering and cost effective model of bilateral automatic exchange for the multilateral context OECD REPORT FOR THE G8 SUMMIT June 2013

4 ECONOMIC CO ‐ OPERATION AND DEVELOPMENT ORGANISATION FOR OECD is a unique The where governments work together to address the economic, social and forum environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to governments respond to new developments and help concerns, such as co rporate governance, th e ageing information economy and the challenges of an population. The Organisation provides a setting where governments can compare policy experiences, seek answers to good common problems, identify domestic practice work to co ‐ ordinate and and international policies. pub lic, member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Re The OECD Korea, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Mexico, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Union takes part in the work of the OECD. 2

5 TABLE OF CONTENTS SUMMARY ... 4 EXECUTIVE ... 5 I. Introduction Key features of II. standardised multilateral automatic exchange model on financial information ... 7 a 1. Common agreement on scope of reporting and exchange including related due diligence procedures 7 ... basis 2. confidentiality Legal ... 8 and 3. Te ch nical and IT aspects ... 9 happen III. Making it ... 9 Enact 1. 10 broad framework legislation ... 2. a legal basis for the Select exchange of information ... 10 3. Adapt the scope of the reporting and due diligence requirements and coordinate guidance to ensure consistency an ... st 12 reduce co d Develop common or compatible IT standards ... 13 4. TO ANNEX: USING RECENT BILATERAL AGREEMENTS ADVANCE TOWARDS A STANDARDISED MULTILATERAL MODEL ... 1 5 3

6 EXECUTIVE SUMMARY amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply Vast tax obligations in their home jurisdictions. Jurisdictions around the world, small and large, with and developed, OECD and non ‐ OECD, stand united in calling for further action to address th developing e es of international tax and evasion. avoidance issu towards is taking place. A major breakthrough more transparency was accomplished in And change with information exchange upon request becoming the international standard and the 2009 restructured Global Forum on Exchange of Information and Transparency for Tax Purposes starting to monitor the imple m through the entation of peer reviews. standard Now, there is another step change in international tax transparency driven by developments around the including in the United States and Europe, with unprecedented political support for automatic globe, Central information. In April 2013 the G20 Finance Ministers and exchange Bank Governors endorsed of automat ic exchange as the expected new standard. developments and Anticipating in light of the these increase in automatic exchange agreements, the G8 Presidency requested a report from the OECD to analyse how jurisdictions could build on the recent multilateral developments implement automatic exchange in a to context. It invited reflections on p ecifications for the information to be exchanged, the legal basis for the exchange and consideration of s necessary platform the exchange the information. to This report, prepared under the authority of the OECD Secretary General, responds request. to that It out the key success factors for an effective model for autom atic ex sets provides relevant change, and outlines four concrete steps needed to put such a model into practice: (i) background broad enacting to facilitate the expansion of a legislation country’s network of partner jurisdictions, (ii) framework (or where necessary entering into) a legal the for selecting exchange of information, (iii) ad basis apting e of reporting and due diligence requirements scope and coordinating guidance, and (iv) developing th or compatible IT standards. The report also provides common timeframes for each of the action potential items. a recognises that offshore tax evasion The report global issue requiring global solutions – is otherwise the issue is simply reloc ted, rather than resolved. With more and more jurisdictions joining a the Convention on Mutual Administrative Assistance in Tax Matters there exists a clear legal basis for protecting exchange with strict safeguards comprehensive confidentiality. Bilateral tax treaties automatic ific legal also legal basis and within the provide European Union, Directives provide a spec such a framework for automatic exchange of information regarding interest income and certain other types of income its 27 (soon 28) members. This report notes between that a global solution also means a global standard to minimise costs for businesses and governments, while at the same time enhancing effectiveness, mainta ining confidence in open markets and serving society at large. A proliferation of best interest. inconsistent models is in nobody’s 4

7 1 Introduction I. As the world becomes increasingly globalised it is becoming easier for all taxpayers to make, 1. and investments through foreign financial institutions, something manage that not long ago was hold only to a select few. Vast amounts of money are kept offshore and go untaxed to the extent accessible taxpayers fai that to l with tax obligations in their home comply Offshore tax evasion is a jurisdiction. problem serious jurisdictions all over the world, OECD and non ‐ OECD, small and large, developing and for Cooperation between tax administrations is critical in the fight against tax evasion and a developed. key exchange of information. operation is aspect of that co forms has a long history of working on all OECD of exchange of information – on request, 2. The and automatic – and the Multilateral Convention on Mutual Administrative Assistance in spontaneous, l forms of information of the OECD Model Tax Convention provide a Tax basis for al Matters and Article 26 exchange. Over the past few years much progress has been made by the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes in transparency and exchange of improving 2 information on request. 3. More recently, political interest has also focussed on the opportunities provided by automatic exchange information. On 19 April 2013 the G20 Finance Ministers and Central Bank Governors of OECD exchange as the expected new standard and called upon the to report on endorsed automatic developing a in multilateral stan progress new on automatic exchange of information, taking into dard 3 ‐ specific characteristics. account country The G20 decision followed earlier announcements by a number countries of their intention to develop of and pilot multilateral tax information exchange based European on the Model Intergovernmental Agreement to Improve International Tax Compliance and to Implement FATCA, developed between these countries and the United States (hereafter the “Model 1 IGA”). On 9 Germany, the Ministers of Finance of France, 13, Italy, Spain and the UK announced their April 20 intention to exchange FATCA ‐ type information amongst themselves in addition to exchanging 1 This document and any map included herein are without prejudice to the status of or sovereignty over any territory, area. to the delimitation of international frontiers and boundaries and to the name of any territory, city or 2 One hundred twenty jurisdictions from around the have committed to the international standard of world reports transparency and exchange of information (EOI) on request and joined the Global Forum; 100 peer review have completed and published; 652 recommendations have been made for jurisdictions to improve their ability been matter x s; more than 1100 EOI relationships that provide for the exchange of information in tax in cooperate to ta to the standard matters have been established; and 68 jurisdictions have already introduced or proposed changes to their laws to implement more than 300 recommendations. More information on the work of the Global Forum can be nd on the following link: http://www.oecd.org/tax/transparency. fou 3 14 Paragraph of the communiqué states (in part): “We welcome progress made towards automatic exchange of urge information is expected to be the standard and which all jurisdictions to move towards exchanging information automatically with their treaty partners, as appropriate. We look forward to the OECD working with G20 countries to back on the progress in developing of a new multilateral standard on automatic exchange of information, report monitoring.” taking into account country ‐ specific characteristics. The Global Forum will be in charge of 5

8 4 the United States. information with 13 April 2013, Belgium, the Czech Republic, the Netherlands, On also expressed interest in and this approach, which by May Romania 14 had already been Poland, 5 by 17 countries, endorsed Mexico and Norway joining the initiative in early June. with Further the United Kingdom recently agreed to automatically exchange information, on the 4. of the intergovernmental approaches developed with the United States, with its Crown basis (the of Man, Guernsey and Jersey) and many of its Overseas Territories (Anguilla, Dependencies Isle British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and Turks and Caicos Islands). All Bermuda, these have also made commitments to join the pilot project with France, Germany, Italy, jurisdictions Ministerial and the UK. Also on May 30 the OECD called on “...all jurisdictions to move towards Spain exchange of information and to improve the availability, the quality and the accuracy of automatic act beneficial ownership, in order to effectively against tax fraud and evasion.” on information This report responds to a request by the G8 Presidency to analyse how jurisdictions can build on 5. increases in bilateral automatic exchange recent agreements to efficiently implement automatic the 6 of financial account information (hereinafter “financial information”) in a multilateral context. exchange It first discusses the key success factors for an effective model for automatic exchange of financial they were identified in recent work conducted at the OECD and summarised in its report information, as automatic exchange delivered to the G20 in 2012 (part II). It then sets out four concrete steps on put to h automatic exchange into practice including possible timeframes for the delivery of each step (part suc agreements Annex provides background on the recent bilateral III). based on the Model 1 IGA and The how they can be useful in advancing towards a standardised automatic exchange model. 4 evasion “ An important part of the fight against international They said: and fraud is tax transparency. As you know, the passage of the U.S. Foreign Account Tax Compliance Act we have all been in joint discussions with the following matic information to the most effective way of concluding intergovernmental agreements to provide for auto U.S. as exchange. discussions have resulted in a model agreement These which minimises burdens on business while ensuring effective and efficient reciprocal exchange of information.” 5 Cf. the Joint Statement of 17 countries on 14 May at ECOFIN. 6 This report does not cover EU specific aspects, as they are beyond the scope of the report. The in EU participates on OECD and there is close cooperation in many areas including technical standards. The EU has developed meetings mbat cross ‐ expertise in automatic exchange of information between tax administrations as a tool to co a wealth of border evasion in the direct tax area. The 2003 Savings tax Directive on interest income provides for detailed rules on collection and exchange of information. The 2011 Directive on Administrative Cooperation obliges member states to ra ting with OECD, has several other types income. The EU, closely co ‐ ope of automatically exchange information on also standard computerized formats (and related instructions) developed for member states’ tax administrations to automatically exchange information under these two directives. On May 22, the EU Council unanimously agreed to glob d level al and welcomed the exchange of information the EU an give priority to efforts to extend automatic at 2013). ongoing efforts made in the G8, G20 and OECD to develop a global standard (Council conclusions 22 May 6

9 II. Key features of a standardised multilateral automatic exchange model on financial information As a general matter, for a model for automatic exchange of financial information to be effective 6. must specifically designed with residence jurisdictions’ tax compliance be in mind rather than be a it product of domestic rep by ‐ o it needs rting. be standardised so as to benefit the maximum to Further, recognising residence jurisdictions and financial institutions while that certain issues remain to number of decided by local implementation. The advantage be of standardisation is process simplification, higher effectiveness and lower costs for all stakeholders concerned. A proliferation of diff inconsistent d erent an government would potentially impose significant costs both and business to collect the models on information and operate the different models. It could lead necessary to a fragmentation of standards, which may introduce conflicting requirements, further increasing the costs of compliance and reducing effectiveness. Finally, because tax is a globa evasion l issue, the model needs to have a global reach so that addresses the issue of offshore tax evasion and does not merely relocate the problem rather than it It is against this background that the G20 in April called upon solving the OECD working with G20 it. cou to develop ntries multilateral standard and to report progress at the next G20 meeting in July. The a Global Forum has been charged with monitoring. 7. In 2012 the OECD delivered to the G20 the report “ Automatic Exchange of Information: What it 7 is, it works, Benefits, What remains to be done ”, How which summarizes the key features of an effective model for automatic exchange. The main success factors for effective automatic exchange are: (1) a common on the scope of reporting and exchange agreement and related due diligence procedures; (2) a legal basis for the domestic reporting and international exchange of information; and (3) common technical solutions. re 1. Common agreement on sc ope of porting exchange including related due diligence procedures and An effective model for automatic exchange of information requires an agreement on the scope 8. the to be reported by domestic financial institutions and exchanged with residence of information terests of the that the reporting by financial institutions is aligned with the in jurisdictions. This will ensure predictability It will also increase the quality and of the information that is being country. residence The result will be significant opportunities for the residence country to enhance compliance exchanged. optimal use of the information (e.g. through make automatic matching with domestic compliance and information da and ta analysis). In order to limit the opportunities for taxpayers circumvent the model by shifting assets to 9. to or investing in products that are not covered by the model a reporting regime requires a institutions broad across three dimensions: scope por ting regime would cover information reported: A comprehensive re  The scope of financial dividends different of investment income including interest, types and similar types of income, and also address situations where a taxpayer seeks to hide capital that itself represents income or assets on which tax has been evaded (e.g. by requiring information on account balances). 7 information/automaticexchangeofinformationreport.htm http://www.oecd.org/tax/exchange ‐ of ‐ tax ‐ 7

10  The scope of accountholders subject to reporting: A comprehensive reporting regime requires not only with respect to individuals, but should also limit the opportunities for reporting entities to reporting by using interposed legal circumvent or arrangements. This means taxpayers financial institutions to look through shell companies, trusts requiring sim or ilar arrangements, inc entities to cover situations where a luding taxpayer taxable seeks to hide the principal but is to pay tax on the income. willing The scope of financial institutions required to report: A comprehensive reporting regime would  llective investment but also other financial institutions such as brokers , co only banks cover not and insurance companies. vehicles the a common agreement on 10. scope of the information to be collected and exchanged, Besides information model of automatic exchange of financial effective also requires an agreement on a an robust set of due diligence procedures to be followed by financial institutions to: (i) identif y re portable and (ii) obtain the accountholder identifying information that is required to be reported for such accounts The due diligence procedures are critical as they help to ensure the quality of the information accounts. is reported that exchanged. and 2. Legal basis and confidentiality legal model requires a change basis for: (i) the ex standardised 11. multilateral automatic A obligation and (ii) the exchange of reporting the information. The reporting obligations will domestic typically be included in domestic tax legislation, with due diligence procedures to ensure the quality of are the set out in regulations or guidance. There data different le ses upon automatic which ba gal exchange could take place, and which already exist, including a bilateral treaty with a provision based on Article of the OECD Model Convention or 26 the Multilateral Convention on Mutual Administrative Assistance Tax Matters. The Nordic Convention also provides such a basis and within the European in framework and ion, Directives provide a specific legal for automatic exchange on interest income Un certain types of information between its 27 (soon 28) members. other All treaties and exchange of information instruments contain strict provisions that require 12. exchanged to be kept secret or confidential and limit the pe information to who rsons information the m be disclosed and the purposes for which the information may be used. The OECD recently released a can 8 it “Keeping Safe” Confidentiality, on Guide sets out best practices related to confidentiality and which practical guidance on how to ensure entering an adequate level of protection. Before provides into an it agreement exchange information automatically with another country, is essential that the receiving to has the legal framework and administrative capacity and processes in place to ensure the country formation is only used for the purposes such in confidentiality of the information received and that 9 specified the instrument. in 8 http://www.oecd.org/tax/exchange ‐ of tax ‐ ‐ information/keepingitsafetheoecdguideontheprotectionofconfidentialityofinformationexchangedfortaxpurposes.htm 9 Cf. the to “ ... exchanging information automatically with their treaty partners, as appropriate ” [underlining reference 2013. added]. Paragraph 14, G20 Finance Ministers and Central Bank Governors communiqué, April 19, 8

11 3. Technical and IT aspects The development of common technical solutions for reporting and exchange of information is a 13. element a standardised exchange system ‐ especially one that will in be used by a large number of critical and financial institutions. Standardisation will reduce the overall costs for governments an countries d f institutions. inancial First, technical reporting formats must be standardised the so that information can be 14. exchanged captured, processed quickly and efficiently in a cost ‐ effective manner by the receiving and jurisdiction. Second, secure and compatible methods of transmission and encryption of the data must be 15. in place. Many jur and ady electronically exchange information on request do so on the basis isdictions alre protocols developed by the OECD. The method of transmission generally takes place directly from one of of information portal to the exchange country’s exchange of information portal country’s other called (commonly ‐ to ‐ point”) or, within the EU, suc “point take place by changes way of a secure h ex Convention Nordic countries exchange automatically under the Nordic network over a secure (CCN). addition, the information being exchanged must network. be encrypted and the encryption and In decryption methods must be compatible with the systems in both the sending and the receiving risdiction. ju Making it happen III. Key developments are already under way. Five European countries, each an OECD and 16. EU Germany, Italy, Spain and the United Kingdom), (France, developed with the United States the member 10 tax local The Model 1 IGA provides for reporting by financial institutions to their IGA. Model 1 automatic which then exchange the information on an basis with the residence jurisdiction authorities, authorities. This approach is consistent with the general architecture of automatic information tax is also used in the EU context, that for in exchange Model vings The Directive. 1 IGA the EU Sa stance for jurisdictions, further a commitment to work with interested the OECD and where appropriate contains EU on adapting the terms of the IGA “ to a common model for automatic exchange of information, the 11 The development of reporting and due diligence standards for financial institutions.” including the 75 United is already in discussions with over States jurisdictions and as more bilateral automatic exchange agreements are being signed the Finance Ministers from the same five European countries in a joint letter stated: enabling “We believe that these agreements represent a step change in tax transparency, to us clamp fur down tax evasion. We will be looking to promote these agreements as the on her t 10 the OECD and the European Commission welcomed these developments. Welcoming the agreements in July Both OECD co ‐ General Angel Gurría said: “ I warmly welcome the 2012 ‐ operative and multilateral approach on Secretary which the model agreement is based. We at the OECD always stressed the need to combat offshore tax evasion have are ile keeping compliance costs as low as possible. A proliferation of different systems is in nobody’s interest. We wh happy to redouble our efforts in this area, working closely with interested countries and stakeholders to design global In world .” e Fe bruary 2012 of governments and to business around th solutions global problems to the benefit Mr. Šemeta, EU Commissioner for Taxation said: " The EU and USA share a strong objective: to tackle trans ‐ border tax new evasion and ensure national treasuries can collect what they are due. I am confident that this development will n ess friendly manner. " this in a busi pave the way to achieve 11 IGA. Cf. Article 6, paragraph 3 Model I 9

12 new international standard, including through the various international fora, with the ultimate of agreeing a multilateral framework.” aim effective As discussed in the Annex, the Model 1 IGA contains a number of key of an 17. features model. This, along with the fact exchange governments and financial institutions aro automatic that u nd world are already investing to implement it, makes the Model 1 IGA a logical basis on which to build. the account same time At should also be taken of the system and corresponding IT tools used in the the EU Savings Directive so as to keep costs to a mi with connection financial and s government for nimum institutions. These developments offer an opportunity to move towards a standardised model of 18. automatic exchange of information and avoid the possibility of a fragmentation of standards, which would impose significantly higher costs on financial institutions and governments. Four steps can now be taken (a m ber of them are already ongoing at the to implement a standardised multilateral model of OECD) nu exchange: automatic Enact broad framework legislation 1. Most jurisdictions will need to adopt legislation to implement the Model 1 IGA and in particular 19. ader bro the obligations. This presents an opportunity to create in one step a domestic reporting framework legislation facilitating the subsequent expansion a country’s network of partner of jurisdictions. The framework legislation could allow the executive to expand reporting to accountholders that residents of other jurisdictions by way of regulation and/or are administrative guidance, provided relevant conditions are met.  The ti is r enacting any legislation will vary by country, but preparation of draft legislation fo ming already advanced in many jurisdictions making it possible in principle to accomplish this step 12 quickly and in many instances already during 2013. quite 20. The main purpose of such framework legislation would be to allow additional jurisdictions to be each added requirement to separately amend primary legislation the time a new agreement is without into. It would thus not need to provide for the detailed reporting and due diligence requirements entered could be contained in which legislation and/or administrative guidance. secondary Select a for legal basis 2. the exchange of information legal bases for automatic exchanges of information reported under a comprehensive Different 21. regime (i.e., covering different types of investment income and financial information, applying reporting 13 and certain entities, and individuals covering a wide r to ange of financial institutions) already exist. While bilateral treaties such as those based on Article 26 of the OECD Model Tax Convention permit such 14 exchanges may be more efficient to establish automatic exchange relationships through , it a multilateral information exchange instrument. The Multilateral Convention on Mutual Administrative 12 Not all jurisdictions will require new legislation. In some jurisdictions (e.g. Mexico) existing laws and related powers may already be broad enough, thus requiring only implementing guidance. Other jurisdictions may have already legislated (e.g. the United Kingdom). 13 Cf. paragraph 8 above. 14 Convention. Cf. paragraph 9 of the Commentary on Article 26 of the OECD Model 10

13 15 in Tax Matters (Convention) Assistance as amended in 2011, is such an instrument. It provides for all , forms possible administrative co ‐ operation between States, contains strict rules on confidentiality and of 16 use, permits automatic exchange of information. proper and is its main advantages its global One of more than 60 countries, including all G20 reach: have either signed the Convention or countries, 17 do so committed to St. signatures expected before the September 2013 G20 Summit in with further 18 Petersburg. Automatic exchanges under the Convention 22. a separate agreement between the require authorities of the parties, which can be entered competent into by two or more parties thus allowing for a single agreement with several parties (with actual automatic exchanges taking place on a bilateral “ope d rationalise” automatic exchange between the agreement would activate an Such an basis). countries. would specify the information to be exchanged and would also deal with participating It issues such as the time and format practical the exchange. of  A draft model competent authority agreement has already been prepared in connection with discussed ongoing more fu work lly be low and will be discussed at a meeting of OECD and G20 countries in June which also includes a consultation with business. A model agreement could be available early as the second half of 2013. as Implementing broad framework legislation allowing the executive to expand reporting to 23. c risdictions, oupled with a single or standardised competent authority agreement, would other include ju provide a fast and effective way to implement the automatic exchange model. then could 24. also rely on their existing bilateral treaties or certain tax information Jurisdictions 19 exchange agreements with essentially the same competent authority agreement as that to be used broad under Convention, provided they already have a the enough treaty network and the competent authority agreement is standardised to ensure consistency and retain operability of the model. As an alternative, could enter into a multilateral intergovernmental agreement or mu jurisdictions tiple l agreements that would be international treaties in their own right (coupled with intergovernmental more limited competent authority agreements). However, given the need for separate ratification such an approach would be more time consuming. The Nordic Convention also provides such a basis and within provide the Union Directives European a binding leg al framework for automatic exchange on interest among income and certain other types of information its 27 (soon 28) members. 15 The Multilateral Convention was developed jointly by the Council of Europe and the OECD signature and opened for by member states of both organisations on 25 January 1988. the The Convention was amended to respond to the call all to it open to and exchange on standard rnational to the inte align to Summit London 2009 April its at G20 the of it countries, in particular to ensure that developing countries could benefit from the new more transparent environment. It was opened for signature on 1st June 2011. 16 See Article 6. 17 signatory For a list of further countries and information see www.oecd.org/ctp/eoi/mutual 18 “ In view of the next G20 Summit, we also strongly all jurisdictions to sign or express interest in signing the encourage Multilateral Convention on Mutual Administrative Assistance in Tax Matters and call on the OECD to report on ernors. paragraph 14 of 19 April Communiqué of See G20 Finance Ministers and Central Bank Gov progress.” 19 OECD Model Tax Information Exchange Agreement (TIEA) The does not provide the legal basis for automatic do. exchange. However, certain individual TIEAs 11

14  Given that automatic exchange can be based on a number of existing instruments including treaties, certain tax information exchange agreements, and the Convention, and given bilateral such more more jurisdictions are joining the Convention a broad legal network for and that already exists and is likely have gro exchanges to sig wn by the end of 2013. nificantly Adapt of the scope the reporting and due diligence requirements and coordinate guidance to ensure 3. and reduce cost consistency 20 , with model for automatic exchange can draw on the Model 1 IGA Developing a standardised 25. required to support a standardised multilateral model that addresses the needs of all amendments participating and remains administrable for both financial institutions and participating jurisdictions These changes include simplifying the rules by removing U.S. specificities that are not jurisdictions. or feasible for a multilateral approach, dealing with any different e needed ffective dates from used those the Model 1 IGA itself and building on what already exists for instance in the EU context and in the for 21 of anti ‐ money laundering standards. area Work in this area started at the OECD in 2012 and is proposals progressing OECD and G20 countries discussed draft rapidly. at their last meeting in March 2013 and the next meeting is scheduled for June. For the purposes of illustration, examples of areas where changes are needed include: such Thresholds Th  : Model 1 IGA provides a threshold amount below which an account does not have e reported but also allows financial institutions to report all accounts without applying a to be Thresholds may reduce the burden for some financial institutions and threshold. types of certain but also add ion), complexity, especially in a even eliminate any repor ting obligat accounts (or For a multilateral model, multilateral removing such thresholds could be a possible context. simplification. The EU Savings Directive, for has no such threshold amounts. instance,  Exceptions to reportable accountholders : With respect to individual accountholders the Model 1 IGA both residents and citizens of the United States. As most jurisdictions only tax covers th respect to need multilateral model would only not to cover residents. Wi residents citizens, the entities, the Model 1 IGA covers all types of U.S. entities but specifically excludes 12 categories of low compliant entities which are defined by risk/generally reference to U.S. legislation. Such an approach in a multilateral context, where every country would specify a list of different exceptions by reference to dom estic law, may difficult for financial institutions to operate and be may also be difficult to legislate domestically. developed. A simplified approach needs to be  diligence procedures : The due diligence procedures required by the Model 1 IGA could Due ficities, such as U.S. reliance on i U.S. be spec generally used with certain modifications to remove forms and the removal of identification requirements associated with citizenship. Inspiration could be taken from the due diligence procedures also included in the EU Savings Directive. Due diligence procedures may also have potential synergies in helping ensure that source taxation applied. rules are properly 20 The U.S. also developed another model intergovernmental agreement (the “Model 2 IGA”) which provides for direct disclosure account information from the financial institutions to the of U.S. IRS. The Model 2 IGA seems less compelling as a template for a multilateral standard for automatic exchange as it requires that all financial titutions set up individual communication lines with multiple residence jurisdictions. ins 21 The Model 1 IGA already refers to the FATF Recommendations, both for purposes of identifying the financial procedures. institutions required to report and for certain aspects of the customer due diligence 12

15  Exceptions to reporting financial institutions: The Model 1 IGA provides for certain categories of institutions that are explicitly excluded from the reporting obligations. Some of these financial 22 may inappropriate or unworkable in a multilateral context. exclusions be also a more level, common guidance will need to be developed to ensure 26. At detailed and standardisation of the reporting and due consistency diligence requirements introduced by their domestic rules. Given that implementation will be based on domestic law, it in is jurisdictions ensure consistency in implementation across to jurisdictions to important avoid creating unnecessary and complexity for financial institutions in particular those with operations costs more than one in country resulting from different interpretations in different jurisdictions. This will require common which is a logical outcome of the OECD work described above. guidance be is idance ing advanced with possible finalisation during work, detailed gu Building on ongoing  first half of 2014. the IT common or compatible 4. standards Develop reporting format a) The A standard format for the exchange of information is essential to ensure the 27. model remains effective and administrable. The OECD has brought together its member countries, the EU, an d epresentatives of the business community to assist in the development of a reporting format (“schema”) r 23 24 FATCA which is based on STF for implementing incorporates many elements of FISC 153. and It is that this will be flexible enough to be used for reporting and exchange under a multilateral expected subject to model, minor amendments. exchange Compatible transmission methods and agreed levels of encryption b) 28. a number of jurisdictions have experience in exchanging tax information through Already 25 In its effort tandards. to prepare for FATCA electronic agreed encryption s and using means United States is working to develop a implementation, secure data exchange process that intends to the allow jurisdictions to exchange data securely based on agreed encryption protocols and software compatibility This process could potentially be used by interested jurisdictions not only for solutions. t also for da ta collection. Thus there should be no reason to believe that what and exists bu exchange susceptible being developed should not what is to support automatic exchanges. be 22 For instance, the exclusion of local foreign financial institutions (FFIs) seems to be of limited relevance outside of the FFIs FATCA one of the conditions provides that where those context: identify an account of a non ‐ resident U.S. common a for Translated to report such accounts as if they were a reporting FFI. need they person, specified would ‐ reporting standard, this condition non mean that a local FFI would be required to report all accounts held by resident holders, which makes account the exclusion meaningless. 23 STF (Standard Transmission Format) is a standard format for automatic exchange of tax information which was developed by the OECD and uses XML language. 24 FISC 153 is the standard that is used for the EU Savings Directive. 25 EU countries exchange information under the Savings Directive mainly through email file transmissions over a secure Nordic network (CCN) maintained by the European Commission, countries exchange automatically under the Nordic mails. Convention over a secure network and other countries exchange electronically using encrypted e ‐ 13

16 The reporting schema and a first version  the related instructions could be finalised within the of second half of 2013. Secure transmission systems either can already exist or, where they do not, work established by interested jurisdictions, based on ongoing be in time for the first transmission of information. 14

17 ANNEX: USING RECENT BILATERAL AGREEMENTS TO ADVANCE TOWARDS A STANDARDISED MULTILATERAL MODEL The diagram below illustrates the potential for developing a standardised automatic exchange 29. model the Model 1 IGA and recent bilateral building agreements. The lines marked by the numbers 1 on and States United the (to cases both ed under a Model 1 IGA. In requir of flow the show 2 and information and United from to countries A the B respectively) the customer/accountholder provides States information to the financial institution which is then reported by the financial institution to the tax authorities their country of in residence. The tax a uthorities in countries A and B then automatically the exchange the information with the tax authority in United States and the United States automatically with exchanges shows the tax authorities in countries A and B, respectively. The line marked by number 3 the of leveraging on implementation of the Mod possibility low countries to exchange similar to 1 IGA el al other with information countries. Jurisdictions that are making to domestic law, including 30. adopting due diligence rules for changes financial institutions, for purposes of implementing a Model 1 IGA will have an interest in leveraging such from accountholders utomatic exchange relationships with respect to a ablish changes est to use them to certain jurisdictions that themselves are introducing other similar rules. Further, financial institutions around the world are currently making significant investments to comply with FATCA. Aligning a multilateral model with the Model 1 IGA will allow financial institutions to leverage on this i nvestment 15

18 and reduce their compliance cost. At the same time such a model also needs to take into account what has already been developed for instance in the OECD and the EU contexts. exists and Further, the Model 1 IGA has a number of the key features of an effective aut 31. exc omatic hange discussed above, therefore making it a key development for standardised automatic exchange model globally. 32. it contains detailed rules that provide for a reporting regime with a comprehensive scope: First,  It covers a wide range of financial institutions (including not only banks, brokers and custodians but certai n in also investment surance trusts and collective companies, vehicles, including hedge and private equity funds). funds provides for reporting on a very broad  range of financial information including account balance, It gross amount of interest/dividends/other income and proceeds from sale or redemption of income property a custodial account, and in from cert ain in surance contracts.  It requires reporting in respect of individuals and entities with an additional requirement that the financial institutions look behind certain entities to determine limits beneficial owners, which the for circumventing the model by interposing shell companies, trusts, opportunities not other corporate vehicles, whether taxable or foundations or . . Second, it includes a number of features to ensure the information that is exchanged meets 33 certain quality standards and can be effectively used by the residence jurisdiction including:  requirement to capture taxpayer identification numbers The (TINs) of accountholders where they 26 exist.  Detailed due diligence procedures to be followed by financial institutions in order to identify ‐ reportable accountholders. These procedures often rely on know your ‐ customer rules followed by institutions under applicable anti ‐ money laundering rules, which increases their financial and effectiveness reduces costs. lready – financial exist institutions reporting processes that a 34. Third, it relies on relationships and their domestic tax authorities and one tax authority exchanging to information with another tax authority and that have proven to work. Finally, – it is designed for global application. 26 In 1997 the OECD Council issued a recommendation on the use of tax payer identification numbers in the international context; see: http://search.oecd.org/officialdocuments/display documentpdf/?doclanguage=en&cote=c(97)29/final 16

19 This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the Cover page picture: © www.shutterstock.com - Business and communications concept delimitation of international frontiers and boundaries and to the name of any territory, city or area.

20 OECD REPORT FOR THE G8 SUMMIT LOUGH ERNE, ENNISKILLEN, JUNE 2013 Vast amounts of money are kept offshore and go untaxed to the extent that taxpayers fail to comply with A STEP CHANGE IN TAX TRANSPARENCY tax obligations in their home jurisdictions. Jurisdictions around the world, small and large, developing and developed, OECD and non-OECD, stand united in calling for further action to address the issues Delivering a standardised, secure and cost effective model of international tax avoidance and evasion. Co-operation between tax administrations is critical in the of bilateral automatic exchange for the multilateral context fight against tax evasion and a key aspect of that cooperation is exchange of information. The OECD has been a driving force in fostering such co-operation and has a long history of developing standards on all forms of exchange of information – on request, spontaneous, and automatic – and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and Article 26 of the OECD Model Tax Convention provide a basis for all forms of information exchange. A major breakthrough towards more transparency was accomplished in 2009 with information exchange upon request becoming the international standard and the restructured Global Forum on Exchange of Information and Transparency for Tax Purposes starting to monitor the implementation of the standard through in-depth peer reviews. Now, there is another step change in international tax transparency driven by developments around the globe, including in the United States and Europe, with unprecedented political support for automatic exchange of information. In April 2013 the G20 Finance Ministers and Central Bank Governors endorsed automatic exchange as the expected new standard. Anticipating these developments and in light of the increase in automatic exchange agreements, the G8 Presidency requested a report from the OECD to analyse how jurisdictions could build on the recent developments to implement automatic exchange in a multilateral context. This report responds to that request. It first discusses the key success factors for an effective model for automatic exchange of financial information, as they were identified in recent work conducted at the OECD and summarised in its report on automatic exchange delivered to the G20 in 2012. It then sets out four concrete steps to put such automatic exchange into practice including possible timeframes for the delivery of each step. The Annex provides background on the recent bilateral agreements based on the Model 1 IGA and how they can be useful in advancing towards a standardised automatic exchange model. www.oecd.org OECD Paris 2, rue André-Pascal, 75775 Paris Cedex 16 Tel.: +33 (0) 1 45 24 82 00

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